Tuesday, August 31, 2010
Of housing peaks and troughs
Posted by David Smith at 10:30 AM
Category: Thoughts and responses

The National Housing Federation has generated headlines with its prediction that home-buyers who bought at the peak in 2007 will have to wait until 2014 before prices exceed those peak levels and, as they put it, they will have escaped negative equity. The forecast, based on research from Oxford Economics, is summarised here and is actually quite optimistic.

Remember that in the 1990s it took nine years for prices to regain their boom peak; longer in some regions. The NHF forecast is for a modest dip of 3% in 2011, followed by a gradual strenghening. Prices in 2015 will be 22% higher than 2009, it says.

The market has been different this time, partly because of the speed and aggression of the monetary policy response. It took much longer for prices to rise in the 1990s. Even if they slip now, it is from a higher base.

What's the data telling us now? As always the reporting of small prices rises (boom) and small falls (bust) is pretty useless. Bank of England figures for mortgage approvals in July showed a fractional rise to 48,722, from 48,562, against expectations of a small fall. Prices started to rise in the early months of 2009 with mortgage approvals of 40,000 a month, against 120,000 at the early 2007 peak. What level of approvals is consistent with stable prices? Not the 70,000-80,000 that used to be believed, but probably a bit higher than just under 50,000 with increased supply coming through.