Future Market: Will Unemployment Continue to Increase?

publication date: Oct 24, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

House Prices - Forecast

Future Market: Will Unemployment Continue to Increase?

Knowing what's going to happen in the future property market is a tough thing to get right for any pundit at the moment. In the current property market, predicting this at a national level is almost a fool's errand too as pockets of the country and certain property types are holding up remarkably well, whereas in some areas, the ‘double dip' in property prices is well and truly underway.

What will happen to Christmas 2011?
Since the credit crunch, market performance hasn't been particularly successful. Volumes have typically dipped over the summer, causing prices to fall, stabilise through the winter months, increase from January through to May or June and then slide back again.

One of the biggest drivers of people buying and selling their homes is confidence. This is measured by the GFK NOP consumer survey and gives an indication of the impact on consumer confidence of all the bad news over the summer. According to GFK, the confidence index for major purchase remained at -31, which is down by eleven points versus August 2010, but the same as July. To put this into context, during the pre-credit crunch months in 2006, the scores for confidence making major purchases were -5 to -7.

Interestingly though, GFK comment that people are starting to learn to ‘live with the recession' backing up thoughts that perhaps the bad news over the summer won't impact as much on the property market as it might have done over the last few years:- "while there has been a 4-point drop in consumers' general view of the economic situation over the next 12 months, there has been a small improvement in how they view their own financial situations, indicating people are starting to adapt to the austere economic climate."

Role of the Media
The media definitely plays a major part in what happens over the next three months as good news increases confidence and bad news reduces it down, potentially stalling the market.

Recent ‘news releases' include:-

Daily Mail

Unemployment Figures
What will impact on the confidence of people to buy and sell over the winter period, is news of consistent increases in unemployment. The recent news of unemployment rising by 80,000 (the highest for two years) is not a great motivator to encourage people to commit to buying a home. Worst still, the devil is in the detail. Most of this unemployment has come from public sector workers. This is significant as they tend to be settled and own homes as opposed to rent, so may in the near future if they can't get another job end up having to sell their home. It's this that could drive volumes and prices down even further.

More news about BAE systems might not cause a problem nationwide, but from a property perspective in areas such as Brough in Lancashire, it could cause serious problems from a buying/selling and renting perspective.

The number of mortgages is also a useful measure of what's happening to buying and selling activity in the future. July's figures are actually one of the better performances this year as well as the first time when more mortgages were granted for house purchase than last year. However, the comparison to the heights of 2007 mortgage approvals shows lenders are offering 60% less mortgages than they were pre-credit crunch. 

Bank of England Aug 11

Another indicator of what's likely to happen in the future is looking at the auction market. Although it's impossible to compare auctions on a month on month basis due to high levels of volatility, we can see whether there are more properties being sold via auction than the previous year and gain an idea of how active property investors are. Typically when auctions get more lots, but the average number of lots sold is low, then the market is likely to be stalling. When the auctions start to lose lots but the average number of lots sold goes up, it suggests investors are buying and the market may be about to start moving forward again.

EIGroup Auctions Aug 11

According to EIGroup's figures, the auction market remains buoyant with huge numbers of lots coming through in the busy month of July. The number of properties coming onto the market continues to be higher than last year - suggesting sellers are struggling to sell via estate agents. And, no doubt with some of the increased levels of lending for buy to let investors, 70% or more of properties that end up at auction are being sold.

Taking the past, present and future indicators into account, the forecast summary for the Autumn run up to Christmas is:-

  • New Homes - slightly lower volumes, prices stable with some slight falls.
  • Second Hand Homes - some falls towards Xmas from Spring this year, but likely to be on a par with 2010. 

For wealthy areas in London and around the rest of the UK, where equity levels are high and cash buyers exist, prices are likely to continue to be stable or slightly increase. In areas heavily dependent on government and local authorities for employment, activity is likely to be low which will continue to drive down prices month by month.

Our long term forecast is areas/properties which are already showing signs of property prices heading towards 2007 heights will continue to grow steadily, in line with inflation. Properties and areas which are still showing prices at around 2005 levels are unlikely to grow for at least the next few years.

Property Market versus heights of 2007
Whatever is happening statistically month on month and year on year, it's important to be aware we are still a long way away from a housing market recovery versus the heights of 2007, apart from some areas in London. Prices remain at least 10% down versus pre credit crunch levels. More importantly the number of people moving is not increasing at all. In fact we are selling up to 60% less homes than pre credit crunch. Building of new homes also remains devastatingly low at just 100,000 homes a year when experts suggest that to accommodate newly formed households, we should be building over 250,000 homes.

The lack of moves and new home building means less money being spent in the economy and less invested in houses which are desperately needed for our growing population and household growth.

On a more positive note the private rental market is having a marked difference in this property recession versus 1990s. Many headlines suggest (unfairly in my view) that buy to let landlords are crowding out first time buyers. However, the reality is good buy to let landlords provide a real alternative to buying.

If you are a first time buyer, why would you purchase a property when you can typically rent what you want where you want? If something goes wrong such as the boiler or shower, someone else takes the brunt of sorting the problem out and paying for it! Not only is there little motivation for people to buy, due to increased legislation over the last 10 years, many rental properties are at a high standard versus homes owned (think of the huge number of new build city centre flats bought by investors).  In today's market you can buy a house which is a death trap, if you rent a home which is a death trap, as a landlord you are likely to be prosecuted and end up in jail!

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