According to the Nationwide Building Society and the Halifax House Price Index, house prices dropped in October by 0.5%, yet only a few weeks before these two major lenders could not agree on the state of the property market. Halifax claimed that it had ground to a halt, while Nationwide quoted figures that showed a rise in house prices of 2.8% – the biggest jump since 1993.
The disparity in the companies' figures is partly because of the different ways in which they calculate their data, but it is typical of a general air of doubt and contradictory evidence that has beset the market in recent months. The confusing situation has been exacerbated by the terrorist attacks in America on 11 September and by fears among lenders of prompting a crisis by creating a lack of confidence.
A slowdown of the housing market has been predicted for some time but the recent figures seem to indicate that it is now upon us. Only a couple of months ago, many commentators and lenders were staunchly optimistic. Bradford & Bingley Estate Agents' Home Report revealed that the buying and selling of homes remained strong throughout the summer. The number of first-time buyers rose by 5%, indicating continued buyer confidence among a sector that is essential to the ongoing strength of a healthy housing market.
Hometrack.co.uk's survey of the housing market in September revealed widespread house price rises and predicted property price growth of 10% for this year. However, it acknowledged the onset of the slowdown by predicting growth of 5% for 2002.
The survey revealed that estate agents have experienced a noticeable fall in demand since the terrorist attacks in America on 11 September and the ensuing military action. In September, the British Bankers' Association also announced a fall in demand for mortgages for the first time since March. The Royal Institute of Chartered Surveyors recorded a drop in activity in its latest survey; but while the number of enquiries from prospective buyers fell following 11 September, by the end of the month surveyors reported signs that enquiries were beginning to pick up again. In its quarterly 'moving-improving' survey, the Alliance & Leicester revealed that the number of people planning to move in the next 12 months fell from 7% to 5% in the week following the attack. Of course, this could be directly related to the shock that prevailed at the time and the figures may pick up again. Only time will tell.
A recent survey of intermediaries conducted by Mortgage Express revealed that while the boom may be over in terms of price rises, there is still plenty of activity within the market. Of those brokers questioned, 77% claimed that prices were static or going down. However, there have not been any significant changes in the number of leads and enquiries they have been handling. Interestingly, a number of brokers have noticed an increasing number of customers taking out accident, sickness and unemployment insurance, giving an indication of increasing consumer anxiety.
The extent to which this slowdown is a slowing down, rather than a crisis, is difficult to predict at the moment. Looking back to the housing market crisis in the early 1990s, it is true that we are faced, in some ways, with a similar set of circumstances, which combined then to bring about the collapse of the housing market. The general economic climate is in decline, unemployment is predicted to increase over the coming months and salary rises look set to falter. A spate of redundancies among high-profile corporations, such as ICI, BA and Rolls-Royce, have dented consumer confidence. The falling stock market has damaged purchasing power, particularly in London and the South East, which relies heavily on wealth generated in the City.
Turning to interest rates and inflation, however, the story now is very different from the situation in the early 1990s. Interest rates, currently 4%, are now at their lowest rate for almost 50 years, contrasting sharply with the 15% high that homeowners were paying back in 1989. And when it comes to inflation, if you had suggested in the early 1990s that inflation would be below 2.5%, the men in white coats would have come to take you away.
Current concerns over the global economic slowdown were highlighted on 8 November by the Bank of England's surprise decision to reduce the base rate by a half point, the seventh interest rate cut of the year, and, according to some analysts, possibly not the last. The speed with which mortgage lenders passed the full cut on to their borrowers is also a clear indication that there are fears that the drop in house prices may accelerate.
While some analysts have predicted interest rate rises in early 2001, it is unlikely that they will now rise until the second half of 2002, or even later. When they do, it is unlikely they will escalate to a level that would have a major negative effect on house prices. Commenting on the latest base rate cut, the Council of Mortgage Lenders says that it expects mortgage lending to hold up next year, despite the worsening outlook for the economy. It adds, however, that house prices are likely to experience much lower growth next year of about 3%, compared to an anticipated 11% this year.
Other factors suggest that a slowdown is a more apt description of the housing market's fate. Demographic changes in the last decade, such as increasing divorce figures and population mobility, have created greater demand for property than was the case 10 years ago. An increasing lack of confidence in the stock market, coupled with low interest rates, has prompted investors to turn their backs on equities and invest in property for the long term. So, doom and gloom is misplaced. A slowdown, yes. A crash? I don't think so.