Housing market is getting better

Aug 25 2009 by Neil Warwick, The Journal

IT IS widely recognised that when the housing market is healthy, the average price of a property is about four times higher than the average annual salary. However, at present, with the markets as they have been, this has not been the case.

But fear not. Last month there was a barrage of statistics to demonstrate that the housing market was getting better.

The British Bankers Association said mortgage approval rates had reached a 15-month high in June with 35,235 mortgage or remortgages taken out, the Nationwide Building Society confirmed that house prices rose by an average of 1.3% in July and Land Registry statistics showed house prices up by 0.1% in June, bearing out the trend that July was better than June.

In fact, the Council of Mortgage Lenders reported that mortgage lending had risen 17% in June 2009 and some £12.3bn was loaned to home buyers and re-mortgagers that month, up from £10.5bn in May. However, there is a note of caution that even June’s figure was only half that borrowed in June 2008.

However, just as there was a danger of a positive story emerging from the housing market, the economists stepped in to give the silver lining a cloud. Apparently GDP fell by 0.8% in the last quarter, which is 0.4% more than the economists had originally predicted. In fact, is almost double what was predicted, so any positive signs in the housing market are seemingly cancelled out by the so-called “negative growth” elsewhere.

The conclusion drawn by many commentators is that the drop in GDP coupled with the miserable rise in unemployment statistics means this recession may last longer than anticipated.

Is this correct? Well, no, not necessarily. Various statistics show that the rate of decline has slowed considerably and in certain markets, confidence is creeping back, but much more slowly than many hoped.

Is this a bad thing? Again, not necessarily. If the return to “normality” takes longer than anticipated, we could avoid the so-called w-curve recession where recovery is too quick and forces another recession. The shortest recession on record was the eight-month recession of 1980 which was immediately followed by the 16-month recession of 1981-1982.

While statistics are becoming confusing, even to economists, it is still important to be positive – slow, steady improvement is better than a quick bounce into another recession.

To hear how Dickinson Dees can help your business, contact Neil Warwick, partner, on (0191) 279-9375