A poll of 23 market watchers last week resulted in a stark forecast for homeowners looking to put their house on the market.
Bad news for boom homeowners
Also affected are the homeowners who bought their home at the height of the real estate bubble 4 years ago, as their property value has eroded by as much as 20% as a result of the recession and slow recovery.
The poll showed that housing prices will fall by 4% more before being able to stabilise again. This is due to what Howard Archer of HIS Global Insight lists as “consumers’ squeezed purchasing power, tightening fiscal policy, a softening labour market and worries over the economic outlook.”
Archer stated that all of these factors “will limit potential buyers and weigh down on house prices.” He also stated all of these factors outweigh the fact interest rates are kept purposefully low to entice borrowers to purchase houses.
In the current state of the economy, banks wary of risk have been more choosy in lending mortgages and have imposed harsh new conditions. Coupled with this, the demand for mortgages has dropped as well due to households with tighter budgets than ever.
All of this has led to an almost continual fall in housing prices, which fell 1.2% in August. The house price to earnings ratio, estimated by Halifax, fell to 4.4% in the same month, its lowest since the height of the recession in 2009. Still, the Bank of England is set to keep its low 0.5% benchmark interest rate until at least 2013 in the hopes of encouraging investment.
Peter Dixon at Commerzbank said that while the current financial conditions may sound attractive for potential buyers, “the barriers to new entrants remains high.” This is due to the fact that banks are making credit harder to obtain, forcing those hoping to get on the property ladder to have “prohibitively high deposits.”
The good news for prospective buyers is, as Ray Boulger of mortgage advisor John Charcol put it, “The fact that house prices haven’t moved much over the last year is a good indication that current prices are close to fair value.” For those than can manage a high deposit, the downturn in the housing market is a much-needed break in hard financial times.