- Image by myfirsthome via Flickr
The property industry is continuing to show signs of weakness. A sharp slow down in consumer spending in the last few months and following on from last year, has heightened fears that the UK is set for a much slower growth in 2008. In spite of worries over inflation, economists are predicting interest rates will come down to 4.5 per cent by the end of the year.
Investing in UK house builders in the past year has proved difficult, with share prices slumping as much as 50 per cent. Relative to the rest of the FTSE index, the share price of house builders today are back to levels experienced in 2003. The recent reporting season of financial interim results, could at best be described as reasonable for a challenging year. All builders are anticipating more difficult trading environment in the medium to long term. Furthermore, data is also showing activity in commercial construction and civil engineering also weakening.
Gross domestic product (GDP) grew by 0.6 per cent from October 2007 to December 2007, this was down from 0.7 per cent in the previous quarter, according to the Office of National Statistics. The slower quarterly growth was mainly down to a weaker service sector, which slumped from 0.9 per cent to 0.6 per cent. The impact of the credit crunch and rising interest rates took its toll on the business services and the finance sector.
Howard Archer, chief UK and European economist at Global Insight said, “The faltering in consumer spending, business investment and exports in the fourth quarter increases concern that the UK growth will slow markedly in 2008 and increase pressure on the Bank of England to cut interest rates again sooner than later.”
House builders are now becoming very wary about the outlook for the housing market. Average selling prices have fallen for the last five months in a row and with the credit crunch refusing to go away, lenders are more reluctant to lend. The UK property market will continue to slow markedly, in the face of increased affordability pressures and tightening lending practices. House prices are expected to fall further due to muted housing demand, little consumer confidence and the overall British economy slowing in 2008.
Although the risk of an American recession and the knock on effects to the UK economy are lurking, low interest rates will continue to support the housing market in the short to medium term. The genuine investment case for the house builders remains finely balanced. In the long term, the general shortage of housing in the UK and demographic changes will undoubtedly support a subdued demand. It is not yet clear how quickly the building sector will recover but we have to assume that there will be downward pressures on volumes and house price inflation this year.
For first-time buyers whom are still looking to get on the housing ladder and have the financial means to do so, with property prices expected to fall even further affordability will become less of an issue. Better opportunities and deals will emerge throughout the UK (as developers and home providers compete with each other to sell to a smaller audience), during the forthcoming months leading up to the autumn.
Like all previous ups and down, when consumer confidence returns, sentiments improves, a less-rigid lending criteria and mortgage availability to first-time buyers is reinstated, we anticipate a return to a strong and vibrant housing market.
Editor: Simon Weston-www.myfirsthomeltd.co.uk
Blog: www.myfirsthomeblog.com
Email: simon.weston@myfirsthomeltd.com
Related articles by Zemanta
- Review: House prices up again in July (myfirsthomeblog.com)
- House market to fall again after mortgage slump (telegraph.co.uk)
Looking for something ?
If you are enjoying reading this blog, please consider