When I went on maternity leave at the end of last year I promised myself that on my return I would write no more columns about the property market. But when I made that promise I did so on the assumption that the argument was over, that everyone agreed we were at the beginning of a truly nasty property crash that wouldn’t be over until prices were down a good 40%. It turns out it isn’t so.
When I emerged from milk and nappies a month ago I did so to a nation still intent on ruining its finances mortgage payment by mortgage payment. Country Life tells me that 2009 is offering me the opportunity of a life time to buy a country house; the ever optimistic Stuart Law of Assetz is blogging that we should “make no mistake, the house price recovery is here”; my inbox is jammed with promotional emails from the likes of Progressive Property explaining how they can help me build a property portfolio “which will grow by £50,000 a year”; and I can hardly move for the developers lining up to explain how and why March marked the market’s bottom.
Look at the few bits of data out in the last few days and you might think this makes some kind of sense. We recently found that in February monthly mortgage approvals were up to 37,900, the highest levels since May 2008. Numbers from Mortgage Brain also showed that the number of mortgage products on the market is on the up too: by the end of March there were over 3,000 on the market – up 13%. Then, most excitingly of all, came the Nationwide house price data, which showed that prices in March were up £3000 (0.9%) to an average of £150,000. Add that to the fact that everyone is reporting a rise in enquiries and to a general improvement in sentiment and you can “feel the bottom” one small developer told me this week.
I’d love to think he was right (not least because it would give me an excuse to start looking for a house to buy myself) but I suspect all he feels is the beginning of spring.
Lets start with the mortgage approval numbers. Yes they are up. But not much. The long-term average since the series began in 1993 is 94,000 a month. So 38,000, a number that is 40% down on last year, is not very encouraging.
Much the same can be said of the number of products available. 3,091 might sound like a lot but it is still 80% fewer than this time last year and 30% fewer than even in December. It hardly suggests a return to the days of the easy credit, which drove the bubble in the first place.
Then look at the price data. Only days before the Nationwide numbers we had the Land Registry numbers. These are the most authoritative numbers we can get – although even they tend to paint too optimistic picture of the market as they exclude the prices of repossessed properties – and they showed the decline in house prices actually accelerating. They were down 2% in February making the annual rate of decline now 16.5%. Note too that if you look at the Nationwide quarterly numbers you see that prices fell 4.2% in the first three months of the year. Look at it like that it’s hard to get too excited isn’t it?
The truth is that all real bear markets tend to offer the unwary one last opportunity to lose money. The summer of 2009 is probably that opportunity this time round. There may well be a big pick up in inquiries, transactions and even prices over the next few months. This will be partly down to the fact that it is spring, a time when enquiries always pick up anyway; partly down to the fact that for those who have cash and want to buy at some point the bear is getting boring (one can only wait so long for a bottom before one just buys in and hopes for the best); and partly because a lot of property looks cheap relative to its peak price.
But the basic market conditions are still all wrong for recovery. For starters, cheapness shouldn’t be measured relative to peak prices but relative to historical trend prices. And on that basis UK house prices are still totally out of whack: they’ve still a long way to fall to get to anywhere near the usual 3.5 times average earnings.
Using the Land Registry prices and ONS numbers on average earnings, you will see that the ratio is still well over five times. A house that looks cheap compared to its 2006 price still looks very expensive compared to its historical average.
Still, even if you aren’t fussed about long-term affordability ratios, consider this. For a real recovery to get going now a very large number of people need to have five things: a job; a firm belief that they will still have a job in five years even as unemployment rises over three million; a conviction that you can’t lose in the long term with bricks and mortar; a good £20,000 as a deposit; and most importantly of all, the ability to get a mortgage. Know many people like that? Nor do I.
• A version of this article first appeared in the Financial Times on 22 May