How low will house prices go in 2009

Recovery in house prices in the UK will be a long way off.
This past year will go down in the UK as the one in which the housing market raced from boom to bust.
In the autumn of 2007 prices began to fall each month as the international banking crisis took hold.
With the mortgage supply drying up, house sales have now slumped by more than half, first-time buyers have increasingly been driven from the market and the construction industry has plunged head-long into recession.
Building sites have been mothballed, thousands of workers laid off, and millions of unsold bricks are now being stockpiled around the country. And if the surveys by the Halifax and the Nationwide are anything to go by, house prices will end this year between 15% and 20% lower than they started - easily the biggest annual slump on record. About £30,000 has already been knocked off the selling price of the average house in the past year, and people have stopped borrowing extra cash against the now deflating value of their homes. So what will 2009 bring? More of the same or the beginning of an upturn?
More falls to come A year ago many experts were predicting that prices would be flat this year or might even rise a bit. Those views were rapidly outstripped by events. Now most commentators believe that prices will continue falling well into 2009, indeed maybe for the whole of the year. "We will expect prices to continue to fall because of the economic conditions; you wouldn't expect the market to turnaround in those conditions", says the Nationwide's chief economist
Fionnuala Earley, referring to the growing recession. Her counterpart at the Halifax, Martin Ellis, echoes that view. "We are comfortable with the view that there will be a 20% fall over 2008 and 2009". So if prices fall 15% this year, will they drop by just 5% next year? "We don't want to be too specific about next year," he replies.
Both lenders in fact will publish their formal house price predictions, with more specific figures, in the next few weeks and so will the lenders' trade body the Council of Mortgage Lenders. It recently described making short term house price predictions in the current market as "futile". But CML spokesman Bernard Clarke says it will stick its head above the parapet again soon. "We are going to be publishing something before the year end but we are currently working on it," he says. "Prices are likely to keep falling, at least in the early part of the year." Recession The economic downturn is one obvious factor that might help to push prices lower.
The availability of money remains restricted - which is where the key lies
Jonathan Davis, a chartered financial planner at Armstrong Davis, and spokesman for housepricecrash.co.uk says next year reality will kick in, even more than in 2008. "Next year prices will fall by 15-20% because unemployment is kicking in, house repossessions will rise rapidly and houses will go through auctions at previously silly prices - and banks aren't lending," he predicts. After forecasting the end of the house price bubble for several years, his worst predictions now seem to be coming true. "By 2010 prices will be significantly lower than the peak in late summer 2007; if they fall 15% next year then that will take us to 68% of the high point - a 32% fall," he points out. The key factor in the slump so far has been the rapidity with which the mortgage tap has been turned off, as banks and building societies have found they simply have much less money to lend. The industry is keeping its fingers crossed that the government's attempts to bail out the banking system, along with cuts in interest rates, will eventually see more money flow to borrowers. "Things are very fluid - credit is still in very short supply; interest rates are coming down quite sharply; and Libor is also coming down," says Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics). "So the cost of borrowing is falling, but the availability of money remains restricted - which is where the key lies." "And in truth no-one knows when that will change," he adds. Higher sales? The possibility that the mortgage market may free up a bit is hinted at by the Nationwide. HOUSE PRICE Predictions for 2009
It has just raised a further £1.5bn to bolster its finances by selling bonds to international investors, backed by the government's recently launched guarantee scheme for lending institutions. Rics, which is also working on its formal forecasts for next year, points out that there are some indications that sales, if not prices, might pick up next year. "Looking at our surveys, transaction levels do seem to be close to a floor and buyer enquiries are picking up, which is very significant, so there are potential buyers out there" says Mr Rubinsohn. "Prices will slip in the first half of the year and maybe all next year as well, but sales may pick up over the course of 2009." An even more optimistic view comes from Ray Boulger of the mortgage brokers John Charcol who reckons that house prices will stabilise by the middle of 2009. "The significant cut in rates will have a stimulating effect because some will see this as an opportunity to buy," he says. "Prices will drift in 2009, with the rate of decline reducing, and for the year as a whole will be broadly unchanged with a fall of 4% in the first half and a recovery of a similar amount in the second half." "Human psychology and the desire to buy a property is out there," he believes. Insurmountable problem For the moment Mr Boulger is in a minority. The leading economic consultancy Capital Economics has long predicted a big fall in house prices which, in its view, had risen far too high to be sustainable. Its housing spokesman Ed Stansfield is not about to change his tune, and predicts more of the same in the next 12 months. "There is not much evidence that the mortgage market is freeing up so I think we will see another 15-20% off prices in the coming year, so a one-third fall will have happened in just two years, reflecting the deterioration of the economy in the past year," he says. "Potentially base rates coming down may spark a revival of buyer interest, but the scale of the problem is beyond the government and I don't really think there is anything it can do," he adds. What about those efforts by the government and the Bank of England to make life a bit easier for banks and their borrowers? "Whether sentiment can be turned round when the chancellor and the governor of the Bank of England are saying there is a recession on the way is debatable," he says, pointedly.

