Nationwide: UK house prices down 15.9% from last year
The data are in for house prices in the United Kingdom and they are not good. Prices have now fallen 18% from their peak in October 2007 according to the latest Nationwide Building Society survey. They were down a massive 2.5% in December 2008 alone. If you recall, I said November’s survey showed that prices had dropped 13.9% in the year to November, with the losses in December, this number has accelerated to 15.9%- one reason I predicted the United Kingdom will suffer a wave of defaults in the coming year.
The Nationwide Chief Economist Fionnula Earley does know how to put a positive spin on the numbers, though.
“The price of a typical house fell by 2.5% in December, a stark contrast with the modest fall of 0.4% in November. This brings the annual rate of fall over the last twelve months to 15.9%. However the three-month on three-month rate, which smoothes the volatility often seen in the monthly numbers, shows a fall of only 4.2% in December. This is its slowest pace since May 2008.”
Nevertheless, one should note that the fundamentals in the U.K. are much worse than they are in the U.S. Witness the charts that Nationwide released in their press release on house prices to income.
What you should notice is that, despite a correction in house prices and consumer expectations for future appreciation, houses remain extremely unaffordable to the average British citizen. In non-bubble times, mortgages were granted for a maximum of three or four times income. With house prices at 5.5 times average income a steep fall is still in order.
Earley goes on to show graphs that demonstrate housing starts have plummeted and concludes that pent up demand will play a part in the eventual recovery. I would be very cautious about predicting any recovery in housing in Britain. Right now, prices are still too high and the recession is only just beginning to bite.
Below is a BBC article and a video interview with Earley in which she shows a healthy nuanced view of the situation
Sources
2008: A Difficult Year For The Housing Market – Nationwide Press Release
House prices ‘fell 15.9% in 2008’ – BBC News
Yeah, things are so worrying, both Nationwide and Halifax are declining to offer a price forecast for the year. The Nationwide data on Price earnings and trend price rates clearly suggest prices may fall by a further 20% in 2009.
JKA
JKA, I like your blog. So, thanks for your comments. You have a nose to the ground in the UK as to what is happening. I see the U.K. as being in a worse situation than the U.S. because the housing market there (and in Ireland) had become so unaffordable. It was like California.
What are people saying on the streets? Is this deterring first time buyers?
Obviously, house price falls of 20% will turn a recession into depression because banks like the Halifax are very leveraged to property. I can't see how this doesn't mean a catastrophic capital shortfall for many banks in the UK.
Thanks Edward,
First time buyer ratios closed at 4.4 in Q4 08 compared to a long run average of 3.3. So in fact prices have a further 25% fall to encourage the FTB's back. They are faced with several hurdles, a higher LTV ratio now required, and a lack of liquidity in the mortgage market. UK major lenders are faced with a £160bn rollover requirement over the next three years according to the Crosby report commissioned by HM Treasury. Add to this rapidly rising unemployment, falling prices, threats of wage cuts. The FTB's have been priced out for some time now and will not make a rapid return.
Their absence has been filled by the Buy to let Market particularly over the last four to five years but this sector is now in serious trouble. One or two of the major clearers have a big exposure in major city two bedroomed apartments in London, Leeds, Manchester and Birmingham. Highly leveraged with high LTV's and falling yields, this market has long been an accident waiting to happen.
The banks are faced with large shortfalls on commercial property estimated at some £80bn*, and large buy to let exposure (quasi commercial) as well as risks in the domestic property market. Last cycle the house market didn't recover for five years. This time will not be any better.
Most of these phenomena* have been covered in recent posts.
Thanks
JKA
Speaking of LTV, first time buyers are also being asked to fork over a 40% deposit (https://www.thisismoney.co.uk/mortgages/article.ht…
One would have thought increased foreclosures would boost the buy to let market, however BTLs are also facing competition from a rising tide of reluctant landlords (https://www.guardian.co.uk/money/2008/dec/14/prope…I wouldn't be too surprised to see a rise in speed renting events (https://www.telegraph.co.uk/property/rentingproper…
Repossessions of buy-to-lets are now ahead of owner occupied property according to the Council of Mortgage Lenders, and this gap is expected to widen in 2009. Buy-to-let mortgage approvals have fallen 58 per cent year-on-year according to CML data, and maximum loan-to-values have fallen from 85 to 75 per cent.
JKA