UK property market 'is one of worst in Europe' as average home sees a THIRD wiped off its real value since 2007 - RICS

Published 28th Feb 2012

House prices in the UK have taken the biggest real hit since the peak of the boom among a dozen major European property markets, thanks to our persistently high inflation, according to a new report.

A third has been wiped off the real value of the average UK home since the peak of the market in 2007, once inflation is taken into account, according to the Royal Institution of Chartered Surveyors (RICS) European Housing Review.

Without inflation included, the report's 2011 house price league was bookended by Ireland and Spain posting the biggest falls, while surprise winner Iceland joined Norway and France in the top risers.

And the stark effect of how the inflation-adjusted decline in UK house prices far outstrips the nominal falls, was highlighted by the UK’s spot in the middle of that overall European property market performance last year.

There the UK posted a 1.5 per cent fall, on the Halifax index. In real terms though, RICS said high inflation meant property prices fell 5.7 per cent.


What about real house prices in Ireland and Iceland?

Separate reports on Iceland and Ireland’s property markets can put the UK’s real fall into context, although not deliver an exact comparison.

A report by Iceland’s central bank Sedlabanki, last year, put the fall in real prices at 33 per cent to 2010 from the 2006 peak.

Figures from a Scotiabank report published in December 2011, show Irish real house prices down 44 per cent from early 2007.

Inflation-adjusting puts the UK property market’s five-year decline as deeper than traditional rivals Spain, where real prices are down 27 per cent since the peak and France, where prices are down just 7.6 per cent.

However, the dozen countries reviewed for real house prices did not include Ireland or Iceland.

The report’s author Michael Ball said: ‘Most probably, the housing market will continue to be broadly flat in nominal terms for some time yet and inflation will gradually erode house prices and indebtedness.

‘A sustained upward change will only happen when the economy as a whole shows more signs of growth. In the meantime, the housing market remains a drag on the economy as a whole.’

Enlarge What a difference an r makes: While Ireland sits at the foot of the table for 2011 house price performance, Iceland is the surprise package taking top spot.

While the UK suffered the biggest real decline from peak in the RICS report, the wider review looked beyond the dozen nations included in this and at nominal house prices – those where inflation has not been taken into account.

This showed, Ireland, at 17 per cent, and Spain, at 9.6 per cent, suffered the biggest house price falls last year, with the property depression in both countries, triggered by the overhang from building booms, continuing.

On the flipside, a surprise winner last year was Iceland, with the nation that suffered a colossal financial crisis in 2008 and allowed its banks to default notching another mark of the road to recovery with house prices up 10 per cent.

But the report said: ‘[The] upswing reflects a relatively small bounce back from the massive fall in house prices seen in recent years after the collapse of the financial system.’

Joining Iceland at the top of the table was oil-rich Norway, which the report said is struggling to contain mortgage credit expansion and control property prices.

Close behind was France, where house prices jumped another 6.5 per cent, although the report said ‘recovery had been encouraged by a range of stimulus measures that have now largely been withdrawn as part of austerity packages.’

House prices in Germany also rose, with the traditionally stable market recording a 4.5 per cent increase. Inflation pulled price rises in France and Germany back in real terms, to 4 per cent and 1.6 per cent in real terms.


Will it be a lost decade for house prices?

The report concluded that Europe’s property markets face more tough years ahead, potentially delivering the lost decade threatened by some economists.

Heavy downward factors include the eurozone debt crisis, banks continued lack of funding combined with piles of bad debt, and the economic slowdown across the continent.

Mr Ball said: ‘Whatever happens, the 2012 outcome for Europe’s house prices may well be worse than experienced in 2011, given the poorer state of Europe’s economies at the beginning of 2012 than was the case a year earlier.’

He added: ‘The downside risk is obviously worse for those countries in the eurozone. Yet, even non-eurozone countries’ housing markets are going to be affected by problems within it. Those countries are major trading partners with the eurozone and their own financial systems would suffers as well.’

Source: ' ThisIsMoney '

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