House Price Predictions Tristan on 30 Apr 2009 03:34 pm
I remember earlier in the year reading an article in the paper (I think it was The Times) about house prices and how they would plumment about 25% during 2009-2010. This seems not to be the case now, as there was a story in the news last week that house prices were rising again.
I suspect that this rise is simply the result of some good marketing/selling by the estate agents of this country, and also the result of the efforts being made by the govt to get the banks lending again. I however, expect this optimism to be short-lived.
You see, house prices are over-priced, fact. I can’t afford to buy a fairly typical three bedroom house in my home town - prices are currently hovering around the £180k mark. This is more than three times my income and I’m earning more than the UK average. So how does everyone else afford to buy then?
Some people have saved up large deposits, or because there are two earners in the household, they can afford a much bigger mortgage than I could on my own. In some cases, the parents may help out, in fact, a friend of mine had his parents help him and his wife buy their first home. In this case, the parents “lent” them the deposit (about 20%), but then when they sold the property after four years, they took 20% of the sale proceeds, which netted them a nice little earner, and still left the children with a hefty deposit on their next house.
My feeling is that with the recession that we are all feeling, these generous parents may be less than willing to help out their children, and it’s this lack of funds for deposits that will lead to a sharp decrease in property prices, as the purchasers realise they need to raise the deposits themselves and with the credit markets (banks/building societies) being much less generous (requiring at least 10% deposit, sometimes 20%), people will simply have to hold off buying for a long time until they have saved up a deposit.
Until prices come back down to a level where an ordinary couple can save up a deposit in a relatively short period of time (1-2 years), then buying a house will remain out of reach of many and it’s this lack of demand that will pull prices down.