What next for UK housing?
The last couple of weeks have been tough for the housing market, with the mortgage approvals drop announced on 29 September coming as the latest shot in a barrage of negative data, suggesting the market could be on its way back into gloomy territory – and looking all the more likely to stay there for some time.
The Hometrack property survey on 27 September showed that August house prices for the UK fell for the first time since April 2009, while UK mortgage lending hit a sixteen-month low. The FSA, meanwhile, has been floating plans for stricter lending regulation, which seem likely to depress the market further. Data indicating a surprisingly fast recovery for the construction industry has also unsettled analysts, and could indicate a looming supply/demand imbalance.
Mortgage lending declines
Both the BoE and the British Bankers' Association recently produced mortgage approval reports which showed UK lending has tailed off over the last few months. The BBA data indicated approvals in August were down at 31,767 from 34,219 the previous month – revealing lending to be at the lowest level since April 2009. [1]
With mortgage lending providing a reasonably reliable signal of what the future holds in store for house prices and the wider housing market, it would appear that we could be in store for a slump.
Furthermore, if the FSA goes ahead with proposed lending restrictions, where banks will be unable to lend unless the recipients can prove their ability to keep up repayments, the Council of Mortgage Lenders' suggestion that house prices will fall even further seems a more than likely conclusion.
A surplus of supply
Recent figures from the Office for National Statistics, meanwhile, have listed the construction industry as the UK's fastest growing sector. [2] An imbalance of demand over supply has supported prices throughout the recession of the last couple of years, but that balance now seems to be tipping the other way as more houses are put up for sale. Any increase in new properties coming on the market over the coming years – such as could result from an increase in construction output – could reinforce this trend and put further downward pressure on house prices, prolonging any hypothetical slump in the market.
Flat house prices
On 30 September, Nationwide reported a negligible increase in house prices of +0.01% in September. However, on a quarterly basis house prices are down -0.9%, marking the first three-month decline since May 2009. Howard Archer of IHS Global Insight said '...difficulties in getting a mortgage, a housing supply/demand balance currently firmly in favour of buyers and a house price/earnings ratio above long-term norms are a poor combination of factors for house prices.' [3]
Take a position
A market cannot sustain an imbalance, but could the invisible hand of market forces be enough to steady the ship – will falling prices bring buyers back to the markets, increasing demand and buoying prices once more? Or will regulatory measures be required to set house prices back on the road to recovery? With an IG Markets CFD account you can take a position on house prices, or aternatively you can trade on relevant sectors such as Construction and Materials, Household Goods or Real Estate, as well as various commodities that might affect the construction industry in particular, from metals prices to the cost of a barrel of oil.
Opening an account is quick and easy. To start trading CFDs today, just apply for an account online.
Sources: [1][2] BBC.co.uk (23 September 2010), [3] Sharecast (29 September 2010)
Updated: 04/10/10
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