July 16, 2008 | posted by Michael Baxter in House prices | comments (2) |

“Strange days indeed,” said John Lennon once. Yesterday saw two new ideas for government intervention to prop up the housing market.

The Council of Mortgage Lenders wants to see the Bank of England provide guarantees for mortgage-backed securities and covered bonds.

Meanwhile, housing Minister Caroline Flint wants to see a scheme introduced to help would be first-time buyers save up for a deposit. The idea is this: the government will provide the funding so that families on a total income of less than £60,000 can rent for two or three years at a discounted rate, and then be able to buy the property at the end of that period.

Both ideas are interesting, but is it not the case they miss the point?

The scheme to help first-time buyers could equally be seen as a scheme to help buy-to-let investors. Presumably, if rent is subsidised, market forces will push it up.

CML’s Director General Michael Coogan said of his organisation’s idea for the Bank of England to guarantee mortgages and some bonds: “There is a window of opportunity here for the Government and the Bank of England to break the logjam in the housing and mortgage markets and underpin confidence in the financial system. The single biggest issue in the housing market that the authorities need to address is the lack of available funding to support new mortgage lending.”

CML insists its scheme would entail markets still taking the credit risk, as mortgage backed securities will still be sold in the market-place.

But whichever way you look at, the two schemes would amount to the government taking action to try and keep house prices up. The CML schemes would entail the government underwriting the value of property. Caroline Flint’s scheme entails a subsidy.

This begs the question, why didn’t the government take action to stop house prices from reaching such unsustainable levels in the first place? Of course, if it had taken action, organizations such as the CML, and the property industry, who no doubt are celebrating Caroline Flint’s plan, would have lambasted the government for getting in the way of market forces.

Then again, market forces are only a good thing when they benefit you. The market may be good for banks and investors when house prices are going up. But when they are falling, all of a sudden they are bad. So how can you justify such an uneven response to government intervention. Well, John Lennon summed it all up pretty well when he sang, “Nobody told me there’d be days like these.”

July 15, 2008 | posted by Michael Baxter in House prices | comments (3) |

The housing crisis may be coming to an end, infers the Royal Institution of Chartered Surveyors (RICS) this morning.   “Would-be-buyers are again showing interest in the market,” said RICS.  “Demand is weak,” it went on, “with the balance of surveyors reporting new buyer enquiries still well into negative territory. However, there has been a noticeable improvement in the trend with 35 per cent more Chartered Surveyors reporting a fall in buyer enquires compared to 50 per cent in May and 69 percent in April. Surveyors report that some buy-to-let investors are entering the market to take advantage of rising rents and equally that ‘predatory buyers’ are looking to bargain for reductions in a falling market.”

RICS spokesperson Jeremy Leaf said: “With demand so low, would-be-buyers are negotiating from a position of strength. Even in a weak market there are always opportunities for investors and buyers to profit and some are starting to circle for bargains. However, transaction levels remain incredibly low with many buyers cut out of the process by tight lending conditions.”

And yet, sometimes it is a good idea to apply common sense.  Why would a buy-to-let investor buy right now, when so many are predicting much further prices falls to follow?  Sure, yield may make investing profitable, but hang on another year or so and yield to price should be even higher.

The RICS headline index, this is the one that asks estate agents if prices are up or down and subtracts the percentage number who say down from the percentage number who say up, hit minus 88 in June.  Okay, it was minus 92 in May and  minus 94.7 in April, but don’t forget as this is a percentage score minus 100 is the lowest score you can possibly have.  When in March the index fell to minus 79.4, it was hailed as the lowest reading ever.

And don’t forget this.  The index is based on what estate agents are saying, and right now they have an incentive to try and talk the market up.

Completed property sales for the quarter to June fell to 15.3 per surveyor, from 17.4 in May. On year ago levels, they are down by 38.6 per cent compared to 31.6 per cent in the previous month.   

However, stock levels are falling  The stock of unsold property on surveyors’ books fell by 6.1 per cent on the month, but it is still up by 34.1 per cent on the year. Average stocks on surveyors’ books were 84.1 in June compared with 89.6 in May.   So that should help.

