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East Midlands house prices fall

6th Mar 2012

Category: Local property news

Tagged:property investment, House Prices

Here it is, Halifax's report on house prices: http://www.lloydsbankinggroup.com/media/pdfs/halifax/2012/0603_hpi.pdf

The long and short of it is that the macro economic conditions remain the same, all of which have the brakes firmly on.... see the reasons why from my last house prices blog article:


Looking in depth at the East Midlands data it appears that the slight upswing in 2010 in East Midlands house prices of 4.5% was entirely reversed in 2011.  Roughly speaking therefore, we stand, as at February 2012, at the same house price levels seen in the trough of 2009 which is the equivalent to that of 2003/04 house prices.

When I look at first time buyer prices, it is largely the same story.  Except the news is slightly better for those wishing to buy.  Prices in 2010 increased by less and the fall of 2011 was greater.  If only getting a mortgage was as easy as it was in the 'good old days'.

The big issue is that house prices are still too high in comparison to average earnings.  From the above report, you can see that the average price/earnings ratio is consistently above 4.  For some context, the housing peak of the late 80's never got above the 4 x average income level. In the short period before August 2007 when house prices finally reversed, this ratio was up above 5 and headed towards 6.  In the 1990's this ratio was never above 3.

What allowed the ratio of average earnings to house price to get so high?  Well, it was the bank lending policies, they got a bit loose.  Now things have tightened up on the old bank lending, we are seeing that the ratio is paused at the 4-4.5ish level - but house sales volumes are still very low.

In my opinion, when volumes of mortgage approvals return to more normal levels (>90,000 per month), then we will also see the average earnings to house price ratio fall below 4.  What is keeping it there is a lack of supply at the right price due to homeowners not wanting to make a 'perceived loss' because their house was once 'worth more so why should they sell for less?'  Well, frankly, they need to look at what the banks will lend, and that isn't what it used to be and therefore house prices must adjust as and when sales volumes increase.

House price growth from here on....not likely.  Mortgage approvals in Dec-11 stood at 52,939 which is less than half of the approvals pre-credit crunch in Dec-06 of 115,000! When mortgage approvals increase, we'll see house sales increase and with it house price falls as the first time buyers start buying up the cheaper property.

Phil Ashford

Partner MEng(Hons) FCA MARLA

An experienced Chartered Accountant and a Founding Partner of Comfort Lettings.

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