Eurozone Crisis Causes Sharp Reversal of Public Sentiment on U.K. Property Prices

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According to London-based Knight Frank/Markit's  October House Price Sentiment Index (HPSI), the rate of home price declines increased in October, and that prices are perceived to have fallen every month since July last year.

Nearly a quarter of the 1,500 households surveyed said that the price of their home had fallen this month, while only 7% said that prices had risen. The resulting HPSI reading of 42.1 is down from 44.7 in September. Any figure under 50 indicates that prices are falling.

Those working in the public sector (40.7) perceived that the value of their home fell more quickly over the last month than those working in the private sector (42.4) and those who are not working (42.0).

Lower prices were reported in all regions, although those living in London (46.4) thought that the value of their home fell at a more modest rate than those living outside the capital. The sharpest falls were reported in the West Midlands (36.8) and Wales (37.6).

Key report highlights for October

• UK house prices are perceived to have fallen for the 16th consecutive month in October, at a much sharper rate than in September.

• Households with incomes of between £15,000 and £23,000 expect the biggest falls in prices over the next year, while those earning more than £58,000 expect prices to rise modestly.

• Workers in the public sector are most downbeat about the outlook for house prices, expecting bigger declines in prices than those in the private sector or those who are not working.

Outlook for house prices

The future HPSI, which measures what households think will happen to the price of their property over the next 12 months, turned negative this month, falling to 47.7 from 53.6 in September. This is the lowest reading since May 2011.

Regional outlook

Households in eight of the 11 regions expect prices to fall in the coming year, the largest proportion of regions with a negative outlook since May this year.  Those in the North East (39.8) are expecting the biggest declines, followed by those in the South West (42.1) and Yorkshire and the Humber (42.5).

Only three regions expect house prices to rise in the coming year: London (52.7) and the East of England (52.1) and the South East, where households are the most optimistic of all regions, reflected in a reading of 53.3, although this is down from 59.0 in September.

Household variations

Homeowners are much more downbeat about the future path of house prices than those who are renting.

Mortgage borrowers (46.2) expect prices to fall over the next year, a change from their optimism about price rises in September (53.3). Those who own their home outright are even more gloomy (43.5); marking the 15th consecutive month they have said their house price will fall rather than rise. However those renting from private landlords (52.8) still expect prices to rise, albeit at a slower pace than September (56.6).

The brief spell of optimism among public sector workers for future price stability, seen in September, was reversed this month, with the reading falling from 50.3 to 42.4, the lowest reading since January this year and the second lowest reading in 2½ years.  The margin between the outlook of government workers and their counterparts in the private sector (48.6) is the widest since the index began in early 2009. Even those not working (49.3) because they are retired or unemployed, are more upbeat than public sector workers about how their house prices will perform.

Only households with an income of more than £58,000 a year expect the value of their house price to rise next year. All households with smaller incomes expect prices to fall, with those in the income bracket between £15,000 and £23,000 anticipating the sharpest declines (43.8).

Analysis

Gráinne Gilmore, head of UK residential research at Knight Frank tells the World Property Channel, "The sharp reversal in sentiment for future house prices came as a raft of disappointing economic data signaled that the UK was struggling to emerge from recession. While the renewal of quantitative easing by the Bank of England will have re-assured homeowners that their mortgage rates will stay low for some time yet, it signaled that the economy is not yet back on its feet, which will have dented confidence among households across the UK.

The wide divergence of sentiment between those who work in the public and private sector also casts light on an additional factor affecting the housing market at present - namely the public sector spending cuts, with many communities being hit by job losses, especially in the North of England.

However there are some glimmers of hope from other corners of the economy with those working in finance and business and manufacturing among the most optimistic for future house price growth.

But the downbeat data suggests that the current broadly-stable prices in the market may be hard to maintain in the coming year."

Tim Moore, senior economist at Markit said, "Weak labor market conditions and heightened concerns about the economic outlook took their toll on house price expectations in October, as sentiment fell back to its lowest level since the start of the summer.

"This is the first snapshot of house price sentiment since the Bank of England announced its latest expansion of quantitative easing, and the survey therefore suggests that we are unlikely to see a repeat of the rebound in house prices that followed the first round of quantitative easing in early 2009.

"Instead, the latest figures point to a widening regional divergence in property price trends. Expectations of higher prices in London and the Home Counties contrast with negative sentiment elsewhere.

"House price sentiment in the Capital has been positive for much of the last two-and-a-half years, an unmatched record of resilience compared to the rest of the UK.

"Meanwhile, areas with high concentrations of public sector jobs appear most likely to see property price declines, as highlighted by the survey-record gap between public and private sector house price sentiment in October."

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