House prices: Heading south | Editorial
By the turn of this year, the housing market was enjoying a very fragile recovery, but in the last few months it has begun to suffer a relapse
Let us start with two propositions. First, house prices are going down. And second, that is a very good thing.
The first proposition is riskier to make but rather more straightforward – because if you want to see what a double-dip recession actually looks like, just take a look at a graph of house prices over the last few years. From around the time Northern Rock collapsed in 2007, prices went a long way south. At the tail end of 2008, after governments had contained the financial crisis and put the economy on life support, prices began to come off the floor. By the turn of this year, the housing market was enjoying a very fragile recovery, but in the last few months it has begun to suffer a relapse. That trend was confirmed by yesterday’s survey from Nationwide. Crash followed by recovery followed by relapse: the housing market provides practically a textbook definition of a double dip.
Nor is there likely to be a letup in the downturn. The coming spending cuts will cost both economic growth and hundreds of thousands of jobs – not the assertion of a newspaper, but the admission of this Conservative-led government in its budget red book. It would be a brave and possibly foolhardy person who took out a stonking great home loan if they were anxious about their job.
Sure enough, the surveys show that prospective new homebuyers are not registering with estate agents, even while surveyors report a big surge in sales instructions. That formula alone is enough to suggest that house prices are heading for a fall – but throw in the fact that homebuilders have seen a slump in sales and, crucially, that banks and building societies are still loth to give first-time buyers mortgages, and all ingredients are present and correct for a fall in house prices. That may not mean a plunge, at least not yet – that would probably only happen if droves of sellers had to flog their homes because of mass layoffs, say. What we are more likely to see over the next few months is an inching down in house prices as buyers cling to the sidelines and sellers refuse to do more than trim the asking price.
Contrary to what you might read in some newspapers, falling house prices would be a blessing. The house bubble of the noughties has handed billions of pounds to the older generation from young people who have had to take on giant mortgages to buy their homes. That was unsafe both for the purchasers and for the wider economy. But runaway prices also served to reinforce the wealth gap as rich parents were able to bung their kids big deposits, while middle- and working-class children got no such leg-up. An end to that unfair, unsafe regime can only be a good thing.
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