Tuesday, August 04, 2009

Unaffordability - the saviour of our housing market

Last week I reported on the truly staggering empty homes problem in the United States. The popular repost is - it could never happen here. Well possibly, but probably not for the reasons you might think

When the property market started falling last year there was much talk of what the graph would look like. Would it be a quick down and up “V”, a slower “U”, a down up down and up “W”, a down and stay down “L”, or my particular favourite analogy a down, stay down, then up “skip shape”.

A year in, with talk of property prices and stock markets rising, and banks back in the black, it is now apparent that the “U”, “L” and “skip” property markets are not on the cards. We may have a quick “V” downturn after all. To many people three months of house price rises have come as something of a surprise. The flood of repossessions was less extensive than feared, and with fewer properties on the market, those that are available have scarcity value. Phew, that wasn’t so bad was it, lets crack open the bubbly.

Well hold on there is still the possibility that this may be the middle up slope of the “W”. Or indeed a shape we haven’t even thought of yet. As I reported here last week the property market in the United States, which started falling six months before ours, has taken a real battering. And although there is no guarantee that ours won’t follow; one little discussed factor may have saved our housing market from meltdown. Ironically it is one that is usually spoken of as its greatest weakness – unaffordability. This problem has resulted in younger people being priced out of owner occupation. Indeed in 2007 the average age of a first time buyer had reached 34, up seven years since 1977. Now as it so happens, it is that same age group that have been hit hardest by the recession. Increases in unemployment have been greatest amongst the young . The older (mortgage holding) work force has been comparatively spared – so far at least. This means that a relatively small number of redundancies have resulted in property repossessions in the UK. The United States on the other hand, with its lower house prices and sub-prime loans, has high owner occupation rates amongst those hit hardest by redundancy. They have been overwhelmed by foreclosures. Some analysts believe there could be 10 million there by 2012.

There are of course many people here whose lives have been devastated by the recession. Not least tenants in buy-to-let properties that find themselves evicted becasue the landlord couldn't keep up with mortgage payments. A further rise in unemployment could well start affecting larger numbers of owner-occupiers as well. In the meantime at least perhaps we should be grateful that millions of us won’t be losing our homes because we couldn’t afford them in the first place.

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