UK House Prices: Decline Maybe Slowing but Worst Far from Over

There are a lot of positive reports in the press at the moment suggesting that UK house prices maybe on the turn. I had started to wonder if I am perhaps being too negative; batting the positive news away too quickly. However, I always come back to the fact that the economy is in such terrible state, and that people aren't buying homes when they are in fear for their jobs.

1. Reports of increased activity from prominent people and groups within the industry including the Royal Institute of Chartered Surveyors
2. Increased mortgage approvals
3. The rate of house price decline slowing according to some indices
4. Increased consumer confidence

I suppose I have been a little dismissive of these, in the fact that I have not even acknowledged the fact that they are positive news. I think that is because they are always linked to quotes and opinions that they signal a UK housing market close to bottom. They do not!

Each of those indicators has increased by a very nominal amount, from a catastrophically low point. It is logical that after a year of sheer decline and the worst depression the UK housing market has ever seen, that the depression would start to lift slightly and the angle of decline decrease.

In order for people to link these small steps in the right direction to a major leap closer to the bottom, we are seeing a lot of percentages rather than actual figures. Take a press release issued yesterday by London agent Kinleigh Folkard and Hayward in which they predict a 5-10% increase in London property prices in the next 6 months. The press release starts:

• April sees a 20% increase in buyer registrations
• First time buyers account for 45% of new registrations
• Sales increase by 30% compared with 2008
• Demand and short supply of new property for sale puts upward pressure on prices

All the above are fantastically positive steps in the right direction, but 20%, 45% and 30% of a very small number are even smaller numbers. For example, according to the National Association of Estate Agents, its members were completing an average of 6 sales per month in the last two months of 2008. 30% of 6 is 1.8, so that is an average of 8 completed sales per month by a big London agent like KFH. See what I mean? Everything has to be quantified.

Increased Activity

Yes activity is increasing, but from a very small starting point, and increased activity alone is not enough to cause the market to bottom. In fact without increased vendor realism and better mortgage availability it is meaningless.

Perhaps ironically a massive increase in activity is what is necessary to help increase vendor realism, but that won't happen until the economy improves, unemployment is staved off and there are less employment worries. As I have said before everything has to come together. But the most important thing is sorting out the economy; I won't believe any positive reports about the housing market until the economy is improving.

Increasing mortgage approvals

Yes, mortgage approvals increased for 3 consecutive months up to and including February. But according to the same body that collated the increases -- the British Bankers Association -- mortgage approvals fell again in March.

This then, another sign of the volatile market making marginal increases; small steps in the right direction meaningless, because they could all be reversed again next month or the month after. What will make the market less volatile? Reversing the recession.

Increased Consumer Confidence

Yes, consumer confidence climbed 8 points to 50 in April according to Nationwide's index, the largest jump since May 2007. However, the index goes up to 125 points before it shows consumers are truly confident; 50 is still an indicator that the public feel economic conditions are stormy, according to the Nationwide confidence barometer. At any rate: consumer confidence rises because of the other positive indicators; therefore it should not be taken as a positive indicator in itself (in my opinion).

Even Nationwide themselves have said the rise is insignificant:

"It is likely that the UK economy will continue to contract for some time yet, so it is too early to say whether this trend in confidence will continue into the next month as consumers continue to digest further industry data and the 2009 Budget," said Nationwide's senior economist

Slowing Rate of House Price Decline

Both the Halifax index and the Land registry index, both released last week showed a slowing rate of decline in their quarterly and annual scales, in April and in March respectively. Like I said, it is logical that the decline would slow after such a long depression.

There is a theory that price falls are slowing because vendors are holding firm at their current prices because of the positive indicators. The decline could just as easily speed back up again when vendors realise houses are still hard to sell in such an economic depression.

One thing I couldn't Leave Out

If London property sale prices verifiably increase 5-10% in the next 6 months I will print this article and upload the video of me eating it to YouTube. Houses in London are still not affordable for first time buyers, and I believe that is crucial to recovery.