Budget day tomorrow and there are reports of a “giveaway” by George Osborne. Not sure what effect this will have on the election later in the year and that is not my area of expertise. I do wonder though if the recent drop in inflation and impending election are having an effect on the housing market.
Speaking from personal experience here in Farnham as I’m selling my house at the moment I am not seeing as high demand as I would expect. Not just from my own property (as I am biased where that is concerned) but it look to me as if houses are staying on the books for quite a while.
As I live in a pretty affluent and popular area I am concerned that lack of demand could be a signal of a downturn in the housing market. One does need to retain a certain sense of perspective of course, personally the year has got off to a good start with good volumes of mortgage business in both the remortgage and purchase areas. Estate agents are quoting the impending election as to the reasons why buyers are dragging their heels but I don’t really buy that.
My theory is that the housing market is in need of a correction and the savvy British house buyer is not willing to pay top dollar for property right now. Like what may happen in a negative inflation environment where things will be cheaper the longer you wait the same could be happening with property.
To counter this though it is pretty obvious that the UK has a housing shortage and both main parties are talking up the investment they plan to make in house building should they get elected. Demand outstripping supply should therefore mean a rising market. Coupled with this mortgage rates are fantastically low and have been for a long time. So what’s going on?
It turns out that nationally house prices are still rising but in London (often the driver) prices are slipping. There was a fall of 0.2% in London last month, however this is not expected to be the start of a fall according to RICS but a blip as London continues to become “more unaffordable”.
Further evidence of a correction looming is that wages have been falling in real terms. This may be turning around as we speak mainly due to falling inflation.
Wages adjusted for inflation are also at 2004 levels, the ONS reports.
There clearly are a lot of factors involved. I recommend This is Money for not so light reading on the above topic. It is a great website packed with information.