Price stability helps to make the housing market safe as houses - David Alexander

A few months on from September’s mini-budget, which caused widespread panic in the housing market, and it is remarkable how much has changed. The fears of ever rising mortgage rates have dissipated as the market calms down and more sensible heads prevail. The opening weeks of this year have already seen mortgage lenders cut the cost of their offerings as the prospect of further increases in base rates recedes.

The herd-like instincts of the financial markets which resulted in those panicky increases four months ago has been replaced by a calmer, more reassured approach as they realise the sky will not fall in, the world is not going to end, and they can offer cheaper mortgages without going bust. The problem is that in the predictions business nobody was ever criticised for being too pessimistic, so we all suffer from these wild mood swings which result in equally wild market changes.

Last week’s shock response to better-than-expected GDP figures in November wrong footed the market once again which had been widely anticipating a recession. The wisdom was that a recession was imminent and nothing, not even the actual numbers, could persuade the doom mongers that this was not the case. That is not to say that the country will not enter recession, it is just that the expectation now is for this to be shallower and much shorter than even pre-Christmas predictions anticipated.

Equally, earlier claims that there could be a 10 or 12 per cent drop in house prices have been quietly shelved as reality kicks in and the mood becomes more optimistic. As I said in an earlier column the circumstances for a major house price collapse now are not the same as in 2008. We have excellent high levels of employment, personal debt is generally not an issue, interest rates are nowhere near the level they were in 2008, inflation is now falling at a faster rate than was previously anticipated, and the wholesale gas price is now below the pre-Ukraine war level indicating a more rapid resolution to the cost-of-living crisis than most commentators have previously predicted.

David Alexander

With energy prices likely to stabilise or even fall in the coming months, the stock market rising, and consumer spending increasing we have a range of factors which are generally more positive than negative all of which feeds through to a more upbeat housing market.

However, whilst the potential for recession may be reduced there is still the likelihood that there will be a correction in house prices. This is overdue as the price increases which have occurred since the pandemic began nearly three years ago are unsustainable even in the short term and some form of price stabilisation is required.

The market needs a period of calm, of static or even small price rises to counterbalance the somewhat excessive rises of recent years. Mood is everything in the housing market and the gloom and doom of the Autumn has been replaced by the sunny optimism of the New Year.

The Scottish housing market is remarkably resilient, and I believe that many of the lending errors that fuelled the 2008 house price collapse have been learned and are unlikely to be repeated. Not only are lenders wiser but borrowers are more aware of the problems which can arise from excessive lending.

If everyone is more aware of just how easily a housing market can run away with itself, then the prospect of any form of collapse is substantially reduced.

The result is that, despite the past years ups and downs, I remain quite optimistic about 2023 and the prospects for a stable period in sales in the housing market. A year or so of steady as she goes price stability would be perfect and would reassure everyone that the market is, dare I say it, as safe as houses.

David Alexander is CEO of DJ Alexander Scotland Ltd