Falling inventory levels will help the seller, but it is just that sales are falling even faster.   The ratio of completed sales (over the last three months) compared to stock of unsold property on the market fell to 18.2 per cent in June, from 19.4 per cent in May. “Market conditions are the loosest since October 1995,” said RICS.

This ratio of sales to stock seems to be the key.  And as long as the ratio is falling, there are good reasons to believe the underlying trend in house prices will be down.  Even when the ratio stops falling, there will be a time lag of several months before the stock to sales ratio rises to a level that is compatible with increasing prices.

New buyer enquiries continued to fall, “but the pace of decline slowed for the second consecutive month” said RICS, busily clutching at straws.  

But for some home owners this is a waiting game.  Wait for the market to settle down.  But not all can afford to wait.  Some people have to move.  They have changed jobs, got a bigger family, can’t afford the mortgage, or even have their home possessed.  The longer this downturn lasts, the more people will be forced to sell.   And this could lead to even sharper house price falls.

July 1, 2008 | posted by Michael Baxter in House prices | comments (0) |

You can hear the bulls leaping for joy. Hacks at the Daily Express sharpening their wit. The house price crash is over. To put it in the Nationwide’s own words: “The pace of house price falls slowed significantly in June.”

So how significant was this fall in house price falls? In June they fell by a mere 0.9 per cent from May, compared to a whopping 2.5 per cent.

Even as these words are being typed, Jeremy leaf from RICS is being interviewed on the Today programme and saying they are bad, but there’s a glimmer of hope and we are getting near bottom. The problem he said is not that people don’t want to buy properties, it is lenders.

And yet, actually, a 0.9 per cent fall is by almost any standards huge. Sure, May was higher, April a tad higher (-1 per cent) but that is it. You have got to rewind the clock back an awful long way to find the last time prices fell so fast. Annual house price falls are now 6.3 per cent, but they are 7.3 per cent down from last October’s peak.

The Nationwide’s Fionnula Earley tried her level best to strike a note of optimism when she said: “Perhaps surprisingly given the poor affordability conditions, first-time buyers activity as a proportion of overall house purchase completions has held up fairly well. First-time buyers accounted for about one third of house purchase transactions in the first quarter of the year, exactly in line with the average over the last three years.”

Ummmm. So what? House price activity is falling off the edge of a cliff. According to the Bank of England, mortgage approvals for first time buyers are just 37 per cent of the level seen a year ago and way below the nadir seen in the early 1990s. If the ratio of first time buyers to total buyers is constant, then all that is telling us is that all buyers are feeling the pinch, equally.

Capital Economics says that the Bank of England data suggests house price falls of 15 to 20 per cent this year.

The BIS report, covered above, is clear. Wild optimism got us in this economic mess. Yet, wild optimism, at the very heart of the crisis, is still alive and well.

On Easter Island, trees were destroyed to create methods for transporting rocks to build those famous statues. Until, eventually, there was one tree left. What happened to that tree? It was felled, and the local economy was devastated, a result of the deforestation. It seems the UK property market bulls are similarly blind to reality.

June 30, 2008 | posted by Michael Baxter in House prices | comments (1) |

In yesterday’s Sunday Times, economics editor David Smith puzzled on why house prices were falling so fast.

“I have been puzzling about why Nationwide and Halifax surveys have been showing such sharp price drops, at least as bad as the corresponding stage of the early 1990s slump, when economic conditions are more favourable today,” he said.

Well, fret not.  The reason can be revealed.

House prices are falling today at a pace that is comparable to the levels seen in the early 1990s because they are even more overpriced today.

There are two other key points.

Firstly, one of the key arguments put forward to justify higher house prices in the noughties than in the early 1990s was that thanks to lower interest rates they had become more affordable.     But this was an illusion.  Smoke, mirrors and a good deal of gullibility are the only real differences between the housing market today than in the early 1990s.

Secondly, the economic strength was itself something of an illusion.

