Predicting 4 more years of negative equity for those who bought at the peak

Tens of thousands of homeowners who bought during the housing boom face another four years of being trapped in negative equity, according to a new forecast published yesterday (Tuesday 31 August) by the National Housing Federation.

People who purchased a property in England at the peak of the market in 2007 paid an average price of £216,800. But they have been warned they will have to wait until 2014 – when average prices are predicted to hit £226,900 - before they recover what they paid for their home seven years earlier, according to the research

Homeowners who bought during the peak of the market in 2007 are likely to experience continued negative equity until 2014 – based on average house price figures for England.

The Federation, which represents England’s housing associations, said it feared an entire generation of people would be locked out of the housing market as a result of high house prices.

The new report – Home Truths 2010 - shows the country is in the midst of the worst housing crisis for generations.

It found:

• While demand is growing, supply of new housing is falling. In 2009/10 just 87,360 new homes were started in England, producing only enough homes for a third of the new households forming each year.
• Despite the recent recession, house prices nationally are still 19% higher than five years ago and 120% higher than 10 years ago.
• More than 1.76m households, or the equivalent of 4.5 million people, were on social housing waiting lists in 2009, a 23% increase in the last five years.

Federation chief executive David Orr said:
"For those who bought at the peak of the housing boom, there's a strong possibility that they will have to wait another four years before their home is actually worth what they paid for it.

"There’s a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead."

He continued,
"Proposed caps on housing benefit payments could also put nearly a million people on low incomes at risk of losing their home – and further deepen the nation’s dire housing crisis.
'We would urge the Government to closely consider the huge human, social and economic cost of failing to invest in affordable housing."

Putney Agent Tim Warren of Warrens said:
"The first half of 2010 has seen a steady turnover of sales in Putney with prices creeping back towards the highs of 2007, in itself surprising when one considers the precipitous state of the UK economy. However, the Putney market has proved fairly resilient over the years and especially attractive to those with young families taking a long term view. Inevitably in June, activity slowed with the onset of the summer holidays and a growing feeling amongst purchasers that prices had peaked .

The media are full of reports predicting a slowing down of the housing market as banks tighten their lending criteria and the Government’s austerity measures start to bite and as The Times illustrates today, average house prices are still well ahead of average earnings in relative terms."

Tim continued:
"It’s possible that a small adjustment downwards may be required to facilitate sales in the forthcoming months although data bases are reasonably well stocked with potential buyers, interest rates are still very low and at any one time the supply of properties for sale in Putney is often wanting, keeping competition keen. Another relevant factor is the huge increase in rental applicants, encouraging property owners to become landlords and remove their properties from the sales market thus diminishing the number of homes for sale .

In as far as one dare look forward, I expect that the Putney sales market will settle down and for a while we won’t see the dramatic upswings of the last twelve months, surely a good thing for most of us!"

September 1, 2010