According to the Royal Institution of Chartered Surveyors (Rics) house sales are at their lowest level since their monthly survey began in 1978.  The annual fall, according to Halifax Plc, is 10.9% and house prices in August fell by 1.8%.  Property prices have returned to the levels seen in early 2006.

  

There are a number of reasons for the fall.  Crucially the credit crunch means that banks are less able to raise funds from wholesale markets and therefore do not have the funds to lend on.  In addition, whereas this time last year banks were keen to invest in the housing market, they now see the housing market as a risky investment and want only to lend to buyers who are safe bets.  This equates to buyers who have a large deposit plus a good credit score.  Long gone are the 100% mortgages and the large salary multiples. 

 

For the potential buyer household incomes are squeezed with higher costs for food, energy and fuel, and with a recession looming employment may not be secure.  Such pressures have not been seen for a decade.  Furthermore, of the buyers that have secured mortgages they may wait to see how much the market falls.

 

In a nutshell, there are fewer buyers who have secured mortgages and with fewer buyers there is less demand for housing and so prices have fallen.  Some experts predict that prices will fall by as much as 25% in total from peak to trough and the market will begin to recover in 2010.  In contrast, the Centre for Economic and Business Research predict a total fall of 15%.        

 

So what will stop the freefall?  The UK government announced some, in effect, minor measures: interest free loans, a stamp duty level rise and help for those not affording their mortgage.  This was a welcome help but is unlikely to stabilise the market significantly as the key problem is the banks having funds to borrow and then those banks taking the risk to lend.

 

Hope glimmers as the US Treasury has in effect nationalised the US’s two largest mortgage providers, Fannie Mae and Freddie Mac which will protect millions of mortgages and indeed, banks worldwide who are exposed to them.  This hugely costly intervention is expected to stabilise the US housing market which in turn will stabilise the US economy.  As a result UK banks will be able to secure funds to lend to consumers.  However, return to the previous easy lending criteria is unlikely and even when banks have funds to lend they are likely to require the borrower to show that they are a good investment: with a deposit and affordable repayments.

 

The housing bubble has burst, but the fact remains that the property market in the medium and long term will be backed by the sheer necessity of housing requirements.  The population is increasing and there is not enough housing to home everyone.  With less sales, property developers are currently short of cash and are putting their projects on hold.  As a result new building will be well below the government’s targets and as demand outstrips supply prices will go up.  Indeed, the Centre for Economic and Business Research (CEBR) expect house prices to rise by 30% between late 2009 and 2012. 

 

And so the UK housing market is expected to be slow into 2009 but as the economy recovers so too will the housing market. 

 

Other countries are faring no better, the once booming Australian market is now suffering very serious problems, in some areas all that is keeping the market going is people fleeing from other country’s, mainly the UK, to Australia, and buying a house.

 

Nearer to home the Spanish housing decline has been far more gradual, over priced ruins and low quality apartments were selling at rates that were clearly much higher than the local Spanish markets could stand. Now with Brit’s and Germans abandoning the Spanish property market it has ground to a halt, selling Spanish property in any tourist orientated area of Spain is now a near impossibility.

 

All of this will not necessarily make UK home owners feel any better, knowing that Americans are suffering in the same way doesn’t mean that one families personal crisis is any easier to deal with. The UK is a little unique though, it has a strange history of an economy that seems to revolve around the cost of a semi in Wolverhampton.

 

This is not the first time that the UK housing market has ridden a huge wave of crazy property values that rise faster than peoples incomes can dream of catching. It is just history repeating its self it happened in the 70’s and even more dramatically at the end of the 80’s when the massive housing boom came to an absolute halt on Black Friday.

 

It took well over ten years to recover from that crash only to immediately take off again and boom out of control from the end of the nineties until the US “credit crunch” sent mortgage lenders running for cover sparking yet another brick wall for house sales in the UK.

 

This time it feels even worse than before, construction jobs have all but disappeared with builders heading for the dole rather than to huge Barratt construction sites. The knock on effects seem to be enormous, Northern Rock now doesn’t seem so bad as even bigger companies such as The Bank of Scotland face huge problems brought on by mortgage difficulties and a predicted downturn in the economy that will be the worst since the war.

 

There seems little chance of any kind of improvement in the housing crisis any time soon, the prices will remain lower for years to come, but as with previous downturns its not the price a of a home it is a matter of can it be sold at any price when lenders only want to give money to Doctors and Judges and other “solid” prospects that will not have problems as the crisis gets worse. Rather than selling seems most people may be turning to alteration services.