The September house price survey from the Nationwide Building Society has no doubt caused jubilation for Daily Mail readers around the UK, on Friday.
According to the report, not only did house prices rise for the fifth month in a row, they are now at the same level they were at a year ago.
Joy!
Except, as Nationwide also pointed out, there is still one area of concern (our emphasis):
One reason to remain cautious about the outlook for house prices is that turnover in the market is still well below normal levels. The housing turnover rate — measuring the percentage of the private sector housing stock changing hands on an annualised basis — fell to only 3% at the end of 2008. Although it has since recovered to nearly 4%, there is still quite some way to go before turnover reaches the pre-downturn level of between 7% and 8%. Lead indicators, such as mortgage approvals for house purchase, suggest that turnover should continue edging higher over the next few months, but at the current rate of increase it would take another 18 months for it to reach pre-downturn levels.
“There is usually a fairly strong correlation between housing turnover and house price inflation. Under normal circumstances, the current turnover rate would probably still be too low to be consistent with positive house price inflation. However, during periods when only a small proportion of the housing stock is available for sale, even a relatively low turnover rate can be consistent with increasing house prices. There is widespread evidence that this has been the case so far this year, which explains much of the rebound in house prices since the February trough.
Which means the market remains illiquid.
And judging by Bank of England housing equity withdrawal figures, also released on Friday, many homeowners are still more concerned about resolving weak equity positions than taking properties to market. According to the BoE, UK homeowners pumped some £7bn worth of equity back into their homes between April and June.
This, as Howard Archer of IHS Global Insight points out, is unlikely to help out consumer spending. It’s also a situation most likely being encouraged by a low savings rate environment:
Substantially reduced house prices compared to their 2007 peak levels have made housing equity withdrawal increasingly unattractive, while very tight credit conditions have made it more difficult to carry out the process. In addition, recent extremely low savings rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages. On top of this, it is clear that many people are keen to improve their personal balance sheets given higher debt levels and the worrying economic situation. Hence, the marked overall net injection of equity over the past five quarters.
Housing equity withdrawal has been used significantly to support consumer spending in recent years. Consequently, the sharp turnaround from substantial withdrawals up to and including the first quarter of 2008 to a net injection of equity over the past five quarters has added to the constraints on consumer spending.
Related links:
Land of the distressed buyer - FT Alphaville
UK housing market, the untold story – FT Alphaville