Future Market: Is the Property Market driving the recession or will the recession drive prices down further?

publication date: Jun 20, 2012
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books
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Future Market: Is the Property Market driving the recession or will the recession drive prices down further?

The property market to date ‘on average' has pretty much been in the doldrums. Visit our market reports for Past and Current Property Prices. To date, we've seen a 20% fall in property prices and a 50% fall in volume since the credit crunch. The market itself has pulled back on average price wise to around 10% below the heights of 2007. Sales volumes though remain very low compared to pre credit crunch norms and research and data so far shows no signs of the market recovering, even in areas where property prices are performing well.

Much of what happens to the market for the rest of 2012 will depend on how confident people are to buy a property. This confidence will depend on figures from the media which will include unemployment levels, inflation, what is likely to happen to wages and especially what happens on the mortgage front as well as how they report the property market.

Consumer Confidence
According to the GfK NOP index "consumer confidence is in the doldrums" and the index has hovered around -30 for pretty much the last 12 months*. This suggests it's unlikely anyone will change their mind soon with regards to wanting to buy or sell a property. So for the future, the market isn't likely to move upwards anytime soon without an improvement in confidence.  * Research carried out by GfK on behalf of the European Commission

Unemployment Figures and Wages
Unemployment figures are likely to continue to rise over the summer months, despite the extra work that tends to exist during the summer season.

According to the Office of National Statistics, the unemployment rate for the first quarter of 2012 was 8.3%, which despite a reported 0.1% fall, really means unemployment remains high versus pre-credit crunch levels and 172,000 less people were employed from a year earlier. Although pay increased by 1.1% versus the previous year, it was down quarter on quarter and way below the levels of inflation, so in real terms, wages have fallen.

Some forecasters such as the CEBR suggest unemployment will continue to increase to up to 10% by 2016, while others are less pessimistic and think unemployment will peak in 2013 at 9%.

The critical impact that talk of unemployment has on the property market is when it's rising, it holds back demand as people lose confidence in committing to buying. The second impact it has, which has a bigger effect on house prices, is long term job losses mean people may end up having their homes repossessed. Although this hasn't hit as hard as it did in the 1990s due to the low interest rate and mortgage lenders working more closely with home owners, it is likely to rise with increased unemployment.

According to the Council of Mortgage Lenders "The CML's current assessment is that a greater number of stretched households are likely to find it more difficult to cope this year (2012), despite continuing forbearance policies by lenders, as upward pressure on arrears and repossessions will be exacerbated by the weakening employment market. Hence we predict an uptick in repossessions over the course of 2012".

Their forecast is for repossessions to increase by 25% from 36,000 in 2011 to 45,000 in 2012, but still way off the 80,000+ repossessions seen in the 1990s recession.


Latest mortgage figures show an improvement so far this year versus last for new mortgages, although the data for March shows this increase has dropped off and is likely to continue to show a fall through to April and the summer months, especially as increases in mortgage rates by a half to one percent are kicking in.

Bank of England - Mortgage Data

And CML believe after this flurry of activity driven by first time buyers and buy to let investors, with the increased mortgage rates "We would be surprised if we did not see a short-term drop in transactions, following the end of the stamp duty concession, especially as it will take some while for NewBuy transaction levels to build."

The auction market does help us see what's likely to happen in the future buying and selling market, as properties are sold ‘instantly', and the more properties going through auction tends to mean less are being sold on the general market.

The EI Group monitors auctions across the UK and their figures suggest a buoyant month for March, typically one of the busiest months of the year from an auction perspective. 72% of lots were sold in March 2012, one of the highest figures achieved on a monthly basis and, versus last year, sales showed a 10% increase in value, despite only a 2.5% increase in volume sales, suggesting the average price of a property sold via auction is higher than the previous year.

Overall, the auction market is performing well, reflecting a quieter general market and according to EI Group, "Residential sales raised over £500million in Q1 2012 versus Q1 2011, more importantly this represented a rise of nearly 15% in the value of property sold".

Future 2012 Property Price Market Predictions

Based on the above market data and analysis, it is likely that the Summer of 2012 is going to be a slow one in many areas, both from a sales volume perspective, and a price perspective. Depending on whether you are buying, selling or investing, this may or may not be good news, so we have produced individual articles to help you work out what's best for you to do when carrying out different property projects. These will help you understand what the market reports and analysis means for you and your property circumstances.


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