Okay, so why is that so.  First the smoke.  This is called inflation.  Higher inflation makes debt more affordable in the long-term.  It appeared that house prices were more affordable today, thanks to lower interest rates.  But actually, over the 25-year period that most mortgages are supposed to last, it seems that they are perhaps more expensive today – as inflation does not erode the true value of debt like it used to.

The mirrors are created by the removal of tax relief on mortgages.  In the early 1990s we are able to reclaim some of our mortgage payments back – it was called MIRAS; you can’t do that today.

The gullibility, well, it is that thing about whenever a bubble is in full sway, we don’t see it.  House prices were rising, for no better reason than they had risen before.   That is called a bubble.

Mr Smith argued the true cause of the property downturn is a shortage of credit. As if the credit crunch was some kind of external factor that had nothing to do with what had been going on before.

But, as was argued in the article above, the fundamental problem with the UK has been a saving ratio which is too low.   This hid the true underlying nature of the UK economy.

When saving is too low, there is insufficient money available to fund borrowing. 

This is why we have a credit crunch, and this is why our banks are having to go to sovereign wealth funds, from countries that have much higher savings ratios.,

So, rather than see the credit crunch as some kind of external shock, it seems far more likely that the factors that caused the credit crunch are in fact the factors that resulted from the inevitable unwinding of the unsustainable boom.

There is one other point.  Thanks to the lower wage inflation we have these days, it takes much longer for rising wage levels to make house prices seem affordable.

So in the past, if house prices were too high, but wage inflation was running at say 9 per cent a year (in 1990 inflation was 9.5 per cent), then in no time the lack of balance was corrected. 

It is not like that now.  House prices were too high, and unless they crashed, they would remain too high for years, as wages only very slowly rose to close the gap.   

It was always inevitable that at some point during their period, some economic crisis would bring everything to its head.

PS  News in this morning from the Bank of England revealed yet another fall in mortgage approvals, this time to 42,000 in May from 58,000 in April.  Approvals are now 37 per cent of the level seen a  year earlier, and way below the low point seen in the early 1990s.  Capital Economics said: “At face value, approvals are now pointing to house price falls of 15 per cent to 20 per cent this year.” 

June 24, 2008 | posted by Michael Baxter in House prices | comments (0) |

Donald Trump says it won’t happen.  Lakshmi Mittal may not care.  But the latest figures from Rightmove suggest house prices have got a long way to fall yet.

You know the story of the UK housing market has come down to which will fall the most, demand or supply.

Demand is falling over the edge of a cliff.  But so is supply, which was in any case pretty low anyway.  So which will win out?

Donald Trump is in the UK at the moment.  He is, of course, the United State’s answer to Sir Alan Sugar – he is the one who does the hiring and firing on the US Apprentice programme.  He has said the UK wil not experience a US-style house price crash because of a shortage of supply in the UK.

He reckons the credit crunch will come to an end in about a year’s time, and then buoyancy will return to the UK market.

Meanwhile, Lakshmi Mittal, who is worth even more billions than Trump, has bought himself his third property in one street.  And the money he forked out?  Well, reports suggest he parted with £70 million. Mind you, the street is called Kensington Palace Gardens, and the normal laws of supply and demand don’t seem to apply there.

According to the Evening Standard, the house even needs modernisation.

But then again, it appears he wants the house for personal use; this is not an investment portfolio he is building. And if he was looking at the property as an investment, we would have some advice for the richest man on these shores: “stick with steel.”

And for that matter, we would like to humbly suggest Mr Trump has misread the signals this time.

According to the latest housing survey from Rightmove, the number of properties for sale has now breached the one-million mark, contributing to a ratio of 15 properties for sale for every successful buyer. Last year, the average was 7:1.   But, more to the point, average unsold stock per estate agency branch continues to rise to new record levels, to 75 homes per branch from 73 in the previous month. “Not only is this the highest ever in June,” says Rightmove, “it is the highest figure Rightmove has ever recorded.”

Inventory is the key.  In the US there are signs that sales are outstripping new supply, that’s houses coming on to the market.  But inventory levels are so huge it probably won’t be until well into next year, that inventory levels fall to a manageable level and prices stop falling.

