Are London house prices set for more falls? investmentwatchblog.com

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Are London house prices set for more falls?

by Shaun Richards

This morning has brought news on the state of play concerning UK house prices although I think the Guardian has tripped over its own feet a little in an attempt to slay several dragons at once.

House prices in parts of London that were once at the epicentre of the UK property boom have fallen as much as 15% over the past year in fresh evidence of the impact of the EU referendum.

Actually if you then read the article no evidence of it being caused by the EU referendum is given but in the article linked to by it from December we are pointed towards one rather likely cause as Russell Galley of the Halifax tells us this.

“As a result of the rapid price growth in the capital, house prices in relation to average earnings are still very high in London; at 8.8 times annual average earnings they are close to the historical high of 9.”

I do like the “additionally” in the sentence below, what could it be about the house price to earnings ratio that causes this?

Additionally, mortgage affordability in London is worse than its long-run average, the only region in the UK where this is so.

As we progress on we discover that the peak or nadir of the falls depending on your perspective is rather close to home for me.

Figures from Your Move, one of the UK’s biggest estate agency chains, reveal that the average home in Wandsworth – which includes much of Clapham, Balham and Putney – fell by more than £100,000 in value over the last 12 months………..Homes in the London borough of Wandsworth were fetching an average of £805,000 in January 2017 but this has now fallen to £685,000.

There have been falls elsewhere too.

Other London boroughs are also showing steep price falls. In Southwark, south London, the average price has dropped from £666,000 to £585,000 in 12 months, while prices have pegged back in Islington, north London, from £750,000 to £684,000.

At this point with Wandsworth and Southwark on the list I am starting to feel a little surrounded although a common denominator is beginning to appear.

Wandsworth and Southwark are home to huge speculative property developments facing on to the River Thames – including the Battersea Power Station development – but the market for £1m-plus one-bed properties has shrivelled in recent years.

The scale of this was explained in the Times just under a fortnight ago.

The new neighbourhood — Europe’s biggest regeneration zone, with 39 development sites across 561 acres — will contain 20,000 homes as well as cultural, retail and business facilities. It is set to be completed by 2022. A £1.2 billion Northern Line Tube extension will create two new stations, Nine Elms and Battersea Power Station, to open in 2020.

Or if you prefer in in picture form, here is a part of it which is yet to come.

If you cycle through it as you now can you get an idea of the scale that somehow cycling past does not quite give, If we return to the economic consequences of this we see that the existing lack of affordability in central London combined with the surge in supply is something that can explain the recent price falls. It was always going to require quite an influx of wealthy people to populate the area and of course that would be in addition to the many who have arrived in recent times. A sort of “overshooting” I think in assuming that a trend would not end. If we wish to help the Guardian out we could suggest that the EU Referendum has probably deterred some although it does not actually make that case and curiously I have seen one or two bits of evidence that more in fact have arrived ahead of possible changes. So something along the lines of what happened with Hong Kong a couple of decades ago.

Looking wider

If we do we get something much more sober. Here is LSL Acadata which produced the report.

Prices in London fell again in January, down £4,662 or 0.8%, leaving average prices in the capital at £593,396. That’s down 2.6% annually, the biggest decline since August 2009.

So we have gone from the 15% click bait to a reality more like 2.6%, However as we have often discussed this is significant as the UK establishment pretty much lifted heaven and earth to stop a significant house price fall post credit crunch. I remember prices falling in my locale and wondering of those selling were making a wise decision and that buyers would regret it? Instead of course we got the UK establishment house price put option as interest-rates were cut to 0.5% where they remain, QE and when they were not enough more QE the Funding for Lending Scheme and then more QE as well as the Term Funding Scheme. The latter has now finished albeit a stock of £127 billion remains as we await the next move.

Before we move on there was another hint in the data that affordability is the main player here.

The cheaper boroughs have fared better. More than half have seen price rises over the year, led by 4.5% growth in Bexley, which, with an average price of £363,082, still has the cheapest property in the capital outside Barking and Dagenham (£300,627).

Up up and away

We get reminded that the UK is in fact a collection of different house markets which are connected but sometimes weakly.

That’s now led by 4.6% annual growth in the North West, one of four regions to see new peak prices in January (along with the East Midlands, the South West and Wales).
Just eight months ago, the region was trailing every other region bar one. Now, it’s seeing strong growth in every part of the market: at the bottom, Blackburn with Darwen has seen the biggest increase in prices in the country, up 16.4% annually. At the top, Warrington is also seeing double digit growth, with prices up 10.3%.

Comment

We find on today’s journey that the trends for UK house prices remain in place as we see substantial falls in the new developments in central London and helping make the average price fall there too. This means that the UK picture is according to LSL Acadata as shown below.

Including this February, we are now in the ninth month where the annual rate of house price growth has continued to slow. It now stands at 0.6% when including London and the South East, or at 2.5% when excluding these two regions.

This represents quite a change from the 9% of February 2016 and the change has mostly been seen in London. This particular series makes a lot of effort to be comprehensive but like all efforts has its challenges and estimations.

We have subsequently recalculated all our various house price series on the basis of the new weightings, which has had the effect of decreasing the average house price in December 2017 by £6,340.

So did the average house price from this series go above £300,000 or not? I will let you decide.

One consequence of the new weightings is that the average price of a home in England & Wales has fallen below the £300,000 threshold, which we reported as having been breached during 2017.

As we mull what is or is not Fake News there was this in the Evening Standard?

Millennials, criticised by baby boomers for buying avocado on toast instead of houses….

Meanwhile eyes turn to the Bank of England as we wonder how it will respond as house prices in London fall? Perhaps its Governor Mark Carney is already thinking that June 2019 cannot come fast enough.

Published at Mon, 12 Mar 2018 22:46:54 +0000

Read the original article here.

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