Hi Tom F - yes, you are right, the aftershock effects are now rippling through the wider economy. This is why the expected recovery is now forecast to take up to 3 years.

I read that Persimon have stopped constructing on any new UK sites - UK land is expected to fall up to 25% and the number of houses constructed should fall to about 80 - 90,000 per year (well short of the govt target of 240,000) in the next 12 months.

Is this your reading of the market too?

If so, it'll be v. tough for construction - but good news for property owners - as it will put a floor under supply and ensure that prices are not heavily discounted.

I guess this has come about because construction and developer margins in the UK have been thinned down by too many boom years and there just isn't any where to go with price reductions.

On this basis, I think the forecast of a modest fall in house prices (-2.5 to -5%) is about right.

That's the view I've heard. Do you agree?

Cheers
Neil

Tom, in theory the public sector boom is just about to start as there is a commitment from the government for a huge increase in the number of affordable homes built in the next few years. Housing Associations are snapping up land where they can and there will be work for contractors who work with them.

The signs are in America that the "real" economy remains relatively unaffected and the question now must be whether this remains the case or whether there is a lag in the impact of the credit crunch both there and here.
Huw

Neil,

The housebuilders are having a torrid time, with a huge decrease in the number of properties being built. Whether this will hold up the market I'm not so sure.

I live in Ireland at the number of properties constructed this past year has halved or so but prices are still falling at around 10% per annum and so the reduction in the number of properties built isnt holding up the market.

My belief is that the availability of credit is far more influential on house prices than supply and demand.

This article pretty much sums up sentiment in the house building sector-

http: / /www .building .co .uk /story .asp?sectioncode=555 &storycode=3112738

Huw, I am yet to see how developers are going to met the 240,000 affordable homes per year when margins are so tight at present.

When I refer to construction I mean all sectors not just housing. The industry has been booming off the back of government spending on schools, hospitals, roads, etc. The level of spending cannot continue with the black hole that the government has formed.

Add in the slowing private sectors (commercial, residential, etc) and things are looking bad for the real construction economy.

Hi Tom

Thanks for that.

Yes, I agree - short term - credit is hitting the market.

What that means is that new builds just don't sell. And nor do established/ second hand homes.

Prices will only go down if owners are willing to suffer a loss - paper loss may be - but owners have proved very resiliant to accepting even paper loses - especially if they think that things may improve in a year or so.

Either way, the supply of new property to market is shrivelling and going to be on the low side for a number of years - I guess 3 years - which will simply help build up demand when people decide that yes, they really do have to move - and no, prices really are not going to get cheaper.

My reckoning based on anecdotal conversations is that the cost of building is going up and there is little margin left for house builders.

This means that they can not cut prices and stay in business?

So, they can't cut prices - only cut supply?

Cheers
Neil