But in the UK, there are no signs yet of inventory falling.  According to the British Banking Association, just 28,000 mortgages for house purchases were approved in May.     That was 20 per cent down on last month and 56 per cent down on a year ago. 

If the fall in house prices stops any time soon, it will be a miracle.

June 19, 2008 | posted by Michael Baxter in House prices | comments (2) |

Yesterday and this morning it was a double whammy for the housing market.

Mervyn King put the boot in, and HBOS gave its gravest warning yet.

In his Mansion House speech, Mervyn King said, “The squeeze on real take-home pay will arguably be an even more significant restraint on consumer spending this year than the credit crunch. And it will affect the housing market too – lower demand in the High Street will go hand in hand with lower demand in the property market.”

HBOS predicted a 9 per cent fall in house prices this year.  In a trading update, it also said transactions in the market will be 45 per cent of the 2007 level.

But here is the Bill oddity.

In May, the Halifax index, published by HBOS, had house prices down 7.8 per cent from peak.   In August last year it had average price as 199,600: in May, £184,111.

So, if the HBOS prediction is right, then the next four months will only see very modest falls.

By contrast, it had average price falling by £12,384 over the last four months.  If it records a similar fall over the next four months, the fall from August 2007 to August 2008 will be 14 per cent.

So actually, alarming as the HBOS prediction may seem, it is actually quite optimistic, and assumes the worst is over.  Are they right?  Just bear this in mind.  In February, HBOS said house prices would be flat this year; in April they predicted falls in the mid-single figures.

But how will falling house prices affect the economy at large?

In his speech yesterday, Mervyn King said, “I have said in the past that there is no causal link between house prices and consumer spending. That remains the case. How closely they move together depends on the underlying forces that are driving them both. This year, the squeeze on real income growth is likely to mean that both house prices and consumer spending weaken together.”

In other words, the factors that cause house prices to fall may cause consumer spending to fall, but falling house prices themselves won’t be the catalyst.  If you like, falling house prices and slowing consumer spending are cousins, even siblings.  But they both sit at the same level in the family tree of cause and effect.

Give Mervyn King and the Bank of England full marks for being consistent.    They have continuously insisted there is no direct link.    When house prices were rocketing they said that this was not causing consumer spending to rise. And now they’re falling, they say there will be no corresponding fall in spending.

This belief is based on data earlier this decade showing only modest changes in consumer spending at a time of rising house prices.

Look, Mervyn King is a giant among economists, and we are like David’s younger brother in comparison to the Bank of England’s Goliath.   But do you really believe rising or falling house prices do not affect consumer spending?

Surely this goes against common sense.  This goes against what we all know some people do.

If the value of our home is rising, many of us feel good.  We feel that if we push our credit card to the limit we are taking less of a risk.  We don’t need to save for a rainy day, because we have so much wealth tied up in our home.  Some even see their home as their pension.

If the data does not back up this argument, then we suggest the Bank of E needs to look closer at the data.

Maybe the real reason is this.

Consumer spending hit unsustainable levels in the late 1990s.

Under any normal conditions it would have fallen back.  But rising house prices mitigated against this.  Instead of cutting back, we just carried on.     In short, there is a direct link, but it was hidden by the consumer boom of the late 1990s.  
 

June 16, 2008 | posted by Michael Baxter in House prices | comments (2) |

Mistakes were made in Japan.    Mistakes could have been avoided, they weren’t and that’s why the economy of the Rising Sun suffered ten years of economic sunset.    

Now policy makers in the UK, US and Eurozone need to ensure those mistakes are not repeated here. 

So what were they?  After the bursting of an asset price bubble, the government and Japanese banks went into denial, for years.     Asset write downs were a drip drip affair.  Banks refused to admit, maybe even to themselves, how bad things were.  Eventually, the government had to step in and bail out a number of Japanese banks, it had a series of Northern Rock style moments – over a prolonged time frame.

A similar, but not identical, problem sits in the UK today.  This time, though, the dangerous denial of reality relates to the price of land. 

