House prices across Wales have crashed by as much as 48% since 2007, study reveals

(From WalesOnline)

House prices in all but one of Wales’ 22 local authority areas are still below what they were in 2007, research has shown.

In 19 of the council areas, there has been a double digit percentage reduction, a report from the Smith Institute think tank revealed.

Between November 2007 and October 2013, Blaenau Gwent showed the biggest percentage drop in house prices at 47.7%. That translates into a drop of £44,076 to an average house price in the county borough of £48,356 in 2013.

Monmouthshire was the only council area in Wales to mark an increase in house prices since 2007 – by a very modest 1.6%. In fact, the border county was the only local authority outside the South East of England to show any rise over the six-year period at all.

In the report, Smith Institute director Paul Hackett states: “The discussion about house price movements has recently been dominated by rising house prices in London and its hinterland. Our research clearly documents the ‘London effect’, with values above what they were before the financial crisis.

“But, what stands out from the data is that there are many places in England and Wales where values are low and house prices remain well below their 2007 peak.

“As the research shows, what we have witnessed over the past six years is the growth of two distinct and divergent housing markets: a London centric property market where house prices have recovered and in some cases soared; and the rest of England and Wales where prices are flat and transactions are low.

“Beyond the headlines of double digit price rises in inner London, the report is a salutary reminder that average house prices for the country (which discount inflation) remain below their 2007 peak.”

Mr Hackett said it was also important to recognise that the divergence in house prices was symptomatic of deep-rooted and persistent uneven economic development, with jobs and growth concentrated in London and the South East of England.

He said: “Increasing numbers of those looking to buy in these high demand areas will be excluded from homeownership.

“In those regions where prices are highest homeownership levels have been falling fastest. Moreover, it can lead to house price bubbles, especially given the historically high ratio of earnings to house prices.

“Perhaps just as worryingly if investment in new homes follows demand for housing (i.e. in London and the South East) it will result in more economic activity and growth in these places thus further unbalancing the economy.

“Nevertheless, millions of home owners have seen the value of their homes collapse. This not only reduces some people’s personal wealth – and that of regions – but also undermines their ambition to move on. In many parts of the country homeowners, particularly those who bought homes at the peak of the market, will now be in negative equity. The problem could become very serious in low value areas if interest rates rise.

“House-builders, developers and lenders are also wary of the higher risks in places where values remain low. This further distorts an already imperfect housing market and has a negative knock-on effect for investment in affordable and sub-market housing. For these reasons any government should take careful note of what has occurred since 2007 and calibrate its housing policy in the future to avoid another damaging cycle of housing boom and bust.”

Local government consultant Jeff Jones, a former Labour leader of Bridgend council, said: “These statistics show how poorly the Welsh economy is performing. They blast out of the water the hype from estate agents and others that there is a recovery in the housing market.

“The fact is that in areas like Bridgend, where the average annual salary is around £17,500, most people cannot afford the kind of prices developers want to charge for new homes.

“The worry is that in many parts of Wales the next generation after the present one of baby-boomers will find it very difficult to buy their own home.”