House Prices Fall 17.6%

According to the Nationwide House Price Index, UK house prices have fallen by 17.6% in the 12 months to February. The fall during the month amounted to 1.8%. According to the building society average house is now worth £147,746. This is a fall of £31,612 against a year previously.

The Nationwide data conflicts with some of the anecdote emerging from the housing industry, that there has been an upturn in buyer interest. Much of the data suggests that the market has bottomed out and that for buyers with sufficient funds the market represents great value.

The market for housing market is currently hamstrung by the need to raise a much larger deposit than has traditionally been the case. First time buyers have typically entered the market with a deposit of 5 or 10%. However, finance providers have been reluctant to lend on this basis given the risks presented by negative equity.

A more positive sign is that the UK government-owned Northern Rock is back in the lending market. Prior to its demise as an independent business, Northern Rock was famous for its 125% mortgages. This time round, Northern Rock will require a 10% deposit.

John Charcol Fires 25% of Workforce

As the crisis in the UK homes market continues to intensify, leading independent mortgage broker John Charcol has announced that a quarter of its staff is to be made redundant. Charcol has a tremendous reputation and frequently quoted by the quality newspapers. If they're in trouble then the weaker players must be in a really bad way.

Reports are now flying on from all directions that the housing market has collapsed. Price and transaction levels are falling. Yet little has really been done by the UK government. Maybe it's time for a review of stamp duty.

Mortgage Lenders Predict House Price Decline

The Council of Mortgage Lenders have predicted a 7% fall in UK housing prices during 2008. This a 6% decline from existing prices, already down 1% on 2007. As I have mentioned before, such forecasts tend to be reflexive. Or in laymans terms, self-fulfilling. Once the people who control the vast majority of the finance markets for houses decide your house is worth 7% less than a year ago, they will lend proportionately less to fund its purchase. The prices therefore come down. A problem is the speed at which this happens. In previous downturns sellers failed to respond to the new, lower, price expectations and property remained unsold. If this happens, the market will ground to a halt, leaving estate agents, solicitors and DIY stores with much lower levels of business. This of course leads to more unemployment. Only this week, Economist Roger Bootle forecast that unemployment will rise by 750,000.

In my view the market will adjust more sharply. There will be a bigger price decline as buy to let landlords and those with highly leveraged borrowings bring a glut of property to a difficult market.

UK Housebuilder Hit by Property Downturn

Barratt, iconic builder of shoe box houses, reports more bad news from the UK property market. Barratt has a huge stock of unsold houses. Many buyers who have already paid deposits are dropping out as they struggle to raise mortgage finance. The bad news from Barratt comes just days after Redrow, another large house builder, announced thousands of redundancies. This comes on top of dire predictions about the number of estate agencies that will be forced to close. Only yesterday government minister Caroline Flint managed to have her briefing notes photographed by a long range photographer. See photo above right. The notes revealed the government's own predictions on the housing market. These were for price falls of 10% or more.

Whilst it's doom and gloom in the house building and estate agency market, the market for property management could hardly be better. As first time buyers, and many others on the margins of the market, struggle to raise finance the market for rental property is booming.

The Euro Starts to Fall

According to The Daily Telegraph, the Euro has started to fall relative to other currencies. UK consumers will note with some alarm that in recent weeks the spot exchange rate has been in the area of 1.25 Euros per £. Well down on last summer, when rate was close to 1.50.

The consequences for the UK may mean higher import and holiday costs but in many respects this is good for the economy. The consequences within the Euro-Zone may well be catastrophic, particularly for weaker members that rely heavily on UK and perhaps US trade. The Telegraph highlights Spain, which enjoys a favourable balance of trade with the UK. As the Spanish are finding out, the Brits are no longer buying houses, least of all in the Costas. What scarce mortgage funds that are available will be diverted to UK house purchases. Along with Ireland, Spain has seen a huge boom in the property market. Nowhere else is the asymmetry within European economies going to be so severely tested.