“If you can get hold of the money, I think it’s already a very good buy,” Goodhart said in an interview yesterday in London. “If you can get the down payment together,” then the “affordability of housing and its likely future price increase is such that now would be an excellent time to buy.”
Goodhart’s remarks underline the affordability divide in the U.K.’s property market, where a lack of homebuilding has combined with household growth to support values at a time when inflation, anemic wage increases and lending curbs have undermined buying power. Nationwide Building Society said today that house prices fell in June from the previous month.
“With the downturn in the number of housing starts in the last few years, the balance between the demand for housing and housing supply means that there is going to be a great overbalance of demand relative to supply,” Goodhart said. “So when it gets easier for people to finance down payments, housing prices are likely to start rising then at rather an uncomfortably fast rate.”
Housing starts fell 11 percent to 24,140 in the first quarter from the previous three months, the government said last month. Seasonally adjusted housing starts were 50 percent below their peak in the fourth quarter of 2005.
House prices dropped 0.6 percent from May, when they rose 0.2 percent, Swindon, England-based Nationwide said in an e- mailed report today. From a year ago, prices fell 1.5 percent in June to an average 165,738 pounds ($258,000). That’s the biggest annual drop since August 2009.
Data suggest a squeeze on lending by banks and caution among Britons as Europe’s debt crisis persists. Consumers repaid more mortgage debt than they borrowed in May for the first time in at least 15 years, the British Bankers’ Association said yesterday. Mortgage approvals fell to the lowest in more than a year, it said.
“The ongoing shortage of accessible mortgages and the fall in wages in real terms has created difficulties for first-time buyers,” property website Zoopla.co.uk said this week. This has created a situation where the cost of servicing a mortgage is less than paying rent in 42 of Britain’s biggest 50 cities.
Goodhart, who served as a founding member of the central bank’s Monetary Policy Committee from 1997 to 2000, said he shares the downbeat outlook of the euro-area debt crisis expressed by Governor Mervyn King, who has announced new measures to push banks to increase lending. He was a speaker at a conference organized by Demos Finance in partnership with the Financial Times and CASS Business School.
“I’ve always tended to be rather pessimistic and I think I would agree with the governor in this respect,” he said. “I’m very glad to see the Bank of England being somewhat more adventurous than they were in the past.”
Goodhart predicted that the central bank will add stimulus in July. King and three policy makers pushed for an expansion of quantitative easing this month, though a majority of officials overruled them.
“It’s fairly odds on that they will do something,” Goodhart said. “The new measures and what they do at the next Monetary Policy Committee meeting are likely to be complementary. They can certainly do the ‘funding for lending’ and QE at the same time.”
Asked about the next Bank of England governor, Goodhart said the successor to King, who will leave in a year, needs “sheer energy and physical fitness.”
“I hope that those who will appoint them will take account some account of their energy level and their ability to hold down what will undoubtedly be a very demanding job.”
To contact the editor responsible for this story: Craig Stirling at firstname.lastname@example.org