Is the UK in the Midst of a Housing Market Slump?

There are many reasons why forex trading remains the most lucrative investment practice in the current market, and one that continues to turnover in excess of $5 trillion every single day.

It certainly offers a number of advantages over more traditional asset classes such as real estate, thanks to its greater accessibility and a derivative nature that removes the burden of ownership.

In fairness, real estate represents an asset class that continues to lose credibility in the current market, while residential owners have little to shout about either at present. Below, we’ll look at the issues facing the market in 2018 and ask why the value of housing has plummeted in recent times.

How Far has Property Fallen?

The numbers certainly make for stark reading, with a recent report suggesting that the UK’s housing market shed a billion pounds off its value in 2017. At the same time, the level of demand for flats has declined significantly, compounding a burgeoning issue with supply as owners look to hold onto to their assets.

In total, the market lost £1.2 billion in value throughout 2017, falling to a just £259 billion overall. The number of transactions also fell by 3.8% in England and Wales last year, representing the lowest level of activity since 2013 and highlighting a significant reduction in house listings.

Aside from flats and maisonettes, of course, this has seen an increase in the demand for properties, as aspiring buyers look to leverage the fall in value to their advantage. However, this means little unless transactions are completed, and selling property under value is simply not an option for home-owners in the current economic climate.

Why has the Market Declined?

While the very latest figures suggest that prices have risen slightly from their five-and-a-half-year low in May, an underlying weakness in London’s property market and the wider macroeconomic climate mean that the market is likely to remain sluggish in the near-term.

Even an incremental increase in the number of property listings has done little to improve sentiment, particularly as there is no guarantee that these positive metrics will be sustained for a concerted period of times.

At the heart of this malaise in the spectre of Brexit, with property prices growth having stalled since the UK voted narrowly to leave the EU in June 2016. This has triggered a significant decline in the value of the pound and sent the inflation rate soaring, while the onset of sustained volatility has gradually forced prices to decline.

While the inflation rate finally fell to a one-year low of 2.5% in May, this remains disproportionately high in relation to earnings and is well in excess of the Bank of England’s 2% target.

It stands to reason that these factors should impact heavily on house sales and property values in the UK, as demand continues to outstrip supply and prices fall as a result. Even the prevailing level of demand of low value real estate has tailed off in recent months, however, as potential buyers and investors become concerned about negative equity and the long-term future of the market.

Conversely, overseas real estate investment continues to pour into London and the South, with Asian investors particularly keen on leveraging the low value of the pound to strike cut price deals. This affords investors greater flexibility with regards to their margins, but it is scant consolation to domestic buyers or investors.

Adam Torkildson