Estate agents have a glint in their eyes again, the property sections of newspapers are back in business, and even mortgage lending is picking itself up from the floor. The worst of the housing crash appears to be over.
And it is not just in Britain. The far larger and far more important US housing market has crawled out of the intensive-care ward. Since it was the collapse in property prices around the world that plunged the financial system into chaos and started the recession, it might seem reasonable to suppose that property can drag us out too.
The stockmarket certainly seems to think so. Every time the house-price indexes tick up another point, equities rally on the news. But the property market isn’t going to be able to re-boot the global economy. It may have led the last boom, but it won’t lead the next one.
Still, that doesn’t mean the signs of recovery aren’t real. Last week, the Nationwide Building Society reported that British house prices rose for the fifth month in a row. This week, meanwhile, Halifax reported a 1.6% monthly rise. Prices are now back to the same level they were a year ago, when the collapse of Lehman Brothers triggered a global panic. They aren’t quite back to their peak, but they aren’t too far off it.
Mortgage lending is steadily picking up and even if volumes are thin, properties are shifting. It may be a while before the TV schedules are packed out again with shows on how to make a quick million from tarting up a semi in Wrexham, but the market looks healthier than it did six months ago. Much the same is true in the US. American house prices notched up their biggest monthly gain in four years in July. They rose 1.6%, the third consecutive monthly rise. Of the 20 largest cities, 18 reported price rises. With prices a third off their 2006 peak, it will take a long time to recover all the losses. Still, the trend looks to be upwards.
Of course, we can question how durable that recovery will prove. Interest rates remain exceptionally low. With base rates at less than 1%, most people can afford at least to pay the interest on their mortgage. When rates start getting back to normal, monthly mortgage bills will soar. A lot more people will be repossessed, pushing more properties onto the market at fire-sale prices. And we may well be only half way through a double-dip recession. There could be lots of economic pain ahead. None of that will be good for the housing market.
The more interesting question, however, is whether housing markets can kick-start the global economy. The banking system, for starters, is critically dependent on property prices. A property – either commercial or residential – is the collateral for most loans. As prices recover, the banking system will start to look a lot healthier, and that will strengthen the economy.
Consumers will also start feeling more confident. As their houses recover some value they will start spending more. There may not be a recovery in mortgage equity withdrawal but there will be a tick-up in sentiment. However, it would be a big mistake to expect a house-price recovery to spark another boom.
First, there is too much supply on the market. The decade-long bubble in property prices led to construction booms in America, Spain, Ireland and, to a lesser extent, the UK. The Spanish coast is cluttered with new apartments and villas. Old industrial cities such as Leeds and Newcastle are full of smart new blocks of flats, most of them empty. It will take a long time to clear all that surplus stock – and until that happens, prices aren’t going to rise much further.
There won’t be much fresh demand either. A big part of the housing boom was demographic change. As populations rose and waves of immigrants moved into booming countries, demand soared. But over the next couple of decades, those trends will go into reverse. Low birth rates mean static or falling populations. And migrants are not going to be moving to countries where stagnant economies are not creating new jobs.
The financing isn’t going to be available either. Over the last decade, mortgage lenders gradually loosened their criteria. They decided not to worry too much about whether you had a job, or a deposit or, indeed, showed much inclination to pay off your debts. Some of that was justified – there was never much point in excluding the self-employedfrom the mortgage market, for example. But it went too far. And it’s going to be a long-time before the 125%-self-certification loan returns.
Lastly, there are too many burnt fingers. Bankers aren’t going to pile into mortgage lending again in a hurry. And home-owners will go back to thinking about their homes as a place to live, rather than an extension of their bank account. As a rough rule of thumb, it takes the financial markets about 20 years to forget – so it will be 2030 before we’ve erased all memory of the credit crunch and the housing bubble that led into it. So although the global economy will start booming again at some point – it always does – it won’t be the housing market that re-boots it.