Turning a corner

IT’S interesting to note what’s happening in America’s housing market as much the same happens in Britain six to 12 months later – and in Guernsey three to six months after that.

The New York Times, CNN broadcasting and Forbes magazine all report that the number of house sales fell for the sixth consecutive month in July as higher mortgage rates continued to ‘push would-be buyers to the side lines’. While some buyers have forged ahead irrespective of prices at all-time highs and mortgage rates rising faster than expected, others in modern-day America have put their home search on hold or have given up entirely because the rising costs have put ownership out of reach.

Forbes says mortgage applications dropped to the lowest level at the end of June, marking the biggest slump in 22 years, and that’s according to America’s Mortgage Bankers Association.

The NY Times quotes Federal Reserve officials as saying the housing market is showing conflicting signals and although activity has slowed, it’s far from bust. The Federal Reserve sets America’s interest base rate and while officials are predicting a continued slow-down they say high levels of employment and demand continuing to outstrip supply may stop the slowdown from turning into a slump.

In the UK the Bank of England’s Monetary Policy Committee increased its base rate from 0.1% to 0.25% in December 2021 and has since rapidly increased it further to 1.75%.

The Times newspaper claimed last week that the UK property boom might soon be over, followed by a house price correction, prices that according to Nationwide building society data have nearly trebled in the UK since the turn of the century, notably increasing by more than 60% over the last 10 years.

During the same period Guernsey’s average house price has nearly quadrupled, standing at £154,500 in 2000. Not that I place much credibility on the quarterly summary of our relatively small property market that over the years has changed its modes and methods of reckoning.

The Times considers supply and demand to be the main long-term driver of the UK housing market, although the Bank of England says interest rates have in fact been powering buyers’ confidence, having been low for more than a decade.

It’s still relatively cheap to borrow money to buy a home, says The Times, but further interest rises are expected, which would dampen the housing market by the end of the year and into 2023.

The Guardian newspaper explains how this will not necessarily help generation rent to buy a home. These are the young adults born in or about the 1990s who have been priced out of the housing market and are paying a high percentage of their income on rent. The impending squeeze on household finances as a result of escalating living costs will make it even harder to save for a deposit.

Not that the Guardian is in favour of political leaders throwing money at the housing market when it suits them, specifically criticising the Help to Buy scheme introduced under David Cameron and last year’s stamp duty holiday under Boris Johnson. The UK economy’s addiction to house price inflation, claims the newspaper, channels investment into the housing market instead of more productive and socially useful areas.

Rather than deter investment in property, however, I suspect investors with large cash piles may take advantage of any downturn to hoover up properties on the cheap. Neither will any slowdown affect the public’s love affair with property at the top end of a market largely unaffected by the wider economic situation.

Nonetheless, with recession fears looming, homebuyer sentiment is changing. In the words of the chairman of UK estate agent Jackson-Stops, Nick Leeming, ‘On the same day that inflation reached double figures, a sense of restraint started to creep into the property market’.

Tom Bill from estate agent Knight Frank said that rising interest rates had initially hastened demand as buyers attempted to move before their mortgage offers expired, but even the resurgence in new listings that began in late spring has been put on hold as more people take a summer holiday for the first time in three years. According to Knight Frank, ‘the bigger picture is that prices are waiting for gravity to arrive this autumn’.

As for Guernsey, there was a strong start to 2022 with 199 local market sales during the first quarter of the year, an increase of 16% on the same quarter in 2021.

This year’s second quarter saw 236 local market sales, which although more than the previous quarter was actually 61 fewer than the same quarter last year, a 25% decrease.

Combining the two quarters equates to reasonable half-year figures, however the trend for fewer sales has continued into July and August.

There was a 33% year-on-year reduction in local market sales during July and August looks to be heading for a reduction of about 30%.

Not that this is necessarily a bad thing. The pace of our frantic housing market was unsustainable and the change of pace I wrote about at the end of last year has taken longer than expected, but now shows signs of slowing down as the housing market prepares to turn a corner.