Unaffordable House Prices Need to Drop 25%

Unaffordable House Prices Need to Drop 25%

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Unaffordable House Prices Need to Drop 25%

"Fitch Ratings believe house prices need to drop 25% to be sustainable"

Homes are still 25 per cent too expensive and the market needs to carry on adjusting, according to a new house price survey.

Economic analysts Fitch Ratings have introduced yet another house price survey in to an already confused and crowded market.

The firm is inviting comments about the underlying model – a copy of the data is available after registering on the Fitch Ratings web site.

The firm’s calculations put property values at 25 per cent over a sustainable level at the end of 2010 and predict that if inflation continues to rise at the expected rates, then they will still be 15 per cent too much at the end of 2013.

The house price model takes rents, interest rates and employment in account.

“The model is deliberately kept simple to provide a transparent and intuitive benchmark. It is not a predictive tool,” said Ketan Thaker, senior director and head of UK RMBS at Fitch. “Our current expectation for nominal house price declines is at around 10% rather than the model-implied gap of 15% to sustainable levels after taking account of three years of inflation.

“Fitch additionally takes into account economic prospects such as GDP growth, credit availability, the low interest rate environment and continued limited housing supply, among others.”

Meanwhile the new round of monthly house price data started again with The Halifax property survey.

Prices increased by one per cent in the quarter to the end of August, although they fell 1.2 per cent month-on-month from July. The bank sets the average home value at £161,743.

According to the Fitch model, current average house prices need to fall by about £40,000 to reach a sustainable level.

Martin Ellis, the Halifax’s housing economist, said: “The underlying quarterly trend showed a modest improvement in house prices for the second consecutive month in August.  Prices in the three months to August were 1.0% higher than in the previous three months.

“But the current low volume of sales tends to make house prices volatile from month to month. The 1.2% fall in August follows three months when prices have risen.  As a result, the more reliable quarterly change, which smoothes out some of the monthly volatility, shows a rise in prices of 1.0%.”



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