November 13, 2009 9:30 am

Data suggest worst is over for housing market

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House prices in England and Wales rose modestly for the sixth consecutive month in October, underscoring the message from recent surveys that the housing market’s worst days are now past.

Data from the latest FT House Price Index show that average house prices rose by 0.7 per cent in October and prices are at levels last seen in September 2006, about a year before prices peaked.

Peter Williams, chairman of Acadametrics, which compiles the Index on behalf of the FT, noted that in Ocotber 2008 - just weeks after the collapse of Lehman Brothers sent the global financial system into a tailspin - prices fell by 1.8 per cent. “The data clearly support the view that the sharpest falls are now behind us and that the market has made a modest recovery, even if it is too early to talk of a sustained upturn,” Mr Williams said.

The data are in line with a fairly consistent message in recent months from other closely-watched indices, including those compiled by lenders. “Clearly prices have stabilised and some of the more damaging outcomes of house price falls - losses on sales, negative equity and reduced mobility - are beginning to diminish,” he said.

However, Mr Williams said his caution about whether this is a genuine recovery in housing stems from current economic conditions. Unemployment and underemployment remain high and there is a widespread expectation that the easy monetary policy which has helped make mortgages more affordable will begin to be reversed by late next year.

Moreover, some homeowners may be reluctant to place their homes on the market in the face of a weak economy and concerns about possible tax rises as the government seeks to repair its financial deficit, he said.

Also, the housing market is characterised by big disparities in the number of transactions by region. Sales volumes are still falling in the three most northern counties of England despite surging sales in others, notably the South West. The low level of transactions has led many commentators to speculate that a shortage of supply is the main factor driving the improvement in house prices.

Across England and Wales, there were 166,319 transactions recorded by the UK Land Registry in the three months through September, a 12.9 per cent rise from the level seen in the second quarter. But the third quarter total is still just over half the average volume seen in the 10-year average period 2000-2009.

Moreover, there are very clear differences in the way house prices have behaved relative to property type. For example, while prices of detached houses are up 33.2 per cent between the third quarter of 2008 and that of 2009, the price of flats is down by 11.4 per cent. Historically, flat prices in the years 2000-2009 rose by less than those of detached houses, but the disparity in performance was nowhere near as great as it has been during the past year.

Mr Williams noted that the relatively poor performance of flats may reflect the fact that these are frequently the properties of choice for first time buyers - whose entrance to the market has been constrained by lenders’ insistence on very large downpayments - or by Buy To Let (BTL) investors, who have also found funding more difficult to raise.

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