Wed 25th Jun, 2008
How vulnerable is the property market?
While bad news about the property market is easy to come by these days, there must be some good news out there. We round up what economists and experts are saying about the property market.
First of all David Miles, chief UK economist for Morgan Stanley warned that house prices are going to drop by 10% in the coming 12 months. Mr Miles believes that house price growth was largely fuelled by speculation that prices would always continue to rise as well as the belief that the number of people buying properties would increase by 10% in each coming year.
However Mr. Miles also believed that falling house prices would not be such a bad thing for the economy since it would help redress the affordability issue in the market which has spiralled out of control in recent years.
Meanwhile, Capital Economics chief economist Roger Bootle predicted that prices in 2008 would drop by only 3% followed by the same amount in 2009, an optimism that many wish were true.
The reality is that thousands of pounds have alreeady been knocked off the price of the average house in the last six months and prices are set to fall further.
Mr. Bootle says that the drop in house prices has little to do with the credit crunch and more to do with a drop in interested buyers, the number of which have been falling for the past six months. Additionally, with home loan rates still high, despite the three base rate drops since last December, many borrowers are actually unable to get the loan they need to take advantage of lower house prices.
According to Mr. Bootle the two fundamental reasons for the house price slump is the 5 consecutive interest rate rises between August 2006 and July 2007 and the fact that the property market is now too expensive for most potential buyers.
Whatever the reason, there is no doubt that house prices are falling, and in what has been described as an over-inflated market, this is probably no bad thing.