House Tipping Point On The Way
July 17, 2007 by admin
Filed under News, News-Mortgages
Figures from HM Revenue and Customs have indicated that the number of properties sold in England, Wales and Northern Ireland was at its highest point since the late eighties.
During 2006-7 the number of properties being exchanged was 1,859,000. The number of sales was up by 11% compared with then figure for the previous twelve months. House prices went up by the same percentage and are growing at more than their average rate over the long term.
The number of homes sold at the last peak in 1988 was 2,148,000 for England and Wales. In 1989 sales of property slumped by 25% and the house price boom that had run for six years fizzled out after the Bank’s base rate was pushed up and mortgage rates followed suit.
That crash in house prices in 1989 came as a shock to most of the nation who had seen house prices only going upwards for the previous thirty years. The Nationwide BS House Price Index showed that average house prices in the UK had gone up every year from 1955. But 1989 changed all that and house prices fell by 11% and it was 1998 before house prices reached the same levels as 1989.
The early nineties became the period of negative equity for many people, with many houses worth less than the mortgages owed on them. Unemployment went up and the recession bit. With homeowners finding it difficult to make their mortgage repayments, many fell into arrears and there was a rise in repossessions. Mortgage lenders had a glut of properties under their ownership and off they went at auction at bargain prices. Between 1991 and 1998 over 400,000 homes were repossessed and a million people were left without a home.
A lot of the sequence of events that led up to the 1989 house-price crash are being repeated in the current situation. The parallels are undeniable: house prices are out of reach of first-time buyers; house prices seems to be going upwards for ever; interest rates are on the increase; and mortgage rates are on the rise too. Also, the ratio of house prices to incomes is now at its record level, and customer debt is an ever-growing problem in this country. The noises coming out of the Bank of England suggest strongly that interest rate rises have not finished yet – there’s almost been a promise that there will be another quarter point rise in July. And, most strikingly of all, repossessions have started to rise again.
Property prices on average are still on the up and have been for eleven years, but it sure looks unsustainable. Many experts are still saying that they do not believe there will be a house price crash, but more of a gentle deflation. There is so much talk of the possibility, however, that it’s hard to see people continuing to fork out large sums for houses and the repayments at such high levels, when a downturn may indeed be just around the corner. The tipping point must be in sight. It’s just a question of how steep the drop is going to be on the other side.
Tom Smith
17th July 2007