It is still profitable to build houses.  Any losses that may be incurred by builders relate to the cost of land.     The trouble is, builders have already paid for this land.  Even though they could sell property on this land for less than the cost of build, they dare not, because then they would be forced to admit the true scale of capital loss.      

Fear is pushing builders into trouble.  At the time of writing, the Barratt share price is just 85p, down from over 1,200p 18 months or so ago.    Its market capitalisation is actually less than the projected profits for this year.

Meanwhile, HBOS has made the headlines, after whispers grew over the weekend that retirement homes specialist McCarthy & Stone is struggling with its £800 million debt, mostly with HBOS.

Meanwhile, the House Builders Association is making grave warnings.  It is worried about a building slump creating an even bigger shortage of properties in the future. 

Remember all that talk last year about a shortage of new homes leading to even higher house prices?  Well, some believe that predicted rise is merely on hold.  That once the credit crunch ends, house prices will rocket up.

But we are not so sure.   The truth is that house prices will need to fall a lot more, a lot more, before it ceases to be profitable to build, but right now, builders and banks are reluctant to realistically value land – that is to say, give it a value that is in line with historical precedent.  

Once they do, then house building will begin again.  Prices will fall to a realistic level, the credit crunch will inevitably come to an end, and a gradual and sustained pick up will be under way.   If they refuse to do this, if they develop the same habit which permeated Japan ten years ago, then not only the housing market, but the UK economy in general will limp along the bottom for many years.

The House Builders Association says only 110,000 homes will be built this year, less than half of Gordon Brown’s 240,000 target.      In 2009, it warns, building could fall to just 80,000.

Roger Humber, from the House Builders Association, said, “We’ve not seen anything like this post-war… It’s essentially a financial crisis, more like 1931 than anything else that we’ve seen.   House builders are not going to be starting new sites, they’re going to be laying people off, they may even be mothballing sites.  It really is on a scale we’ve not seen before.”

Yet a survey among the Society of Business Economists conducted for the ITV programme Tonight, found that 56 per cent of those interviewed reckon house prices will fall by 20 per cent, with another 20 per cent of that number predicting 30 per cent falls.

Almost two-thirds of the interviewees said house prices will not recover to the 2007 peak until 2012, but nearly 15 per cent said it will take until 2015.

So, on the one hand, you have got some saying a shortage of housing will mean that prices will soon shoot up again.  On the other hand, you have predictions of a slump lasting 8 years.

Who is right?

The shortage of houses in the UK is exaggerated.  As was told here on May 28, according to the Survey of English Housing, no less than 47 per cent of existing owner-occupier dwellings – that’s 6.8 million homes, are under-occupied.  Capital Economics described it like this: “Many owner-occupiers are engaged in a form of speculation, in that whether, when, and how much space they buy is heavily influenced by their beliefs about the future course of house prices.”   In short, they buy bigger houses than they need because they expect the price to go up.

So as prices fall, the speculative motive will disappear in a puff of smoke.     Space will be freed up, prices will fall some more.

But, the cost of build relative to average house prices is so low, that the market can afford big falls; it will still be profitable to build – it will still be profitable to convert biggish properties into two smaller properties.    But at lower house prices, it will become profitable for buy-to-let landlords, not because of the hope of capital growth, but because rental yield will be much higher than costs.  It will be tempting for first time buyers to move back in, too. It will be with realistic pricing that the recovery will begin.

The challenge will be to find a way of providing finance to those with negative equity.

The danger lies in the banks and builders who fight this trend, who refuse to admit to the inevitable; the longer they do this, the worse it will get.

June 10, 2008 | posted by Michael Baxter in House prices | comments (0) |

Your mission, should you choose to accept it, is this.  You have got to try and talk the gloom out of house prices.  The data says they are falling, you must strike a positive note, discourage people from panic-selling.   

Even before the tape has self-destructed, RICS knew it would accept the task.   But, is it a mission impossible?

“Still no signs of distressed selling said the headline from the latest RICS report.”     “Confidence in the outlook for sales and prices improves,” recorded the body text.   The RICS index, which is produced by taking the number of estate agents who say prices are down from the number who say they are up, is hovering around the lowest level ever recorded, but, “This is, crucially, a measure of breadth rather than depth and thus says little about the extent of the actual decline in house prices,” said RICS.

