Property Crumble

As forecast UK property prices delivered a miserable performance in the first quarter of 2011.

On the surface, small monthly drops of 0.1% were well masked by the selling and mortgage companies which forgot to include the impact of inflation and overall maintenance costs.

In February 2011, housing prices fell – in real value – at a sharp rate as monthly inflation inceased by just under .8%.

The current position of the Bank of England is to hold fire on raising interest rates – despite 3 of the 9 man team voting for an increase – which means that the bank is content for inflation to do the damage to UK property prices.

Hence, as argued in our 2011 property price forecast, we expect to see an overall drop of 3% in 2011 but a real fall in value of around 8%. To date, the Bank of England’s interest rate strategy has been inline with that prediction and hence we don’t expect to see rate inceases until the Summer at the earliest.

The result is that prices will not only slide gently in 2011, whilst fallling in real value faster, but also we can forecast further property price falls in 2012.

The property price gloom mongers are among us.

The nights are drawing in and the hoped for (hoped for? who ever beleived this?) pick up in US and UK housing markets in the Autumn failed to materialise.

Earlier this month, the UK’s Halifax reported monthly falls of 3% in average property values – a huge decline. Whilst fellow mortgage lender and property price index tracker, Nationwide, reported just 0.1%.

In mid/late October bank stocks began their 3rd quarter reporting season – profits sharply down, concerns over the mortgage book and stock prices taking a hit.

Now then, does this put us in place for a 30% decline in property prices? Should forecasts for 2011 of a 30% property price drop be believed?

No.

It’s not that bad.

Don’t forget that the central banks – US Fed, UK Bank of England and Euro Central bank – have all been withdrawing from their various forms of printing money (know as quantitive easing in some cases or special liquidity rules etc…).

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