Are we writing off the housing market too soon?

buyers looking at housesTalk of falling house prices and a double dip has blighted the housing and mortgage markets for the last month.

But while new figures out today suggest that things may not be as bad as the doom-mongers have been telling us, not everyone is feeling confident.

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Lending rose last month, according to trade body The Council of Mortgage Lenders (CML), which recorded a 5% jump between June and July, with £13.6bn lent out in homeloans.

This is certainly good news but let's not get carried away. Historically lending is still at low levels, even if £13.6bn sounds like a heck of a lot, and this July was actually 3% down on last year's figures.

It's also worth noting that last week the CML had to revise its lending forecast for the year downwards in expectation of a slower second half of the year, from £150bn to £140bn.

But we are moving in the right direction. After a particular dreary April when lending fell 12%, it then rose 7% in May,15% in June and now 5% in July. It hardly reads like a disaster!

And while the CML expects the mortgage market to slow in the coming months it isn't uniformly downbeat. Its economist Paul Samter said:

"For most homeowners, the situation is not that bleak. The vast majority of households continue to pay their mortgages in full every month, and many have benefited from the record low interest rates. This looks set to continue for some time yet."

Andrew Montlake, director at London based mortgage advisers, The Coreco Group, was also cautiously optimistic about the coming months:

"Consumer demand will begin to rise again after the traditional summer lull, with buyers keen to take advantage of low interest rates and a softening of house prices. But I would expect the rest of the year to remain pretty subdued as lenders continue to err on the side of caution."

Building boost

More good news for the housing market today came in the form of homebuilding figures from the Department for Communities and Local Government, which showed a significant 13% rise (to 28,590) in the number of new housing starts in the last three months.

This is an enormous 84% up on the trough of Q1 2009, though still a significant 42% down on the peak of early 2007.

Indeed, not everyone is happy to take these rising figures at face value.

The Royal Institution of Chartered Surveyors has questioned whether this positive trend can continue, claiming that its own study shows that the market is already taking a turn for the worse.

Plus it argued that there is still a huge homebuilding shortfall compared what is really needed. Simon Rubinsohn, the organisation's chief economist, explained:

"We suspect that housing starts this year will amount to around 110,000 and the number for next year will be little higher. With demographics arguing for more than double this total on the most recent analysis, the prospect of a medium-term shortfall of good quality homes is a very real concern."

More bad news

Even more gloomy, The National Federation of Builders (NFB) has launched a scathing attack on the coalition government's first 100 days in office.

It said that the tactic of "floating ideas and seeing what sticks" was affecting its 2,500 members, and causing the construction industry to fall into a double dip recession.

In fact, the NFB concluded that despite an 8.6% jump in construction output in the last three months "the industry has been subjected to a death by 100 cuts over the first 100 days, undervaluing the positive contribution it makes to our living environment and to the UK economy".

So maybe today's cheery figures aren't so cheery after all.

A final addition to the general malaise came from financial information provider Moneyfacts, which today claimed that the cost of borrowing has reached an all-time high, with lenders' profit margins wider than ever.

It reckons that mortgage rates could hit 8% if Base Rate rises as quickly as it fell and lenders maintain their super wide margins.

All in all, it's pretty hard to get away from doom and gloom in the housing market at the moment, no matter how positive the stats are.

Links (opens new window)

Royal Institution of Chartered Surveyors
Council of Mortgage Lenders

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