Warming to its theme, it added, “Significantly, this weakness is not being driven by new supply coming onto the market. Indeed, new instructions to sell property declined for the fifth consecutive month and at the fastest pace since last June, which reflects the continued absence of distressed sales. This is consistent with both the low level of mortgage arrears and the high level of employment at the present time.” 

“In terms of the outlook, the May survey provides a few encouraging signals. Confidence in the sales outlook improved fractionally, with the net balance of surveyors expecting a drop in sales over the next three months improving to -15 from -16 in the previous month. Furthermore, confidence in prices rebounded back from last month’s low, although there is a still widespread perception that prices will fall further in the near term. Looking at the data from a regional perspective, the improvement in the headline price balance was more or less evenly spread throughout England and Wales.”

Then, on his monthly tour of radio and TV stations, RICS’s answer to Tom Cruise (that’s a reference to Mission Impossible, not his height or taste in women) tried his best to dampen the natural tendency of the press to go for the bad news.

Now, queue that music – think of a squirrel walking the tight rope if you will: has the mission been a success?

The Telegraph headlines this morning: “House sales fall worst in 30 years, says RICS;” “Housing market hit by further setbacks,” said the Independent and “Recession fears grow as house buyers vanish,” said the Guardian.

Maybe this mission really is impossible.

Then again, you can’t prove 2 plus 2 equals 5 – and alas that’s how impossible RICS’s mission is.

Sure, the RICS headline index was slightly better than last month, then again it still hit minus 92.9.  Remember, the index is defined by taking one percentage score from another, so minus 100 is the lowest reading you can possibly have.  In April, the index hit minus 94.7, easily the worst reading ever recorded – and while May was slightly better, it was still way below any other score ever seen, and records go all the way back to 1978.

Completed property sales for the quarter to May fell to 17.4 per surveyor, from 18.5 in April. On year ago levels, they are down by 31.5 per cent compared to 31.7 per cent in April.

Perhaps more to the point, the stock of unsold property on surveyors’ books increased by 4.4 per cent on the month, and is up by 45.4 per cent on the year.  Average stocks on surveyors’ books were 90.1 in May compared with 86.4 in April.    So that’s falling sales and rising stocks.  This means the ratio of sales to stock is falling.

This ratio is important, because it gives a real feeling of inventory, and is the closest measure we have in the UK to the closely watched US inventory to sales figures.

In fact, the ratio of sales over the last quarter to stock is now 19.3 per cent.  That is the lowest since 1995, but, as RICS went to pains to point out, in the early 1990s this ratio dropped to 11.

The point though is this.  The ratio is getting worse all the time.  The fall in house prices is only being held back by the low level of supply.  But, if the economic climate worsens, which as you know it certainly seems to be doing, more people will sell.

Some investors will sell, some property owners will be forced to sell.  As the current level of activity is so low, it will only need a small increase in these properties coming on the market, and prices will fall like a rock, tumbling down from the north.   Stopping that fall is fast looking like the real mission impossible.

June 6, 2008 | posted by Michael Baxter in House prices | comments (0) |

Imagine you and a friend are running at Beachy Head, the famous cliff near Eastbourne noted for its steep drop.      The two of you mistime your footing, and you both go over the edge.  While you are falling, your friend keeps saying, “Don’t worry, this isn’t that steep, we will be fine.”

Okay, it isn’t very likely.  Presumably the last thing on your mind at such a moment is having a chat.  

But, it really does seem as though house prices in the UK are falling off a cliff at the moment.  Whether that is a good or a bad thing, in the longer-term, is a moot point.  But there is no doubt it is a bad thing for the property industry and mortgage lenders.  

And yet, it appears, things are really fine.

