Little Cheer in the Property Market
December 26, 2008
This week, the Royal Institution of Chartered Surveyors (RICS) issued another grim forecast for the property market. In its opinion, it predicts that house prices will probably fall by a further 10% during 2009. To put this in context, it would represent an eventual price drop of 25% from the peak experienced in the summer of 2007. Whilst the number of property sales may have bottomed out and could rise by 10% in 2009, the flow of mortgage funding appears to be the biggest obstacle to property price stability.
Coupled with grim economic news, all the signs point to a further decline in property prices in 2009.
We don't have to look very far to appreciate that the construction industry is always one of the first businesses to bear the brunt of any economic downturn. Simply look at those sites under construction and count how many dwellings are currently being built. In some instances, major construction firms are simply building to order. The RICS suggest that new housing starts will plunge from their already depressed level of 110,000 this year to 80,000 in 2009 which is a country mile away from the government's own target of building 2 million new homes by 2016.
The purpose of the Sustainable Communities Strategy is to address the chronic shortfall of housing stock in those areas where demand outstrip supply. The consequence of an under supply of housing is that prices rise disproportionately to earnings and we end up in the current malaise. Whilst the aim of the strategy is welcomed, our construction industry is exposed to market forces which will dictate the rate of build. Hence the target of 2 million being built by 2016 is as likely as snow in Dubai.
The bad news doesn't finish there I am afraid. The RICS warns that if the economic recession turns out to be deeper and longer than expected, and if unemployment rises to the 3 million level, it is likely that house prices will fall even more than the current 25% prediction.
Whilst a further fall in interest rates is predicted, this in its own right can do little to improve consumer confidence. The government has a responsibility to the property sector by aiding banks in order that they may start lending again on less restrictive terms than at present. If introduced, these measures may prove too little too late for the beleaguered property selling profession. As liked as much as completing an income tax return, the plethora of estate agents has become a staple of any high street. Their demise together with that of many brand names synonymous with shopping will have a profound impact upon the vitality and viability of many traditional high streets. That is for another day....
The future is grim as we know it.
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