Watch for the good news on housing
There’s nothing new in reporting bad news about the housing market, so here’s the DoF guide on how to spot green shoots.
Housing has been the driver of the UK economy but the driver has had a crash. Here however are five key milestones to watch for on this whiteknuckle ride.
1) House prices fall further than they did in the 1990s. This one is easy: we’re already there. When, in October 2008, the Halifax publishes its index for September it will show prices have already plunged further than the 13.1 per cent decline of the last crash. This time it’s happened in 13 months however; then it took nearly four years, from May 1989 to February 1993.
2) The annual decline falls. The year-on-year change turned negative this year and the decline is rising rapidly: the latest seasonally adjusted Halifax index shows prices 10.9 per cent below their level a year earlier. Expect this to rise to about 20 per cent next spring. However, the annual rate will then diminish.
That means things are still getting worse but they are not getting worse at such a bad rate. And remember, while next year’s fall of, say, 12 per cent will be better than this year’s 18 per cent, they have to be compounded together.
3) The monthly falls decline. There is no clear date for this. Monthly falls are averaging nearly 2 per cent at present but wobble wildly. There could be odd months in 2009 when prices rise but a trend of monthly rises should emerge in 2010, marking the bottom of the market.
Whenever it comes (and forecasting merges into guessing here) it will be heralded as the first rise since April 2008 and will be celebrated as if the all-clear has been sounded. Beware of false dawns, but the trend will emerge.
4) The annual decline moves back to single-digits. The fall went above 10 per cent in September; it will be the winter of 2009/10 before it goes below again.
Remember though, just as the annual rate remained positive until this April even though prices had fallen consistently for eight months, the same statistical trick will mean the annual rate remains negative long after prices start rising.
5) Prices show an annual rise. This might even be delayed until 2011 but prices will have been rising for most of the previous year. It will be the first annual rise since April 2008 however and confirm the housing slump is over.
The last slump lasted 45 months. If this recession lasts that long prices will not turn up until April 2011. This time we’re getting the slump over with quicker however, so we’ll emerge sooner. It is already as deep as the 1989/93 slump.
This recession will be deeper however. Compared with the 13 per cent fall from top to bottom last time, I expect about 30 per cent this time. That’s the 1 per cent in the final months of 2007, an estimated 18 per cent this year and a probable 12 per cent next year with a possible small fall in 2010 too, even though prices will have started rising by the year-end.
That sounds a gloomy prediction, but tick off the milestones as they pass and the good news starts coming through from spring 2009 and gets better. Even if the market is still in a slump, it is the improvement that matters and that will affect market sentiment, helping turn the market. See it as a glass half full and the worst will soon be over.
