What's the true value of your house?
Few statistics are viewed with greater anxiety, trepidation, and occasionally excitement, than forecasts of house prices.
What might explain why the various providers of these figures supply a diverse miscellany from which you can choose, though in truth all are drawn from the bottomless well of guesswork.
Mind you, for 10 halcyon years before the credit crunch struck like a meteor from the dark unknown the guessing was all one way - how much would prices rise?
Living a lie
Looking back, it all seems like a dream. And so it was until 2008 when we woke up with a start to discover that we had been living a lie. Housing prices were not after all destined to rise perpetually, like hot air, and were capable of falling, like hailstones.
In December 2007, the last year of the boom, the Halifax index estimated the average home to be worth £197,074. A year later it had fallen to £159,896, a drop of 18.9%. In the space of a year, a market whose prices had risen by 200% in a decade, collapsed so completely that in 2008 estate agents were reported to be selling less than one property per week.
Ever since those bleak days, potential homebuyers, sellers, housebuilders, surveyors, politicians, economists and mortgage lenders have, like watchers of the skies, been looking for a sign, a portent, that might signal the return of better days.
Now, at last, they have spotted a few glimmering lights, something that might suggest the long-awaited recovery might be just over the horizon.
In 2012, the number of first-time buyers entering the UK housing market rose for the first time in five years. According to the Council of Mortgage Lenders, 216,200 buyers entered the market in 2012, the first time the figure had exceeded 200,000 since 2007 and a 12% increase on the previous year's figure, when 193,000 loans were advanced.
This year, the market got off to a promising start, with the property search company Rightmove reporting that prices in February were 2.8% up month-on-month, their highest since February 2008.
There was more good news. Persimmon, Britain's biggest housebuilder, and its rival Bovis both posted a sharp increase in profits. They attributed rising margins to land bought cheaply during the crash and to switching their construction from city centre flats to more expensive family homes.
Clawing its way back
But as ever, in this most enigmatic of markets, the picture becomes blurred behind a haze of conflicting statistics and forecasts. According to Halifax, house prices fell by 0.3% in 2012 and will remain at the same level this year; but, according to the Office for National Statistics, house prices rose by 3.3% last year.
According to economists at Investec, house prices will "claw their way off the bottom through 2013, as the housing market starts to find its recovery feet, helped by a continued recovery in the UK jobs market"; but, according to economists at Capital Economics, house prices will drop by 5% this year, followed by a further 3% fall in 2014.
As with all markets, however, the key to understanding what is going on, and just perhaps what might happen next, is to look at supply and demand, the twin forces that determine price.
On the supply side it is generally agreed that there is a shortage of housing, particularly of the affordable variety so vainly sought by first-time buyers. While some argue that the scarcity is exaggerated by developers and the government, there is no doubt that larger family homes in popular areas are too few.
"From a supply point of view the number of repossessions is a lot lower than in previous downturns and new-build isn't being developed at previous rates," says Miles Shipside, director of Rightmove. "So we are not exactly swamped with for-sale boards."
Gloomily, Capital Economics sees no sign of a sustained recovery in housing supply and predicts that private housing completions will rise to about 115,000 in 2014, still some 20% below the 2007 level.
Significantly, it adds: "In terms of what is holding activity back, housebuilders continue to identify the lack of mortgage finance as the biggest obstacle to expanding production. After all, there is little point in building homes they cannot sell".
So, in the constant interaction between supply and demand it is demand that has the upper hand, and the key component is the availability of mortgage finance. Once again, the signals are mixed, with a small improvement being largely discounted when set in a historical perspective.
According to the Bank of England, mortgage approvals for house purchases reached an 11-month peak in December, as lenders approved 55,785 new mortgages, a trend that continued into the New Year.
Some of this improvement is attributed to the government initiative NewBuy, where the state part-guarantees lending to buyers of new-build properties, but more to the Funding for Lending Scheme, which is credited with stimulating lending and helping to open up the mortgage markets.
A fully-functioning market
That said, mortgages are still hard to come by. "Before the credit crunch it was possible to put down a 5% deposit or less," says Shipside. "Now, to get a reasonable chance of a mortgage at a reasonable rate you've got to be putting down 10% and you've got to be pretty squeaky-clean on your credit score. To get the best rates you've got to be putting down 30 or 40% and, obviously, that takes a lot of saving."
All in all, it's fair to conclude that the market, though no longer in violently choppy waters is still largely becalmed. "Some five years after the start of the financial crisis, the housing sector in the UK still does not bear the hallmarks of a fully functioning market," says Gráinne Gilmore, head of UK residential research at Knight Frank real estate consultants.
"Transaction levels have roughly halved since the last market peak in 2007, and are 35% below the 20-year average, as first-time buyers and those further up the housing ladder struggle with tighter mortgage lending rules. The fundamentals suggest that a further correction in prices is needed as the relationship between aver- age earnings and average house prices is well above the long-term average."
Since 2000, wages have not risen as fast as property prices, and since the onset of recession they have stood still while inflation has risen sharply.
During the great housing bubble, when property prices were booming, it had the effect of paying off mortgages. Those who bought in the eighties sat back and watched their property rise to be worth as much as 10 times their mortgage. However, inflation pays off debts only when wages rise in line with prices. Otherwise, you just get poorer.
Today, property is no longer a hedge against inflation. In a sector where, as we have seen, forecasting is notoriously flaky, the Royal Institute of Surveyors monthly housing market survey is possibly the best predictor. And what does it tell us? Well, in January 4% more surveyors expected house prices to fall. In the same month, the Halifax UK three-monthly house price index saw a 1.3% year-on-year rise.
"We do not see average prices reaching their 2007 peak again until 2019 – which would mark the longest period between price peaks in more than 60 years," says Gilmore. "Once inflation is stripped out, average UK house prices are unlikely to hit 2007 levels again in real terms until 2031."
"The truth is it's a patchy picture," says Shipside. "You could paint a positive or negative picture depending on where you are in the country and what sort of price bracket you are in. There is, he adds, a stand-off between sellers and buyers. "Unless they have to sell, sellers are reluctant to come down a bit. And of course buyers want the best possible price. The stand-off gives you a degree of a false market.
"It depends what you go for: do you have a major fall in prices and a quicker recovery, or do you have this phony transaction market where sellers take a long time to re-adjust their prices and in the meantime they get eaten away by inflation? This time it is a slow adjustment, which means it lasts a lot longer but isn't as painful in terms of mass repossessions."
In some ways it's a mistake to think of property simply in terms of a market driven by the capricious whims of supply and demand. For most people a house is also a home and the British hold dear home ownership. Okay, prices have fallen by 20% but for many potential buyers that's a great opportunity.
A combination of lower prices and low interest rates is a godsend for first-time buyers and those wanting to move up the property ladder, but only if they can raise a hefty deposit. As always, economics, unsympathetic and unforgiving, has the last word.
This feature was written for our sister publication Money Observer
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.