Falling confidence hits housing market

Latest figures from the Halifax show house prices in the UK fell by 3.6 pc in September. The average UK house is now valued at £162,096 according to the bank.

Latest figures from the Halifax show house prices in the UK fell by 3.6 per cent in September. The average UK house is now valued at £162,096 according to the bank.

Monthly house price figures can be very volatile – particularly at times like the present when the volume of transactions is below historical norms but taking a slightly longer perspective it seems the recovery in house prices that took place in 2009 has petered out. The trend in house prices is sideways to downwards. Prices in the third quarter were 0.9 per cent lower than in the second quarter and the recent peak in prices was in January this year.

Earlier in the year, the Halifax said that house prices had stopped increasing because there had been a rise in the number of people putting properties on the market. But the latest figure suggests additional factors are now in play.

In particular, there has been a marked drop in consumer confidence since the ‘emergency budget’ on 22 June caused by increased worries about the outlook for employment, the prospect of public spending cuts and the planned increase in the standard rate of VAT. It is likely people have become more reluctant to move home, or will only do so if they can negotiate a lower price.

Is this a good thing or a bad thing?

In the short-run, a large and sustained fall in house prices would undoubtedly increase the risk of a period of disappointing economic growth and perhaps even a ‘double-dip’ recession because falling house prices, sluggish consumer confidence and weaker consumer spending would all feed off each other.

From a longer-run perspective, though, increasing house prices should not be welcomed. Economists are almost unanimous in agreeing that growth in the UK economy needs to be tilted away from debt-fuelled consumer spending (supported by higher house prices) towards exports and business investment. Furthermore, house prices are still at very high levels relative to average earnings in the UK. This makes it very difficult for young adults to take a first step on the housing ladder.

UK-house-price-to-average-earnings-ratio

So, the fact that house prices fell so sharply in September might be a cause for concern – but an extended period of flat – or slowly falling – prices would be beneficial for the UK economy.

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13 Responses to “Falling confidence hits housing market”

  1. Brit Lefit

    RT @leftfootfwd: Falling confidence hits housing market: http://bit.ly/dkpqxa reports @ippr's Tony Dolphin

  2. Rick Muir

    RT @leftfootfwd: Falling confidence hits housing market http://bit.ly/dkpqxa

  3. william

    Falling house prices is a good thing.one of the unintended consequences of GB’s change to the system of bank regulation(ie.no regulation)was an explosion in mortgages,hence house price inflation,and a wealth transfer from one generation owning a house,against another trying to buy.This is not conducive to a happy society,the cost of a house OBLIGES mothers to go out to work and so on.Housing is an inert asset, it does not get better through reinvested profits(except for DIY).A stable house price market is desirable, ie if you live in or near central London the market will be 20 percent lower in 2 years time.Primrose Hill,you have been warned.

  4. Billy Blofeld

    You can smell the Labour party willing a double dip recession on the country.

    Unleash the Unions…….

  5. Mark Stevo

    Oh come on, are you saying that under Labour house price would have been sustained at these, widely recognised, inflated levels? This has less to do with falling consumer confidence and more to do with a Reality Sandwich.

  6. Kat Jaff

    Falling confidence hits housing market | Left Foot Forward: Latest figures from the Halifax show house prices in t… http://bit.ly/a3YoUZ

  7. lat hat nam

    Falling confidence hits housing market | Left Foot Forward: Latest figures from the Halifax show house prices in t… http://bit.ly/a3YoUZ

  8. HomeBuyer

    Falling confidence hits housing market | Left Foot Forward: Latest figures from the Halifax show house prices in t… http://bit.ly/a3YoUZ

  9. Imran Hussain

    Falling confidence hits housing market | Left Foot Forward: Latest figures from the Halifax show house prices in t… http://bit.ly/a3YoUZ

  10. Anon E Mouse

    Tony Dolphin – Why do you attempt to make the case for falling house prices directly linked to the emergency budget?

    You make a false statement and then ask a question based on the false statement to try to add some validity it seems.

    The IMF agree with most other commentators that since the peak in July 2007, UK house prices have fallen considerable. The main reasons for falling house prices are:

    Difficulty of Getting Mortgage due to credit crunch.
    Low affordability (high house price to income ratios).
    Economic recession and rising unemployment.
    Nobody want to buy when house prices are falling.

    In 2007 we were under a Labour government when the house prices started to fall – this highly partisan article has no basis in fact.

  11. Mike Thomas

    This article should be entitled: Correlation does not imply causation. House prices do not correlate to economic growth.

    Look at the period around 2005, prices dipped? Why? Mortgage draw-downs slowed markedly. The BoE had upped interest rates to remove inflationary pressures from the economy, using the RPI measure. House prices were one component of that inflation especially on the RPI measure.

    So what did Brown do – move to CPI and hey presto inflation disappeared.

    What is happening at present is we have now is an even worse period of deleveraging than the event put in place around 2005. I notice one graph is missing, which is net draw-downs from existing mortgages, it’s currently a negative figure. People are choosing to pay down their mortgage which is affecting the market.

    That will have more to do with suppressing consumption by influencing aggregate demand. Combine this with falling living standards thanks to inflation and unemployment and that explains the anaemic economic growth.

  12. Mr. Sensible

    Mouse, are you kidding?

    Of course no one wants a double-dip recession.

    But that is the risk this government is taking with the economy.

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    […] Market and Econo.. Fear, Desperation and Doom Describe the Housing Market : Welcome To Jim Sin.. Falling confidence hits housing market | Left Foot Forward The Government’s Housing Subsidies Are Screwing Families And Homeowne.. Single-Family Housing […]

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