Teresa Hunter: Our battered housing market is down but not out

THEY say the way to make God laugh is to tell him your future plans. I can't help wondering what secrets all those bankers were offering up in their nightly prayers to bring our current calamity upon us.

It's not surprising we're all feeling shell-shocked as we start 2009, given the outlook for the year and the avalanche of bad news. To anyone fearful about their home or job, it already seems they have gone 12 rounds with Alex Arthur and are bracing for the killer punch.

It's all happened so fast. During the last housing slump, the house price-earnings ratio fell from top to bottom by 1.8. But it took seven years to do it.

Hide Ad
Hide Ad

This is the touchstone, the key measure of affordability and therefore of house price credibility. Yet it collapsed in 2008 by 1.4, falling nearly as sharply in just 12 months as it did over seven years in the previous slump.

Prices in the last recession ended down on average by 11.5%, after falling for about five years. Just one year into this crisis we are looking at values shredded by 16% across the UK, or 12% in Scotland.

But blind panic won't save us. Rational analysis just might. My biggest fear as UK house prices soared was that if you study house price cycles they follow an until now unbroken pattern. They rise for so many years, and then fall for half that number in real terms.

We have just emerged from 14 years of an upward spiral, which would indicate that values must fall for seven years. Ouch.

Clearly, this time that will not happen. If prices continued to fall for a further six years at current rates they would not only be worthless, they would have moved into negative territory; ie you couldn't give them away with a big cash bonus.

This time the pain is hitting us harder and faster, and for that very reason we can be sure it will be over sooner. Not much comfort I know, because it won't be any easier. House prices will continue to fall, with the house price-earnings ratio probably hitting 4 or possibly dipping as low as 3.6. As consumers continue to tighten the purse strings, more businesses will fail and more staff will lose their jobs.

But swallows are circling on the horizon. Not only will most of us keep our jobs, there are sections of society at no risk of unemployment. Many working in the public sector have complete employment and pension security.

Those working in the insolvency field similarly have little to fear. Many health and pharmaceutical practitioners and employees will escape lightly from this economic turmoil. Some retailers have seen business boom.

Hide Ad
Hide Ad

These employees are now in the enviable position of seeing house prices at far more affordable levels. Other goods and services are available at discounts only dreamed of. If you have job security, and millions do, your boat has just come in.

For this reason, at some point house prices will reach a level where these consumers won't be able to help themselves but buy. If prices continue to fall at current levels, this may be sooner than most experts predict.

For sure the first six months of the year will seem like an ordeal by fire for many families, particularly those with the sword of redundancy swinging over their heads.

But never underestimate the speed with which a housing market can recover. After the horrors of the last property recession, many thought the British love affair with property had been killed stone-dead and the days of annual house price rises were over.

Not a bit of it. When the market turned, they went up faster than ever, climbing 7.4% in 1996, 5.4% in 1997, 5.5% in 1998, 11.5% in 1999. Thereafter prices rose typically by anything between 26% and 15% annually.

It's a dangerous tiger, property. The ride of your life. But once you've climbed aboard you'll be glad you managed to cling on tight.

Unhappy returns

IT IS that time of the year when we have to decide what to do with unwanted Christmas presents. Unfortunately you can't necessarily take them back and get a refund. You only have a right to a refund if something is faulty.

Some stores, such as Marks & Spencer and Debenhams, will give cash refunds, but only with a receipt to prove how much was paid. They will normally exchange it for another item or give a cover note without a receipt.

Hide Ad
Hide Ad

A few retailers, however, are turning those exchanging goods away until the sales are over. They are within their rights to do so, but it is hardly within the spirit of pre-Christmas promises that goods can be taken back after the holiday if not suitable.

Happy swapping!