Big homes become hard to sell and finance

The new stimulas that flooding the Australian property market is not flowing up to the top of the market.
Melbourne house values are down about 2 per cent across the board over the past few months, but recent rate cuts and additional first-home buyer support, will make that sector more buoyant than other parts of the residential property market, valuer WBP says.
For example, Narre Warren, a typical first and second-home owner's suburb in Melbourne, has a very strong market in properties priced below $320,000, while the market from $320,000 to $500,000 is weaker.
WBP also says recent valuations in the blue-ribbon suburbs of Camberwell and Balwyn suggest the market has fallen between 10 and 15 per cent for properties priced at more than $1million, while those below $500,000 are less affected.The prestige sector, after being immune to 12 consecutive rate rises, is not faring well amid cuts to executive bonuses, a volatile share market, corporate profit downgrades and the increasing pressure of margin loans.Knight Frank Research, in its annual review of the prestige residential market released this month, says all these factors will affect prices.
The prestige sector generally held up well over the 2007-8 financial year. But even though it feels like ancient history now, sales volumes started falling in the first two quarters of 2008 in most capital cities, as the hit to family wealth started to befelt.In Melbourne, there were 44 sales of more than $5 million each, totalling $294 million for the 2007-8 financial year.
But 60 per cent of these were in 2007, with a 34 per cent fall in the value of sales in the first two quarters of 2008. The suburbs of Brighton and Toorak recorded the highest volumes in this price bracket, with nine sales of more than $5 million in each suburb.
In the entry-level prestige sector, the value of properties sold for the year was $2.17 billion, but that was down nearly 32 per cent in the first part of 2008. Knight Frank makes the distinction between entry-level prestige property, between $2 and $5 million, and top-end prestige property above $5 million.
In Sydney, it says, there are two distinct prestige markets. The first is mainly owner-occupied -- suburbs such as Woollahra, Vaucluse and Point Piper in the east, and Mosman, Manly, Neutral Bay, Cremorne and Hunters Hill in the north.The second is the beach areas of the upper north shore and around Palm Beach and Avalon.
A large proportion of these are second homes or luxury weekend retreats for those in Sydney's financial services industry.Prices for prestige residential property in Sydney actually rose 4 per cent over 2007-08 year, as measured by the Knight Frank Prime International Residential Index. But again, all the growth was in 2007, with a slowdown in the first half of 2008. Knight Frank expects the very top of the market -- the $10million-plus bracket -- will remain stable, and says trophy properties, which are usually waterfront or have harbour views, will always be in demand.
Areas with a high proportion of second or holiday homes, and entry-level prestige properties will be in for a tough time.More second homes are likely to hit the market, and entry-level prestige properties values will fall, as has already happened in suburbs more dependent on the financial sector for purchasers.

Mortgage and personal credit slowdown tipped as Australians are at "debt capacity" according to the Commonwealth Bank

Commonwealth Bank chief Ralph Norris says Australia's debt-laden household sector had reached its capacity for debt and a slowdown in borrowing is expected for personal finance, including credit cards, persoanl loans and mortgage home loans.
Mr Norris said hopes his business banking division will counter an expected slowdown in personal lending over the next year.
Speaking at a business lunch in Melbourne yesterday, Mr Norris said Australia's debt-laden household sector had reached its capacity for personal loans.
"If you look at the capacity for people to borrow, it's obviously getting to very high levels of capacity and I think there will be a tempering of demand in regard to personal lending," he said. "We have reached capacity for people to borrow which would see them start to reduce their appetite for additional borrowing.
"So we'll see a slowing in growth for personal lending and an increase in growth for business lending."
Since Mr Norris took over the reins of the bank in September 2005, one of his priorities has been to improve CBA's share of the business-lending market.
Rival major banks and niche lenders have eroded CBA's business customer market share from 22 per cent to 13 per cent in the last decade.
One of the big changes Mr Norris has made has put business bankers back into branches.
Despite the bearish outlook , the Australian Bureau of Statistics yesterday released data showing that personal finance commitments rose by 2.2 per cent in May.
On a seasonally adjusted basis, the value of personal lending reached $6.7 billion -- slightly above the trend figure of $6.6 billion.
The ABS said the rise was driven by a 5.6 per cent increase in revolving credit, which included credit cards and overdrafts, offsetting a 1.4 per cent decline in fixed-term loans.
CommSec equities economist Martin Arnold said the rise in personal finance indicated that consumers still had confidence in their financial position.
He noted monthly changes in lending finance figures were often volatile and best viewed over a longer period.
He said the rise in personal finance in May consolidated falls in the previous months.
Personal finance commitments dropped by about 0.5 per cent in April and 0.6 per cent in March.
Mr Arnold said commercial finance picked up during May as the robust business environment encouraged companies to invest in construction projects and the property market.
"Business lending makes up over 60 per cent of total lending, so it is an encouraging sign for future growth that businesses continue to expand their working capacity," he said.
Source: AAP