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From The Sunday = Times

January 27, 2008

Home economics: house prices and stock market = turmoil

A week of = turmoil on=20 world equity markets and drastic action by the Fed to try to avert a = recession=20 in America will have done little to bolster the confidence of = housebuyers=20 here

You=20 need Flash Player 8 or higher to view video content with the ROO Flash = Player.=20 Click here to = download and=20 install it.

A week of turmoil on world equity markets and somewhat drastic action = by the=20 Fed to try to avert a recession in America will have done little to = bolster the=20 confidence of housebuyers here. Although the fundamentals of the British = housing=20 market remain intact, there is a lack of confidence, which has led to a = sharp=20 fall in the number of properties that have changed hands over the past = year.=20 Prices, however, have not been so adversely affected. Most recent = indicators=20 have reported a slowdown in the rate of growth, with only small, = localised price=20 falls.

A lack of housing for sale, driven by the unwillingness of vendors to = commit,=20 is supporting the market. It is also likely to result in the number of = homes=20 sold falling close to 1m this year =E2=80=93 less than half the annual = 2m-plus of the=20 late 1980s. This is set to remain an important feature of the market for = the=20 foreseeable future.

It should be remembered that only two in five sales each year are by=20 households who actually =E2=80=9Cneed=E2=80=9D to move for job or family = reasons. The reality is=20 that the house-price boom of the past decade has been driven by = aspirational=20 buyers who have moved because they have been able to afford to, thanks = to lower=20 interest rates and the easy availability of credit.

These aspirational buyers are now sitting on their hands, much to the = discomfort of agents. Just over 5% of homes will change hands this year, = a=20 figure close to the all-time low. Expressed slightly differently = =E2=80=93 and perhaps=20 more alarmingly =E2=80=93 this means that the average household is = moving once every 20=20 years. In the late 1980s, it was more like once every eight years. =

Apart from the rise in stamp duty, which adds =C2=A324,000 to the = cost of a=20 =C2=A3600,000 house, the other reason for the fall in turnover has been = the move to a=20 low-inflation environment. Households could afford to move more often in = the=20 1980s, when double-digit inflation was rapidly pushing up incomes and = eroding=20 the real value of mortgage debts. The economic success story of the past = decade=20 =E2=80=93 namely low interest rates and low inflation =E2=80=93 has = delivered something of a=20 sting in the tail for the housing market. While low interest rates and = rising=20 incomes have seen us bid up the cost of housing, many households today = simply=20 cannot afford to move home. This supports house prices in the short = term, but=20 may also make them more volatile.

Confidence has certainly been dented, but demand for housing still = exists.=20 The move towards more realistic pricing is under way, and may well take = a=20 further 12 to 18 months; all-important will be what happens to interest = rates=20 and the economy as a whole. Although it provides useful support for = prices in=20 the short term, low turnover could have adverse consequences for the = market if=20 it persists. For many, the thought of being stuck in their home for the = next 20=20 years could be a call to action. Richard Donnell is director of = research at=20 Hometrack

David Smith returns next week home.economics@sunday-t= imes.co.uk=20

Have=20 your say

Stability is a good thing. After = twenty years=20 in the same houses, the young adults will still only need to pop next = door to=20 meet the people they played with as toddlers. That makes for a much = happier,=20 less crime-ridden society.

Malcolm McLean, Bradford, UK

Having read this individual's works = for around=20 6 months, this is the closest to an advert for VIs that I have seen thus = far.=20 And that is saying a lot, given the incredible lack of economics he has = shown in=20 the past (what he says matches only the economists working for VIs, = namely those=20 who put salaries ahead of self-respect and real economics). =

Demand for=20 housing still exists in the US. We also have repossessions rising toward = 1990s=20 levels without hitting 15% interest rates. At that time no one panicked = when=20 rates were at 8% and were even ok at 10%. That reflects that we were not = as=20 vulnerable then.

High interest rates are not the only = trigger...6% on=20 300k (noq) is the same as 15% on 100k (1990). This liquidity bubble grew = worse=20 than last time and will deflate worse as well. I am glad he thinks our = labour=20 market will not be affected by the coming recession in the US...it will = be the=20 same as 1991 rather than mild like 2001...maybe as bad as 1981 (seems=20 increasingly possible).

Raj, London,

Wait the BTL brigade to exit

Richard, Richmond,

Nice little 'gentle' advert = Richard....hehe..=20
Guess you are under pressure from all those agents begging for some = good=20 news vibes. Especially with all those expensive tyres to buy! =

Ten years=20 up......Four years down

Next will be mass unemployment and it is = all so=20 unnecessary. If interest rates where kept up in line with the right = measure of=20 inflation there would have been no consumer boom/property bubble. =
Prices=20 here in Aylesbury are in freefall and big local builders Barretts and = others=20 have just laid off 50% of their workforce with the rest just finishing = projects=20 already started.

In any case, let the market decide... and it is = doing

george, aylesbury,

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Navigation - link to other main sections from = here

Home economics: house prices and stock market = turmoil

A week of = turmoil on=20 world equity markets and drastic action by the Fed to try to avert a = recession=20 in America will have done little to bolster the confidence of = housebuyers=20 here

Have=20 your say

Also in Buying & Selling

Also in Property

Explore Buying=20 & Selling

Times=20 recommends

Area = guides

At home with Patrick Cox

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