Sunday, February 28, 2010

House Prices face Double Dip

This was the title of an article in The Independent on 24th  February 2010.
Read it here :
My response is below!

House Prices Face Double Dip

If 2009 saw a ‘boomlet’ then it passed me by and probably the rest of East Cambridgeshire too. I would accept that house prices in and around Ely stabilized and generally stopped falling - most likely because of supply not matching demand. This was also a feature of the late 80’s and early 90’s when if people could avoid selling at prices they didn’t like then they did just that!

To get a true impression then we need to stop looking at the UK residential property market as just one countrywide market. It is a series of micro-markets all reacting differently to the overarching conditions of recession, (un)employment, mortgage availability, type of property available and the likely buyers. After all, the likely ‘punter’ for a riverside apartment overlooking the Thames in central London won’t be the same as the buyer for a 1 bedroom flat in central Ely.

Taking the 5 reasons stated in Graham Norwood’s article in the same order:

Demand is weaker than it appears and may drop

‘Mortgage data shows that most of the demand for loans in late 2009 came from buyers looking to beat the stamp duty change and last month - I assume January - we reached an 8.5 year low’.

January has never, ever, been a peak sales month but let’s just examine some other data:

The average price of a 2 bed semi starter home in Ely is currently £140,000 - down from £165,000 in late 2007.

Stamp duty payable in 2007 : £1,650.00
Stamp duty payable in 2009: £Nil
Stamp duty payable in 2010: ££1,350.00
Saving on property price from 2007: £25,000!

The CML say that the number of buyers saving money in 2009 was 132,500. Not particularly startling figures over the whole of the UK and in a lot of areas outside of London a good number were not first time buyers.

The stamp duty holiday has had really limited impact. The fall in house prices has probably achieved more.  Statistics from Rightmove and Google Analytics data from our own website shows activity up about 120% in January. This did not translate into viewings, offers and sales until the last week of the month. Cause? The weather! Most of the country was hampered by the worst weather for decades and if not actually prevented from getting about then large numbers of people chose not to venture out. In 21st century UK is this really valid? Actually I think so.

The first time buyer is still one of the rarest inhabitants of the property market. Throughout 2009 lenders have - in the main - insisted on a 20% deposit. Even at Ely’s comparatively lowly prices it means they need £27,000 as deposit on a £135,000 property. Faced with this is £1,350 in stamp duty going to be that much of a stumbling block? If you can manage the deposit then I don’t think the tax will be an issue. We are starting to hear of some lenders prepared to lend 90% loan to value (Cambridge Building Society). Given all this 2010 may be ‘more of the same’ but I can’t see demand being weaker.

The Election - Whatever shade of government we end up with none of them will do for the property market what the scrappage scheme did for the motor industry! Most of that money got exported to foreign manufacturers too?

Most Recent Price Surges Are In Wealthy Areas

I won’t take issue with this statement as it’s simple economics. Contrary to popular belief estate agents are not interested in rising prices to help lift their fees. We all want to see the volume of sales increase. Whatever house prices are they are always relative for everyone buying and selling at the same time in the same area.

The Buy to Let Sector Has Not Escaped the Slump Unscathed

Well would or should it? We’ve seen less buyers in this sector than 2 years ago but the majority we have seen have not been looking to take high loan to value mortgages but paying cash. £130,000 in the bank or building society earning less than 1% or in a property showing 3-5% yield with the possibility of capital growth in the longer term is not a difficult decision. It is a time for the professional landlord, in it for the long term.

The Post-Election Landscape May Weaken the Housing Market

May be so but how much more damage can a ‘new’ government do to the property market? Construction and property drive so much employment and demand for goods and services etc. Will the government of the day want to see it any further curtailed? Savills (an agent that deals with the upper end of the market) confirm that in the north of England 24% of the market may be affected by public sector redundancies. The public sector has expanded enormously over the last 10 years. Will it be only the high paid ‘consultants’ that figure in Savills’ statistics?

Estate Agents Are No Longer the Only Market Barometer

So what? What has other ‘players’ being a ‘barometer’ got to do with predicting further house price falls and a collapsing market?

Estate agents have never had a monopoly on sales. That most open of free market economies the USA has had an active For Sale By Owner market for years. Their property market embraced the internet a while before our own but the US Realtor still makes more deals than the private sellers and, incidentally, at about a 6% average fee.

I think most agents would say to any potential vendor intent on going it alone “Good luck and we wish you all the best”. They would also be thinking that the seller will be relying on luck to get the deal as they won’t be able to apply the required amount of effort, commitment and skills to get the transaction to a conclusion. Dealing direct with your buyer is not easy for most people and buyers are always doubtful of a private sellers motivation to move.

Sarah Beeny’s 6000 hopefuls are just that - hopeful! It looks to me that the site earns money from it’s partners, may be, paying commission?

Sarah says on her home page: “Tepilo is an alternative way to buy, sell or let your property and it's free. You maintain 100% control and pay 0% commission! Search across the UK and get advice from me along the way.”

And you also do 100% of the work - from ordering your hip, taking your photos & uploading them, conducting the viewings, negotiating the deal - after chasing the buyer?, instructing the solicitors, following and chasing the process - it goes on.

The other matter I finally wanted to visit was Sarah’s comment on agent’s commission. She mentions £10,000 fees for a £350,000 sale. I assume that £10k is inclusive of HMR&C’s 17.5% slice. That would mean the agent’s fee was 2.5%!!  This is the type of fee only enjoyed in some multi-agency instructions (rare) and by some corporate agents who I am amazed manage to convince a seller to accept such a level. Our, and I believe the majority of my competitors, fee average is something between 1 and 1.25% which would make the fee on £350,000 at best around £4,375.00 before VAT.

The OFT seem to have got caught up in this same misunderstanding over agent’s fees as they are virtually applauding Tesco’s return as an ‘agent’. Now there is an organization able to shrug off bad press - maybe they are suited to the role after all?.

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