Saturday, 7 February 2009

Time to buy index for January 2009

In January the index stands at 119 unadjusted(U) and 166 adjusted(A)

This gives a guide that house prices are around 11% over valued and that market sentiment pushes that to 16% over valued. DO NOT BUY

That is not to say that house prices will fall by either, but it gives an idea of the direction.

Some weird data this month from the Nationwide and Halifax with NW reporting a drop of 1.3% in house prices and Hal reporting a 1.9% rise. Amazing what a £500 billion bung will do to a lender's morals!

I take my data from the Halifax figures, which will probably prove to be a 'rogue' month.

Most sensible commentators agree that this will be seen as a gain amongst further monthly losses and nobody has missed any boat despite what the crazy Express 'news' paper says.

Even though house prices have risen this month, there was a big fall in the rate data I use to determine affordability. The rate fall has a bigger impact than the price rise and so the index has fallen again this month.

Although Bank of England rates have fallen, new mortgage deals are being priced at pre-cut levels.

The price to average earnings ratio has also risen slightly this month and is still indicating house prices are 10% above trend on this indicator.

Most buy to let deals have been withdrawn now and those that remain have seen a lowering of the Loan to Value needed. There exists only one 95% LTV first time buyer deal in the market and this requires a charge on the parents house, so a 90% LTV is the best on offer. Credit remains tight.

The unadjusted index is now down from it's peak of 645 in July 2007


House prices to continue falling with the Halifax index bottoming at £140,000 in Q4 2009.

In my opinion mortgage lending criteria has tightened more than usual with a larger deposit required than in the past, however lenders are still lending above average multipliers and mortgage rates have again fallen to below the longer term normal level.

The end of irresponsible lending means that lenders will never be returning to the days of lending with no deposit or waiving income checks.

House prices are still suspended about 20% above the level of finance that the banks are willing to give out.

Buy to let as one of the key drivers of house prices still does not makes economic sense at current rates. This sector will most likely never return to the heady days of 2007 as the age of irresponsible lending is over.

First time buyers are the main driver of the bottom of the housing market. First time buyers have rightly taken the view that it is best to wait out this drop before entering the market.


Oldrightie said...

Yup, my prediction is that The UK and housing will only turnaround two years after a change of Government. So 2012-2013. Quite a few people may have saved a few bob by then, as well.
One thing is certain and that is bet against Labour and Snotty Brown. He wants debt, go save!

Mark Wadsworth said...

This is all well and good but CB Richard Ellis/GFI (?) Halifax futures contract prices December 2009 index at about £120k (down 40% from peak), but I can't track this down online.

Cantor/Spreadfair ran a similar spreadbet/future but they shut up shop in late 2008.

Clunking Fist said...

I note you have some links to tractorstats blog. His blog seems to have been removed. It made me back-up my blog. The censoring of the interweb may have begun...

Hi Mark!