Housing market predictions

Underlying factors in the recovery of the market

The Nationwide’s, chief economist, Fionnuala Earley, form Britain's largest building society, believes the housing market predictions for 2009 are unrealistic in such a fickle climate and may even add to uncertainty.

Ms Earley commented that despite the recession seen in the final quarter of 2008, the economy may benefit from the built-up demand of first-time buyers who will invest when the market begins to recover.

She said, "In these turbulent times the uncertainties around all forecasts are greater than usual. If the economy goes into a deeper recession we should expect to see a slower recovery in the cycle. However, if the economy recovers more swiftly, we may expect a faster turnaround in the housing market.

"Three main factors have been behind the sharp fall in prices, credit conditions, expectations and affordability. Conditions remain highly volatile going into 2009, making it more difficult than usual to arrive at a specific forecast for house prices. In these unsettled times a forecast subject to frequent change could itself add to greater uncertainty."

Continuing, Ms Earley also highlighted the promise which first-time buyers may bring to the economy, following a successive five year period of falling demand from those wishing to get onto the property ladder. This falling demand, she said, could help the housing market to re-stabilise by initiating an influx of buyers when affordability becomes easier.

She added, "An important underlying factor which we expect to play a part in the recovery of the market is the likely build-up in pent-up demand since 2003.

Since then, first-time buyers have made up only 33 per cent of transactions, compared to an average of 46 per cent since 1979. If one assumes that the same proportion of first time buyers would have liked to have entered the market, it is possible to work out how many have been 'locked out.'

"This adds up to about 750,000 buyers over the 2003 to 2007period, which is more than the total number of house purchase transactions expected in 2008.

"But it does appear likely that a substantial pool of pent-up demand has been building up, which could make its way back into the market when affordability improves and economic conditions and house price growth expectations stabilise."

The Royal Institution of Chartered Surveyors (Rics), have also commented that new buyer enquiries climbed to their best levels since October 2006, although the crucial factor to a recovery in the sector is the availability of funding.

Rics chief economist, Simon Rubinsohn, said, "Lenders are likely to remain cautious in the near term in the absence of any 'guarantees' on mortgage backed securities. This, coupled with an increasingly gloomy economic picture, suggests that house prices will continue to decline in 2009.

"However, transaction levels do seem to have hit a floor with some signs that opportunistic investors are returning to the market. We expect a modest rise in sales over the course of the next year from the very low levels seen in recent months," he concluded.