Deloitte Monday Briefing: Signs Of Life In UK Housing

* The UK housing market has been at the sharp end of the recession. Prices have fallen by 18% from the August 2007 peak and the number of transactions is running at half the levels seen before the financial crisis. House building has collapsed. In 2011/12 the number of new homes built fell to the lowest level since 1923. * Yet despite the decline in prices UK housing still looks pricey relative on a long term basis. The price of an average house in the UK at £172,000 is now 4.5 times annual earnings. * In Greater London and the South West the ratio is 5.5. The Economist estimates that nationally UK house prices are 21% overvalued relative to rents and 12% overvalued against incomes. * Some countries have made faster progress in deflating their housing bubbles. In the US, where prices have fallen by 35% from their peaks, the Economist estimates housing is now 7% undervalued against rents and 20% undervalued against incomes. Irish house prices have more than halved from their peaks and the Economists reckons housing there is now slightly undervalued. * UK housing may not be cheap, but the market is showing signs of life. * According to the Halifax house prices have risen in each of the last three months and are 1.1% higher than a year ago. The Royal Institute of Chartered Surveyors report that enquiries from new buyers are running at the highest level in 3 years. The number of mortgage arrears has fallen by a quarter since 2009. * Meanwhile investors see better times ahead for UK house builders. Shares in UK house building companies have more than doubled in value since last June. And in a sign of the changing fortunes of the housing market, the estate agent Countrywide listed successfully on 21st March. Last month the FT reported that the private equity owners of Foxtons, BC Partners, had held talks with bankers about a possible initial public offering of the estate agents. * Several factors are contributing to improving sentiment about housing. * Ultra low interest rates and Quantitative Easing have dramatically reduced the cost of borrowing. The Bank of England's survey of lenders shows that mortgages became markedly cheaper in the last six months and are expected to become cheaper still in Q2 2013. * Homebuyers are also finding it easier to access credit. The Bank of England reports that mortgage availability improved in the first quarter of this year, with the biggest improvement for borrowers taking out high loan to value mortgages. In...