Poor GDP figures have mixed implications for housing market

Preliminary GDP figures released by the Office of National Statistics (ONS) showed that the UK remained in recession during the third quarter of 2009, defying widespread expectations that the economy had begun growing again over the period.

The surprisingly poor figures have mixed implications for the housing market. On the one hand, a deeper and longer recession implies higher levels of unemployment and a longer period of subdued wages, both of which will act as constraints on the housing market’s recovery. Given the poor labour market situation implied by the economy’s ongoing weakness, it is difficult to imagine the housing market returning to the buoyant levels of activity and price inflation that prevailed earlier in the decade. On the other hand, the figures mean that interest rates are likely to remain at or near their current record lows for well into next year. As a result, mortgage affordability will remain relatively favourable for both new and existing borrowers. This should limit the number of distressed sales and cushion the negative impact of labour market weakness on housing demand.