Can Easter save the housing market?
It was the housing market that led us into this financial mess. Is it ready to lead us out?
Easter is the traditional start of the house buying season: the festival could do more
to kick-start the market than the UK budget.
Rising house prices gave people confidence. Confidence
to spend more on houses; confidence to buy consumer goods.
It gave us equity to withdraw and spend, providing the whole
of the country’s economic growth before it stopped; it
gave us a comfort cushion that justified our lack of saving
or proper pension provision.
That property price inflation also gave the banks
confidence to lend, including providing high-value
mortgages. It also gave them confidence to buy
mortgage-backed securities, including those tied to
sub-prime loans in the US where the same confidence trick
was at work. It also gave banks confidence to lend to
housebuilders – then to buy them.
And when the whole house of cards collapsed it took
the economy and the banking system with it.
The Bank of England investigated the potential housing
effect long before the crash and concluded, completely
wrongly, that it was not the driver of the UK’s apparent
growth. It was, and now the property bubble has burst it is
the brake on he economy.
People aren’t moving home. They aren’t buying
things for their homes. The erosion of their equity has
demolished their confidence. Yes, the possibility of losing
their jobs scares people, but no so much as losing their
home and the reason jobs are going is because property
owners have lost their confidence and are not buying cars,
meals, furniture and all the products that provide jobs.
Can the property trend turn and lead the economy out
of trouble? There are green shoots in that market, First,
mortgage rates have plummeted; normally in recessions rates
rise and exacerbate the problem. Secondly, the annual rate
of price falls will shortly peak at about 20 per cent and
then diminish: prices will still be falling, but a cut in
the rate to 15, then 10, per cent will look like recovery.
Next, expect to see sales volumes start to increase,
even if prices do not immediately follow. However, do expect
odd months when prices do not fall at all and then see if
these rogue months develop into a trend.
Further, mortgage availability will improve, if only
because of government intervention. And the ending of the
stamp duty holiday in September should act as an incentive
to buy during the summer.
And then there is the Easter factor. Properties look
better in sunshine; people want to move into their new home
for summer; the long light evenings are a chance to search.
It provides a fillip to the market in normal years; it could
just provide the kick-start to turn a falling market in
2009.
