As the market bottoms out, now is the time to secure that bargain - 03.04.2009

Author: Michael Aglony Posted on: 03 April 2009

In our blog on 17 February - Are house prices rising or falling? - we set out to explain the differences between some of the leading house price indices on the market. At that time The Halifax HPI had just posted a month on month increase of 1.9% whereas the Nationwide HPI indicated drop of 1.3% (in line with most of the other indices published).

Well guess what – the picture is now reversed with Halifax reporting a drop in March of 1.9% and Nationwide reporting an increase of 0.9%.

Under normal circumstances the volumes of transactions handled by each of Halifax and Nationwide should ensure that the indices produce comparable results – but the reduced transaction volumes and the extraordinary general market conditions at present mean that these differences are not too surprising. However the fact that we are seeing these differences rather than just uniform price reductions probably means that the market is on the turn. I don’t want to give the impression that I believe we will soon see prices starting to rise again – rather that we have moved into the market phase where we can expect to see conflicting data regularly. And that over the course of the year we will see the ratio of negative buy to let mortgages and residential mortgages news move steadily in favour of the positive.

Halifax also reported that house prices are currently 4.4 times average earnings compared with a long term average of 4.0. In normal circumstances we would expect a significant “overshoot” in a price correction so that prices might end up at only 3 times earnings. But much of the data in the recent past upon which this is based occurred when interest rates were considerably higher than at present so that the costs of ownership and hence affordability of housing was much worse. For this reason we think that a major overshoot in price reduction is unlikely and so if you want to be buying at the bottom of the market you should be looking in earnest for that bargain now.

Author: Michael Aglony