Friday 1st August 2008
by Bob Bardsley
Know Your Money Editor
The headlines in recent weeks may have been dominated by predictions of how far the housing market is likely to drop, but one organisation has bucked the trend by forecasting a rise of 25 per cent in the coming years.
Figures from the National Housing Federation indicate that houses are to cost up to a quarter more than their current value by 2013, reaching a potential average price of £274,700. However, the anticipated future of the property sector may not be as rosy as the headline figure appears, as a closer examination of the organisation's Home Truths report reveals.
Among the more general predictions made is the forecast that only three-quarters of the new homes needed in the UK are likely to be created in each of the coming five years. In terms of house prices, meanwhile, the federation expects a slump of 2.1 per cent in 2009 and a marginal increase of just 1.3 per cent in 2010. Only after this is the sector expected to recover strongly, recording gains of 5.2, 9.2 and 9.3 per cent in each of the following three years.
David Orr, chief executive of the National Housing Federation, comments: "Demand for housing is going up, while the supply of new homes is going down. This means that as soon as the economic outlook improves house prices will resume their previous upward trajectory. People are living longer, they're delaying getting married and they're more likely to get divorced - meaning we now have more households than ever."
Should we buy?
The predictions could leave many first-time buyers reaching for their cheque books, as a dip in prices in the next 18 months might seem like the last time the housing ladder will swing back within reach of those who do not already have a firm foothold on at least the bottom rung. However, the National Housing Federation represents non-profit housing associations throughout the UK and calls itself "the voice of affordable housing". Among its "strategic aims" is the promise of creating market conditions to help its members "flourish", which could leave cynics doubting the forecasts.
But the federation points out that the report was prepared by Oxford Economics using a plethora of different house price indices and other property market figures, which might allay any doubts the reader has. Either way, the decision to buy a house for most people is one of the largest financial moves they make in their lifetime. Choosing to do so based on uncertain predictions of how the market may change over a five-year period may not be the wisest option.
There are plenty of assessments of the market published on a month by month basis which, coupled with the changing Bank of England base rate, might combine to give a clearer impression of how the housing sector is performing at a given moment in time. Changes in average house prices could determine the standard of property available both to first-time buyers and those already on the housing ladder, while the base rate typically has a knock-on effect on both fixed-rate and tracker mortgages, as well as on other forms of lending.
What is the market doing?
To decide whether it is the right time to buy, it might be worth bearing in mind the different criteria used when compiling the different reports. For instance, the Land Registry claims to create the most accurate snapshot of the market available, as it incorporates figures from nationwide and on a regional basis of the actual prices at which properties are sold, counting only completed sales. Halifax publishes its own house price index based on its mortgage lending figures - but stresses: "We do not make any statement as to its accuracy or completeness."
Other organisations base their reports on the area of the market in which they conduct the most business - property listings service Rightmove, for example, analyses the asking prices of newly listed homes. As the actual price paid by purchasers is typically a few per cent lower than the asking price, this could mean the Rightmove index detects houses as costing more than, say, the Land Registry. Indeed, in its June report, Rightmove claimed the average UK home now costs £239,564, compared with an actual transaction cost of £180,781 reported by the Land Registry.
With such discrepancies between what may, on the surface, appear to be analyses of the same market, consumers could be forgiven for feeling they are being fed conflicting information. However, as each report is based on the same set of statistics each month, keeping track of one headline figure might allow a long-term picture of market conditions to be built up. And checking how far below the asking price properties are actually selling for could help to judge where to make that first offer - and how brave to be in undercutting the advertised price.
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