When house prices slipped during the financial crisis, nobody was surprised. The property market had been scaling dizzying heights for a decade.
The only surprise was that they didnt tumble further. The Bank of Englands decision to slash interest rates to 0.5% almost exactly six years ago gave the market a desperately needed shot in the arm.
Six years later, this property market stimulus continues to be injected at maximum dose. But like any drug, the effects are finally wearing off.
Pump It Up
The sheer scale of stimulus pumping up house prices is so extreme we no longer notice it. In fact, we think it is normal.
Yorkshire Building Society has just launched a two-year fixed rate mortgage charging an almost impossibly low 1.18%, albeit with a 1,499 fee.
First Direct offers a 10-year fix at 2.89%, with a 950 fee.
These are hallucinogenic rates, but the weird thing is they are no longer doing their job. House prices have run out of juice anyway.
UK prices fell by 0.1% in February, Nationwide reports. The rate of annual house price growth has now fallen for six months in a row.
This followed a 14% drop in mortgage lending in January, according to the Council of Mortgage Lenders.
Buyers are no longer fooled. Nearly three-quarters of houses sold in January went below their asking price as buyers start to negotiate again, according to the National Association of Estate Agents (NAEA).
Rates Will Rise
Estate agents, brokers and lenders are in denial, claiming this is seasonal, but its been going on for six months now.
They also blame uncertainty over the upcoming general election in May, even though I dont think that is really in buyers minds yet.
If rising employment, the first real wage growth for years, and insanely low mortgage rates cant keep the house price party rolling, what happens when rates start rising, as they eventually will?
Young, Free And Renting
Young people have seen what is coming. Bank of England figures show the proportion of 25-34-year-olds owning their home has plunged from 59% to 36% in the last decade.
The next generation of would-be buyers has already hit peak housing market. The rest of us will get there soon enough.
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