Unit 2 Macro: The UK Housing Market in 2011

This blog provides a chart-based overview of developments in the UK housing market in 2011. The housing industry has a big effect on macroeconomic variables such as output, employment and investment. Has there been a marked recovery in property prices, new housing starts and mortgage lending?

* 2011 has seen the UK residential housing market remaining subdued outside of London.

* Average prices have fallen by around 1% during the year although with CPI inflation well above target throughout the year, there has been another sizeable decline in real property prices in most regions of the UK. The average house cost 165,798 pounds in November, according to mortgage lender Nationwide.

* In some regions average prices have fallen in nominal terms by more than 5%, the biggest fall has been in the North East with a 7% drop

* In many areas house prices remain well below their January 2008 peak

* However in London where demand nearly always outstrips supply, house prices have recovered strongly

* It remains tough to get a mortgage. New mortgage lending remains at low levels even though the cost of servicing a mortgage loan has dropped because of continued low interest rates. Credit continues to be constrained or impaired in the housing loan market and this has inevitably weighed down on the confidence of businesses linked to the housing market. New mortgage approvals are regarded as a useful lead indicator of future movements in the housing industry

* The number of new housing starts remains at very low levels and certainly well under the minimum number of new homes required to meet the demands of a growing population

* Low mortgage availability has driven more buyers into the rental market, pushing rents higher and making the task of finding suitable and affordable rented property even tougher as we go into 2012

* 2012 may be another difficult year for the UK housing market. A Reuters poll of 23 economists showed house prices slipping by a median 1.7 percent next year. The biggest risks are a fresh credit crunch linked to the financial crisis in the Euro Zone and a fall in demand because of another surge in unemployment if the UK suffers a double dip recession

* Low interest rates seem to have done little to kick-start the property market. Existing home-owners continue to deleverage by repaying some of their existing debts (mortgage equity withdrawal remains negative)

* The British government announced a £400 million programme to kickstart a stagnant first-time buyers’ market through the use of taxpayer-backed 95-percent mortgages - it remains to be seen whether this will have much traction in such a weak market