Nationwide: UK house prices rise for fourth month
Nationwide released data from its August 2009 house price index showing that house prices rose 1.6% from the previous month. This is the fourth consecutive month in which house prices have risen in the UK, bringing the year-on-year change to –2.7%.
Martin Gahbauer, Nationwide’s Chief Economist, said low interest rates are behind the recent rise (emphasis added):
“The exceptionally low level of interest rates offers some explanation for why house prices have not repeated the very sharp falls of 2008. There are two main channels through which the low level of interest rates has impacted the housing market. First, mortgage payments for existing homeowners – especially those with tracker or standard variable rate loans – have been reduced substantially. Before the MPC began cutting rates, the average interest and principal payment per mortgage holder represented about 38% of the average post-tax labour income. Following the steep cuts in base rate, this has fallen to just 28% of post-tax income, despite historically high levels of outstanding mortgage debt. The fall in debt servicing costs has meant that fewer homeowners are under immediate financial pressure to sell than might have been expected in a recessionary economic background with rising unemployment. Partly as a result, fewer second-hand properties have come onto the market than is normally the case in recessions, which has contributed to moving the balance of supply and demand more in favour of sellers over the course of 2009.
In addition to limiting the supply of second-hand homes, lower interest rates have also had an impact on the demand side. Even though house prices remain high relative to earnings, the fall in interest rates has improved the affordability of mortgages for those looking to buy a home. This helps to explain the strong rise in new buyer enquiries reported by estate agents for most of 2009. Although not all of these enquiries are turning into sales, house purchase transactions have continued to slowly increase from the record lows reached in late 2008.”
Obviously, this leaves open to question what will happen when interest rates rise. Certainly, by that time, the economy will be on sounder footing and the financial pressure to sell will be less.
The rise in residential property prices in the UK does show the market has housing stabilised. Definitive confirmation would come in the winter when the market is less buoyant. For now, it seems the worst is over.
House price bounce extends into August – Nationwide
Ok, and “Eurozone private sector loans dry up” – https://www.businessworld.ie/livenews.htm?a=2469051;s=rollingnews.htm also “UK hardware spend falls to lowest level since records began” – https://www.v3.co.uk/computing/news/2248544/uk-hardware-spend-falls-lowest .
Anecdotal, yes, but “green shoots” they definitely are not.
I’m still not tempted to eat the veggies. There is just too much rot around them yet to call for a recovery.
I believe what is driving this mini-bubble is of a very different nature than what drove the mega bubble that preceded it and wasn’t allowed to fully unwind. Perhaps it has yet to do so. The loan to value ratios are much lower, and buyers are being asked to fork up a much larger deposit. So it must be the cash rich who are largely behind the recent price rises. They are the property investors who got out of the last bubble in time and who now see current rent yields are higher than the interest they’re earning on their cash and so are diving back into the market. Their strategy seems to be to take advantage of low interest rates and the house price dip, then rent out the properties whilst they wait out the bust. Many are making the mistake in believing the house price deflation was due to the liquidity crisis, and not an insolvency crisis. Fear of insolvency by the lenders is putting a ceiling on LTV ratios and mortgage affordability for first time buyers. What happens when we run out of cash-rich buyers while at the same time the rental yields are forced lower thanks to all the investors jumping back into the market with no one to sell to?
Wag the dog, it is amazing how much people believe low interest rates and a
flood of liquidity can change the underlying supply demand imbalance. Yes.
Housing is more afforable and at present interest rates cash rich buyers can
make out well. But rental yields and other traditional measures like price
to income suggest the market is still above trend in places like London.
We have allievated the acute financial distress but the lack of
affordability will become more apparent when interest rates normalize.