UK House Prices: the Second Dip is Nigh

15 August 2011

UK housing market bears have been predicting a second dip crash from almost the moment it became clear that the first dip crash was over. But it just kept on not coming, house prices would fall a bit, then rise a bit, then fall a bit again as weak supply continued to make up for weak demand, with record low interest rates making up for sellers failure to reduce prices, and mortgage lenders unwillingness to lend to first time buyers. After weak supply drove a recovery in the second half of 2009 into the first half of 2010 this cycle of stagnation has been the continual story.

Now though, there does seem to be a renewed energy behind a downward motion. According to the LSL/Acadametrics index, which is regarded as one of the most accurate of all UK indices house prices fell to a 19 month low in July. However, the index says that prices fell just 0.1% compared to June, leaving them 2.6% lower than July 2010. That is to say that in June, prices were 0.1% away from an 18 month low according to the index.

When prices fell for the first time, one of the biggest things that irked market bears was the fact that the Rightmove index of asking prices continued to show rises. Bears said that the market needed sellers expectations to come inline with what buyers were willing to pay, and that this wasn't happening. This continued during the supposed "recovery" but now even the Rightmove index is turning negative.

The index has just recorded a second consecutive month-on-month decline, with asking prices down 1.6% m-o-m in July and 2.2% m-o-m in August. The year on year measure has also turned negative for the first time since September 2009, with asking prices now 0.3% lower than August 2010.

In the main points Rightmove says: "In the four years since the onset of the financial crisis asking prices have fallen by only 4.1% (£9,930)". That just shows how far seller expectations are from what buyers are willing to pay. Now, it seems they have no choice but face reality. The UK economy is struggling to grow, austerity is biting us all, the European Union is falling apart, and even America is being downgraded. Optimism is at an all time low, and first time buyers still can't get a mortgage.

With so many people looking to get away from all the doom and gloom, and stock markets still volatile, it is hardly surprising that overseas property sales are doing better.

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