Take Martin Ellis, chief economist at Halifax.  Yesterday, the Halifax released its latest house prices survey – and as you probably know, confirmed the findings from the Nationwide that prices are seeing a very sharp decline indeed.  May saw prices fall by 2.4 per cent, compared to a 2.5 per cent fall recorded by the Nationwide.   The Halifax now has annual house prices falling by 3.8 per cent, although it is worth bearing in mind that when it measures annual house price falls, the Halifax takes the average price over the last quarter and compares it with the average prices over the  same quarter a year ago.   In fact, if you were to compare house prices in May with May last year, you will see a fall of 6.4 per cent.

But house prices did not peak until August last year, when the Halifax recorded £199,600 average price.  It has average price for May this year at £184,111, which means prices are now down 7.8 per cent from peak.

But this is the statistic that will really have you sitting up.  In the last three months the Halifax had prices down 6.3 per cent, and the bank has never recorded such a big quarterly fall.   And to paraphrase Barack Obama, that’s “never.”

“Never have prices fallen so fast.”

The Halifax data, by the way, goes back to the early 1980s.   And before that time, inflation distorted housing statistics.  So, while there were periods when house prices fell in real terms, because of high inflation there were only modest monetary falls.    So when we say biggest quarterly fall since the early 1980s, it is probably correct to say biggest quarterly fall since the 1960s or even earlier.

But this is what Mr Ellis said: ”Price falls should be measured against the significant gains in recent years. The average UK house price rose by more than £88,000, or 79 per cent, between August 2002 and August 2007… High employment levels, low interest rates and a shortage of new homes support housing valuations.”

Okay, by past standards this was quite understated.  But if you listened to Mr Ellis during any of his TV and radio interviews conducted yesterday, you would have heard a cautiously optimistic note.

It is a similar story at Hometrack.  Richard Donnell, Director Research, Hometrack said: “In order to get sizable price falls a large majority of transactions need to be ‘forced’ sales which are mostly prevalent in periods of rising unemployment and recession. The fall in buyer confidence over the last six months has certainly impacted on transaction volumes but we do not believe that this is a precursor to a major rise in forced sales and large price falls. It seems likely that in that short term prices will continue to edge down until they reach a level where buyers are prepared to commit.”

Meanwhile, at the Nationwide, Fionnuala Earley, their Chief Economist talked about how most borrowers are “better placed to weather the storm.”  She referred to the fact that most homeowners didn’t buy when prices were at top, that deposits have been higher recently than in the early 1990s, and finally referred to those endowment mortgages that caused so much stress in the early 1990s.  “In 1988-89 about 85 per cent  of loans were on an interest-only basis,” she said, ”reflecting the popularity of endowment loans at that time. In comparison in 2006-07 only 30 per cent took out interest-only loans and the majority of borrowers will therefore have repaid some capital and improved their underlying equity position.”

But the truth is, whichever way you look at it, house prices are falling fast.

Capital Economics has been predicting falls of 20 per cent for a couple of months, but is now saying this prediction may be too conservative.

You can do the maths.  If prices fell by 6.3 per cent in the last quarter, and they maintained that rate, then over a year falls will be over 25 per cent.  And many expect 2009 to see even bigger falls.

Admittedly, it probably won’t be that extreme – but right now, with the latest data from the Bank of England having mortgages approved for house purchases falling to a lower level than in the early 1990s, and with forward indicators from the Royal Institution of Chartered Surveyors hovering at an all-time low, it seems likely the falls will continue for some time.  

The Nationwide is still predicting falls this year in single digits, but frankly it seems likely that this prediction will be contradicted in the next few months.

For a couple of years we were told that house prices would carry on rising.   Just a few months ago, we were told to expect modest price rises this year. 

Comparisons with the early 1990s were ridiculed.

Yet, rather than wipe away the egg on their face, the property market’s economists continue to understate the reality.

Finally, bear this in mind.  The reason why most people can afford to see quite big falls until they suffer from negative equity is this.     First-time buyers have been an endangered species for several years.    The number of new property owners has been diminishing for some time.  Why?  Because house prices have been unaffordable for some time.

If prices fall to the level which does make them affordable, then we would need to see a rewind of price rises going back several years.

Arguably, they will only be affordable, when negative equity levels start hitting the levels seen in the early 1990s.