UK House Prices Fall...Again

UK house prices are falling shout the headlines. Not too long ago, every month saw an increase in property prices. So what exactly is happening and does it matter?

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Nationwide's latest monthly house price index reveals that property values in the UK experienced a year-on-year decline of 3.5% in June, pulling back marginally from the fall of 3.4% in May. However, a glimmer of hope was seen with a small month-on-month increase of 0.1%.

That’s over the year.

To put this fall into context, on one day, the 15th March this year, the FTSE 100 fell 3.83%, following the Credit Suisse crisis.

It fell 7.88% over that period from the 6th to the 17th.

In total, it fell 112 days. 22 of those, the loss was in excess of 1%.

The remaining 139 trading days it was positive. And over the year the return was +4.69%.

Yet, I receive more calls when house prices are falling than when stockmarkets are.

There could be several reasons for this:

• Emotional Investment: Buying a house isn't just a financial decision - it's an emotional one too. Falling house prices often cause homeowners to worry about their property's value.

• Asset Sensitivity: A fall in house prices hits close to home (literally), as it impacts the homeowner's most significant asset.

• Mortgage Concerns: A downswing in prices often leads to concerns about mortgage and equity. Homeowners might start considering refinancing options or strategies to protect their equity during a market downturn.

• Media Coverage: During downturns, media tends to focus more on the housing market, increasing public awareness and curiosity about real estate trends.

So Where Are Prices Going From Here?

House prices exhibit a unique characteristic of relative stability compared to the stock market's high volatility.

Unlike the stock market, where prices are measured daily and even minute by minute, house prices are only assessed and reported once a month.

This less frequent measurement can contribute to the perception of housing market stability. It also means that housing price trends may take longer to emerge and become evident.

When house prices experience a downward trend in one month, it will more often follow with a fall the following month.

Plus of course there is a 6 – 9 month lag between the transaction and the sale price being logged onto land registry. This means the falls we are seeing now are a result of transactions agreed some time ago.

We should therefore expect, in the short term, house prices to continue falling, as the last 9 months of higher interest rates, falling affordability, and inflation filters through to more recent transactions.

Additionally, when house prices are on a downward trend, a noticeable shift in market activity occurs as people become less motivated to move.

The prospect of selling a property at a lower price than expected can deter potential sellers, resulting in reduced supply and less turnover in the market.

As a result, the reported fall in house prices solely represents those who have bought and sold during that specific period, giving a limited snapshot of the overall market sentiment.

The reverse effect occurs when house prices are rising, homeowners who witness the appreciation in their property value may be motivated to sell and take advantage of the favourable market conditions.

This dynamic between market sentiment, price trends, and individual motivations contributes to the ebb and flow of the housing market.

What about the longer term?

Some experts predict a price fall of up to 35% over the next three years, while others are more optimistic, foreseeing a short-term dip followed by a potential rebound due to relaxed affordability checks by mortgage lenders.

The housing market is currently experiencing a divergence, with cheaper properties and first-time buyer homes proving resilient, as renters look to move out and secure their own properties, while expensive homes, especially in areas like London and the South East, face challenges in justifying their values due to mortgage rates and the significantly increased costs of moving up the ladder.

Of course, while this may be the current trend, individual property characteristics still play a crucial role in the housing market's dynamics.

Despite falling prices, many people still prefer living in properties with desirable features like gardens and larger spaces, rather than newer build flats.

As a result, these sought-after properties maintain their appeal and continue to attract buyers even during price declines.

Homeowners with well-located and well-maintained houses may find that their properties retain their value better than newer developments.

For those who have no immediate need to sell, it may be more advantageous to sit tight and weather the storm.

Also don't forget, it is essential to consider the many years of strong growth, so any price fall would be from a higher value, mitigating the impact of the decline and providing a more balanced perspective on the housing market's overall resilience.