We are approaching the end of the year with something that many people did not expect to happen: a housing market that, far from collapsing in a heap, is showing considerable resilience, particularly when it comes to prices.
Nationwide Building Society recorded the third successive monthly rise in its house price index for November. The other big mortgage lender index, from Halifax, showed a second rise in a row. Both suggest that house prices hit bottom in August-September and, while it is early days, are showing tentative signs of recovery.
The official house prices index, from the Office for National Statistics (ONS), is only available until September, but it suggests that the trough in prices was as long ago as March, since when prices have risen by 3.5 per cent. If you wanted to construct a story that prices were hit hard by the impact of the “Trussonomics” mini-budget on mortgage rates, but then recovered their composure after that short-lived prime minister and her chancellor disappeared into the sunset, you could do so.
So far at least, the most surprising house-price boom in modern times, the one that occurred during the pandemic, is still intact. While many economic indicators have performed poorly over the past three to four years, this is not true of house prices, although for many their strength is no cause for celebration.
Nationwide’s house price index is 20 per cent higher than it was in December 2019, while the official measure from the ONS is up by more than 25 per cent. There has, of course, been a lot of general inflation over that period — an increase of 22 per cent in the consumer prices index — thus in real terms most house prices have merely held up, rather than soared.
Average earnings, measured by total pay, have also risen by 22 per cent over the same period, so in that respect too, while house prices seem very high, they have not left incomes trailing in their wake.
You may be a little surprised by this. Not so long ago there were headlines proclaiming that we were seeing the biggest fall in house prices since the financial crisis 15 years ago. It did not, however, need much of a fall to achieve that. Apart from a slight downward flurry in 2012 and 2013, house price inflation has been positive.
Last summer’s annual fall on the Nationwide index, of just over 5 per cent, was thus sufficient to trigger headlines. That barely counts as a correction, let alone a crash, and the annual fall on that measure is now a tiny 2 per cent. The ONS house price index has wobbled a little but does not show any net fall from its peak in November last year.
You may also recall that there were plenty of predictions of quite big house price falls, particularly in the wake of the September mini-budget last year. There were, but apart from one or two which suggested a drop of more than 10 per cent, most predicted quite modest falls of 5 per cent or so.
This was one episode where forecasters did not get it badly wrong. Some banks attracted headlines by saying prices could fall by 30 or even 40 per cent, but while these were headline-grabbers, they were very much couched in terms of worst-case scenarios.
My own view, if I may be allowed to blow my own trumpet (nobody else will), was that we would see a bigger impact on activity — transactions and mortgage approvals — than on prices, which would hold up, and so it has proved. Why have we avoided a crash, despite an increase in mortgage rates on a scale that nobody could reasonably have expected a couple of years ago?
The first reason is the labour market, on which we have just had new figures. The house-price crash of the early 1990s, which was close to those recent worstcase scenarios from the banks, was brought about by a wave of forced selling, and resulted in large-scale mortgage repossessions and years of negative equity.
The forced selling was in large part brought about by a sharp rise in unemployment, which went back above three million, and was combined with a striking lack of flexibility on the part of the lenders, who thought it was best to repossess than let borrowers work their way out of the situation, particularly as we soon moved to a much lower interest rate environment.
This time round, we have had the tightest labour market I can recall, and the unemployment rate is still very low at just 4.2 per cent. There has been a distinct absence of the forced selling that has characterised previous episodes.
Secondly, though we rarely acknowledge it, policy sometimes works. Actions to make mortgage lending more responsible than in the run-up to the financial crisis (remember Northern Rock’s 125 per cent of property value mortgages?) have largely worked, via the mortgage market review and other measures.
Thus, the Bank of England’s latest financial stability report, published a few days ago, was able to say that fewer households will be spending a very high proportion of their income on mortgage payments than it previously thought and that, while there has been a slight rise in the number of households behind with their monthly mortgage payments, it remains historically low.
Are we out of the woods? After all, the Bank also said that about 45 per cent of the fixed-rate mortgage deals agreed before the end of 2021 (when interest rates started going up) have yet to be renewed, and that will be uncomfortable for many people.
But the housing market is different these days, with most owneroccupiers owning outright rather than with a mortgage and those owners with mortgages have had time to prepare. You can never say never, but a house-price crash looks as unlikely in 2024 as it turned out to be this year.
Source: The Times
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