Halifax 9.375bd Regulatory News (HALP)

2 May 2008 08:00

HBOS PLC02 May 2008 Halifax House Price Index National Index April 2008 All Houses, All Buyers Index (1983=100) Index (seasonally adjusted) 611.8 Monthly Change -1.3% Annual Change -0.9% Standardised Average Price (seasonally adjusted) £189,027 Key Points • House prices fell by 1.3% in April. Prices were 0.9% lower on an annual basis. • We expect a mid single digit percentage decline in UK house prices this year. There will be regional variations, however. Some areas of the country, such as Scotland, are likely to record modest price rises whilst other parts (e.g. Wales and West Midlands) are expected to see falls above the national average. • Price falls should be viewed in the context of the substantial price rises over recent years. UK prices nearly doubled (190%) over the ten years to August 2007. The average UK price rose by more than £130,000 between August 1997 and August 2007. • The decline in prices is driven by a squeeze on spending power and the rapid rise in house prices in the last few years. These factors have curbed housing demand. The rise in interest rates between August 2006 and July 2007 has increased average mortgage costs. A decline in 'real' earnings over the past year has also constrained housing demand. • A growing - albeit slowing - economy, high employment levels, low interest rates and a shortage of new homes underpin housing valuations. The economy grew at an annual rate of 2.5% in 2008 Q1; in line with the long-term average. Employment increased by 152,000 in the three months to February compared with the preceding quarter and stands at a record high 29.5 million. • More Bank of England interest rate cuts are expected over the coming months as signs of the expected economic slowdown accumulate. This evidence will help to allay the MPC's concerns regarding inflation over the medium term, providing scope to reduce rates. • This month we look at housing transaction levels as part of our occasional series on key market developments. Transaction levels in recent years - averaging 1.16 million a year during 2005-2007 - have been much lower than during previous cycles (1.7 million in 1988). Commenting, Martin Ellis, chief economist, said: "House prices fell by 1.3% in April. We expect a mid single digit percentagedecline in UK house prices this year. There will be regional variations,however. Some areas of the country are likely to record modest price riseswhilst other parts are expected to see falls above the national average. Price falls should be viewed in the context of the substantial price rises overrecent years. UK prices nearly doubled 190% over the ten years to August 2007.A growing economy, high employment levels, low interest rates and a shortage ofnew homes underpin housing valuations." Pressures on householders' income curb housing demand The decline in prices is driven by a squeeze on spending power and the rapidrise in house prices in the last few years. These factors have curbed housingdemand. The rise in interest rates between August 2006 and July 2007 hasincreased average mortgage costs. There has been a modest decline in 'real' earnings over the past year. Averageearnings rose by 3.7% in the year to February, below the 4.1% increase in theheadline rate of retail price inflation over the same period. Sharp increases inboth fuel (4%) and food prices (6%) over the past year have helped to reduce thediscretionary income available to households to fund house purchase. Housing market activity is significantly lower than a year ago Completed property sales in March were down 20% on an annual basis. The numberof new buyers interested in home purchase fell for the sixteenth successivemonth in March, highlighting the decline in housing demand. (Source: RICS) The number of mortgages approved to finance house purchase - a good leadingindicator of house sales - in Q1 2008 was 41% lower than a year earlier. High employment and low interest rates support house prices A growing economy, high employment levels, low interest rates and a shortage ofnew homes underpin housing valuations. The economy expanded at an annual rate of2.5% in 2008 Q1; in line with the UK's long-term average. The quarterly rate ofgrowth, however, did slow from 0.6% in 2007 Q4 to 0.4% in 2008 Q1. Employment increased by 152,000 in the three months to February compared withthe preceding quarter and was 456,000 higher than a year earlier. The totalnumber of people in employment stands at a record high 29.5 million. The UK economy is forecast to slow during the course of 2008, recording belowtrend growth for the first time since 2005. We expect there to be a modest risein unemployment later in the year due to this easing in growth. The scale of theincrease in unemployment is unlikely to cause widespread difficulties forhouseholds. MPC to lower rates further during the next few months More Bank of England interest rate cuts are expected over the coming months asconcrete evidence of an economic slowdown accumulates. This evidence will helpto allay the MPC's concerns regarding inflation over the medium term, providingscope to lower rates. The MPC is nonetheless expected to maintain a"gradualist" monetary policy stance, lowering rates at a steady pace. HOUSING TRANSACTIONS The number of housing transactions in recent years has been significantly lowerthan at the height of the late 1980s housing boom There were 1.17 million house sales in England & Wales in 2007 and an average of1.16 million in the last three years (2005-2007). This is nearly a third lowerthan in 1988 when there were an estimated 1.7 million transactions. Transactions have also been significantly lower as a proportion of the housingstock in recent years; averaging 7% during 2005-2007 compared to 12% between1986 and 1988. The number of first time buyers (FTBs) has also fallen sharply in recent years An estimated 300,000 FTBs entered the market in 2007, the lowest since 1980.This compares with an estimated 900,000 at the peak in 1988. FTBs have alsodeclined sharply as a proportion of all borrowers taking out a new mortgage tofinance house purchase, accounting for 30% in 2007 compared to 51-52% in 1989and 1990. (FTBs accounted for 14% of all new mortgages (i.e. includingremortgages) in 2007 against 45% in 1993 (the earliest available data on thisbasis).) Buyers have been putting down bigger deposits than in previous cycles The average deposit put down by FTBs in 2007 (£34,381) represented 20% of thepurchaser price compared with 12% in 1989. This information is provided by RNS The company news service from the London Stock Exchange