Homeowners face price stagnation, says Barclays
Barclays has joined other investment banks in deeming the national residential boom over. The British bank said that homeowners are set to face a long period of stagnating house prices in 2016, as the housing market passes its peak.
“We think activity will turn down later next year, with the significant over-valuation in house prices likely to be slowly eroded by a long period of broad stagnation in prices,” said Keiran Davies, economist for Barclays, in a research note.
“We think the market is approaching a broad peak in terms of activity and that macro prudential polices are finally bringing domestic investor demand and house prices under control.”
Barclays identifies six symptoms that the current housing market has peaked.
The first indicator is that house prices are still too costly, with prices 22% overvalued relative to household income, mortgage rates, the current aging rate of the population, and current working age population figures.
“With house price growth now slowing, we think this overvaluation is likely to be slowly eroded by prices broadly stagnating for several years,” Davies said.
The second sign is the slowdown on house price growth. House price growth was only at 6% for October, a weaker result compared to the annualised three month growth peak of 15% in July.
Affordability problems are the third indicator of a peaked market, according to Barclays. Interest rate hikes by the major banks will raise mortgage repayments to 29% of income by the end of this year, higher than 25% from two years ago. Additionally, the bank noted that it took seven years for first home buyers to save for a 20% deposit, compared to 2011’s five years.
Barclays identified the fall in auction clearance rates the fourth symptom, with existing home sales 17% lower in the second quarter and capital city clearance rates at 69% in September and October, down from 77% in April.
The ARPA’s 10% limit on investor loans for banks was the fifth indicator identified. Investor mortgage debt grew more slowly at 6% in September, and the number of new investor home loans dropped by 12% from its peak last April.
“Broadly peaking” forward housing indicators are the last symptom. Approvals for private sector buildings peaked in the first quarter, but fell 3% in the third quarter. Loans to owner occupiers fell by 6% in the third quarter from its previous peak in late 2014. Home sales and new orders, which broadly peaked in 2013 and 2014, fell in the first half of the year, but have recovered.
Trackback from your site.