Housing transactions have fallen by over 60% during the last year, with many sectors of the economy are already feeling the strain. The sharp reduction in mortgage lending has resulted in a vast accumulation in the stock of unsold property on estate agents' books (33% up on levels of one year ago) and this has inevitably put downward pressure on house prices. Taking an average of the key Nationwide and Halifax indices, house prices in June are down by 9.5% on last year's levels and by 9.8% from their peak.
Whilst falling prices is not in itself necessarily a bad thing, a collapse in transaction activity has much more severe consequences. RICS believes spending on consumer durables is set to fall sharply next year whilst construction output is already plummeting adversely affecting employment and ancillary services. RICS also expects the number of repossessions to rise by over 50% from 2007 levels to over 45,000.
Indeed many economic indicators are hitting lows not seen since the housing market downturn of the early 1990s. Consumer confidence has plummeted, with surveys of the retail sector painting an equally bleak picture.
The time to act is now
To encourage the Government to take action, RICS has put together a practical package of measures that will help address the downturn in the property market, help people who want to own a home and improve the home buying, selling and renting experience for consumers. These issues will not be resolved by a series of small individual measures but must instead be dealt with by looking at the system as a whole.
It is essential that the Government takes this opportunity to kick start the housing market and at the same time to introduce long term reform that will benefit all those involved in property including renters, letters, buyers and sellers.
The latest RICS study into housing accessibility for Q2 2008 revealed that first time buyers have seen access to the market deteriorate in 2008. A couple on lower quartile earnings will need to save over 100% of combined annual take home pay in order access the market. With loan to value ratios likely to be scaled back further into 2009, first time buyers will find it increasingly difficult to access the market.
Measures to increase the supply of rental properties could help ease the sharp pick up in rental growth which has accompanied the slowdown in the owner occupier market. The latest RICS lettings survey revealed rents surging at their fastest pace in a decade in Q2 2008.
RICS believes that a combination of measures must be put in place looking at fiscal and financial issues, new models for home ownership, availability and affordability of homes, consumer information and regulation and standards.
Action should not just be aimed at addressing the immediate issues but must also establish a more efficient, sustainable property market with more effective information and better protection for consumers.