What's in store for the housing market in 2012?
Friday, 30 December 2011 10:53 PM
How was 2011 for you? Ready for more of the same in 2012?
That's the consensus view among the property experts on what will happen in the housing market. Next year could see prices edge down by up to five per cent across the country but London will again be better off than elsewhere.
If you've got a mortgage the good news is that interest rates are expected to stay at the current exceptionally low levels. If you're trying to get on to the housing ladder next year will be as much of a struggle as this, with the possible exception of the new homes market. If you're trying to sell, the shortage of mortgage finance will hold back buyers and the total number of transactions could even fall from last year's low level.
But the predictions mostly come with one big health warning. If the Euro really does collapse, then all bets are off.
House prices will fall by five per cent in 2012 with declines ranging from 3.7 per cent in London to 6.7 per cent in Wales.
The estate agent rates the chances of a slow correction, with prices recovering in nominal terms in 2013 and 2014 but still falling in real terms, at 75 per cent. However, it believes there is a 20 per cent chance of a sharp correction triggered by a collapse of the Euro or serious sovereign debt crisis in the US or UK. This scenario would see rapid price falls and an equally rapid return to stable pricing and transaction levels fall even further from current depressed levels. A more optimistic upside scenario under which a rapid global economic recovery feeds through into prices is rated at five per cent.
Gráinne Gilmore, head of UK residential research, said: "The five per cent drop in prices in 2012 will leave property values nearly 15 per cent below their 2007 peak. In fact, even with the modest gains seen in later years, we forecast that average house prices will not hit 2007 levels again until 2018."
Prices and sales volumes will both remain similar to 2011 levels as the market remains stable.
With a caveat about the general economic situation, the housebuilder reckons the new government-backed 95 per cent mortgage indeminity market should have a significant impact on the market for new homes in 2012 as it will improve lending to first-time buyers.
Group chief executive Mike Farley said: "We will continue to work with the government to support the new draft National Policy Planning Framework, which could substantially improve the supply of residential planning consents to address the significant shortfall in new homes construction across the UK."
National Association of Estate Agents
2012 will be a re-run of 2011 as the property market continues to bounce along the bottom and there is no great upturn. Pressure for housing will support the market in London and the South East and the top end of the market will also remain resilient.
The trade federation reckons lack of available finance will remain the biggest problem for would-be buyers, with first-time buyers struggling to get a mortgage from the major lenders and the end of the stamp duty holiday in March making things more difficult.
Chief executive Peter Bolton King said: "I don't believe that we will see a significant fall in house prices over the next 12 months as some have feared. But equally, it is unlikely we will see any great upturn to help the market back to full capacity. It is likely that property transactions will remain at a similar level to that in 2011."
Royal Institution of Chartered Surveyors
A shortage of stock will continue to prevent significant declines in house prices in 2012. Transactions will rise slightly to around 880,000, which is about the same level of activity recorded in 2010 but still half the 1.67 million sales seen in 2006.
The RICS says weak economic conditions and rising unemployment will translate into flat demand for property and argues that the new mortgage indemnity scheme will have a limited impact because it is only available for new-build properties.
Chief economist Simon Rubinsohn said: "The general economic climate is likely to be the biggest influence on the residential property market next year. Prices could edge a little lower as unemployment continues to rise. However, the lack of supply in the market is likely to prevent any significant house price declines."
The weak economy will translate into mortgage lending and transactions at an even lower level than that seen in 2012. Gross mortgage lending will fall from £138bn to £133bn and net lending from £9bn to £5bn, while transactions will slip from 852,000 in 2011 to 825,000 in 2012.
The CML expects pressure on household incomes to unwind some of the improvements in mortgage arrears and repossessions seen in the last two years. It expects 45,000 families to lose their homes in 2012, up from 37,000 in 2010, but still way lower than in the early 1990s.
It also warns that challenging conditions in wholesale funding markets could result in negative effects in the cost and availability of UK residential mortgages for some or all of next year.
Chief economist Bob Pannell said: "Despite the fact that activity levels have already been subdued for several years, we have penciled in a broadly flat picture – for both mortgage lending and property transactions - at least until real incomes show signs of stabilising as inflationary pressures recede."
House prices will see little change in 2012 and are likely to be in a range between -2 per cent and + 2 per cent. The Bank of England will hold interest rates at 0.5 per cent through the year.
The Lloyds Banking Group subsidiary believes the resilience shown by the market in 2011 bodes well for next year and expects prices to end the year close to where they began. It believes interest rates will remain exceptionally lower for the foreseeable future and that the big improvement in affordability seen since 2007 will continue to help anyone with a mortgage and limit forced sales.
However, housing economist Martin Ellis added: "The path of the economy during 2012 will, to a large extent, depend on how events in the Eurozone unfold. In addition, the extent to which households choose to reduce their debts will also affect growth over the medium term. As a result, the outlook for both the economy and house prices is particularly uncertain."
2012 will see huge disparities between different regions. Most of the country will see price falls but some areas will continue to enjoy price growth.
The central London estate agent says the gap between London and the rest of the country will widen over the next five years. Prices will fall in the UK but the effect will be short-lived, London as a whole will see a modest drop but prime central London will continue to buck the trend and push ahead.
Managing director Martin Bikhit said: "As well as the influx of foreign money, residents of Prime Central London tend to be elective sellers rather than forced sellers, meaning they are able to hold out for the desired price when it comes to selling, rather than concede to lower offers under time restraints forced upon them by issues of family size or schooling needs."
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