What next for UK housing?
It's been a tough couple of weeks for the housing market, with Wednesday's fall in mortgage approvals the latest in a series of gloomy reports suggesting the market could be heading into an extended rough patch.
Monday's Hometrack property survey showed that UK house prices fell in August for the first time since April 2009, while UK mortgage lending hit a sixteen-month low and the FSA's plans for stricter lending regulation seems likely to depress the market further. A fast recovery from the construction industry, meanwhile, could indicate a looming supply/demand imbalance.
Mortgage lending drops off
Mortgage approvals data from both the BoE and the British Bankers' Association shows UK lending has tailed off over the last few months, with the BBA showing approvals down at 31,767 in August from 34,219 the month before – the lowest level since April 2009. [1]
With mortgage lending considered a fairly reliable indicator of what lies in store not just for house prices but for the housing market as a whole, the data would suggest that prices are unlikely to rise anytime soon.
Furthermore, if the FSA goes ahead with plans to restrict lending where the recipients are unable to prove they can repay the money, the logical consequence for the wider market seems likely to be in line with the Council of Mortgage Lenders' suggestion that house prices will only fall even further.
A surplus of supply
The construction industry, meanwhile, has emerged as the fastest growing sector of the UK economy, according to figures from the Office for National Statistics. [2] The supply/demand imbalance which supported prices throughout the last few years has begun to tip the other way as more houses are put up for sale, and any increase in new properties coming on the market over the coming years – potentially from increased construction – could put further downward pressure on house prices and prolong any hypothetical slump in the market.
Flat house prices
On 30 September, Nationwide reported only the slightest increase in house prices over September (+0.01%). On a three-month basis, house prices are down 0.9%, marking the first quarterly 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 Adam Smith’s invisible hand steady the ship – and if so, in which direction? Or will regulatory measures be required to set house prices back on the road to recovery? With an IG Index spread betting account you can take a position on house prices, with our recently reduced quarterly housing spread now just 2 points. Alternatively, you can spread bet on relevant sectors such as Construction and Materials and Household Goods and Home Construction, 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 spread betting today, apply for an account online or through the IG Index iPhone app.
Sources: [1][2] BBC.co.uk (23 September 2010), [3] Sharecast (29 September 2010)
Updated: 01/10/10
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