Lack of affordability may slow housing sector recovery
The lack of affordable residential properties may stall any recovery in the housing sector, according to industry expert and Money Week columnist James Ferguson. While many in real estate believe that home values may soon start to rise, Ferguson is predicting that prices may fall further, before a lasting recovery begins. In fact, Ferguson suggests that residential property values may drop by a staggering 40 percent in some areas, before a recovery gets under way in earnest. While residential landlords will be affected by low property prices, this situation may also ensure that demand on the part of tenants remains high, as a large number of young professionals in Britain delay the purchase of their first home.
Ferguson argues that while the number of home loan approvals has actually increased—signalling that a recovery might be just around the corner—affordability remains the biggest stumbling block for those looking to purchase their first house. In fact, home loan payments still comprise a major portion of one’s salary and a so-called “affordability index” shows that meeting these financial obligations is especially difficult for many Britons. Ferguson compares the current slump to the one that gripped Britain in the early 1990s, pointing out that the housing market only recovered in March 1996, when the affordability index changed in favour of homeowners with mortgages. It may take between three to five years for a lasting recovery to unfold and Ferguson suggests that the wait will be worth it for those looking to get the best deals on residential properties.