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Which way now for property?
As we entered into this year, we were all told to expect that 2011 would bring “more of the same” – carrying on where 2010 left off.
Looking at the Halifax house price index from the first two months of the year, February’s decrease offset January’s gain and put house prices back on a par with the end of 2010. So far, so more of the same.
However, look to the events taking place in the wider economy, and it’s clear that uncertainty is the only certainty of 2011. Right now, there are significant global events driving this – but we can’t ignore the impact it could have on our market.
Three recent factors also have yet to wreak their full impact on the world’s economic recovery. Big questions linger concerning the impact of the unfortunate recent events in Japan; unrest in the Middle East, particularly in Libya, has put substantial pressure on oil prices; and there has been increased volatility in the Eurozone with the Irish government grappling to re-negotiate its bailout. Furthermore, the downgrading of Spain’s credit rating and high Portuguese government bond yields continue to cloud the economic waters there.
Closer to home, the final quarter fall in the UK’s economic activity in 2010 has been revised from -0.5% to -0.6%, though the bad weather of last year makes it difficult to pinpoint the underlying economic trend.
For us, of course, the health of the housing market is key to the health of our own business, as it is to intermediaries. When you look at some metrics – it’s difficult to dress it up – consumer confidence is at a two year low and weak surveys of consumer spending are areas of concern.
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At the same time, house sales remain low. There is also little prospect of sales increasing in the short term, as fewer properties have been coming onto the market in recent months. However, this trend, if sustained, should help improve the balance between demand and supply.
Overall, we expect a modest 2% decrease in house prices in 2011. Balancing the supply and demand in the market will help to prevent a greater fall.
Mike Jones is sales director of mortgages at Lloyds Banking Group