Hot on the heels of the Nationwide House Price index released this morning which confirmed that prices were now 16.6% lower than the start of 2008 comes the latest Land Registry statistics. Based on historic deals agreed, in many case last September and October, the Land Registry calculates that house prices in England and Wales are down 13.5% yerar-on-year.
In reality the drop has been much greater with many now looking at 25% falls since the peak of the market in the summer of 2007. On present evidence, I expect values to return to their levels of 2000/01 which for many will mean a fall of nearly 50%.
Bad though these price falls are, it is the drop in transaction volumes that is more worrying. Through 2008 we saw the number of homes selling fall by around 50% on the year before. The Land Registry report today confirms that in October there were 60% fewer completions than there were in October 2007 and in London it was 66%! Sales of homes over £1m in London fell from 360 in October 2007 to just 151 in October 2008.
As sellers come back into the market in the spring, the supply of new instructions will put downward pressure on prices, buyers and sellers will still struggle to establish what a home is worth and the anticipated 75,000 repossession that will hit the market this year may distort prices even further.
Recent surveys that suggested that asking prices have been rising in December seem to be at odds with the experience of estate agents as well as lenders. If true, it would suggest that actual deals are being done at a significant discount to guide prices with the average now at around 85%. Until vendors and their agents understand that the market is still falling much further than they had realised, there will be continued uncertainty at a time when most in the housing market are looking for reassurance.
The tabloid newspapers cater for the extremes of human desire;- the Peoples’ Princess and similar rose-tinted, heart-warming stories help all who believe that mankind is fundamentally a force for good, each day that passes marking progress for civilisation. England, cricket on the green, warm beer and the sound of children laughing. Or the other view ;-
The end of the world. Armageddon. Youths tearing through town centres, beating up middle-class women who dare to talk back – or ‘diss’ as it’s called, the young thugs high on something that the Government ought to have banned when it came into office eleven years ago!
And so it is with housing market stories. While some swear they see the green shoots of recovery (perhaps through the bottom of an upturned glass to help with magnification?) others are still crying into it. The optimists blame the pessimists for what they see as their self-fulfilling prophecies. The ‘realists’ condemn those they say have ‘vested interests’ of being responsible for the mess in the first place. Oh, yes, and of having done it purely to profit from it all!
Both sides claim that the statistics back their argument and trot out numbers and quote ‘experts’ usually without listening to the opposing view. “The number of new instructions” say the optimists “confirm the sighting of the first swallow that defines the arrival of summer and a return to a bull market”. The doom mongers suggest that they are simply cuckoo. Surveys from both the National Association of Estate Agents and Primelocation both recently suggested that asking prices in December actually rose. This at a time when all the main house price surveys say that house prices have fallen between 14-18% in 2008. So is the market springing back to life or having one last gasp?
If you are confused, finding yourself agreeing with the most recent argument you have heard then perhaps you’d like some arms-length numbers? Her Majesties Revenue & Customs have published the first results for 2008. These are the numbers of residential property transactions over £40,000 and unlike the Land Registry they cover the whole of the UK. You can see the table here but these are the headlines;-
The total number of sales in 2008 was 908,000, down from 1,628,000 in 2007 and 1,686 in 2006. In Northern Ireland the fall has been dramatic. Down from 52,000 in 2006 to just 15,000 last year whilst in England the numbers have ‘only’ halved from 1.4m to 758,000.
On every radio program I contributed to last year, someone would call in or email to say “it may be rough down south but the market in Scotland is fine and I’m selling more houses in Edinburgh this year than I have ever!”. Well, it turns out that either the Scots are serious tax-dodgers and are not reporting their transactions or these folk were misreading their own numbers. According to HMRC the number of sales in 2006 was 144,000 which did indeed rise in 2007 to 148,000 but unaccountably fell to 99,000 in 2008.
The Welsh have not escaped falling from 71,000 to 36,000 but here’s the bit you might want to ignore/concentrate on – depending on the state of your glass. The trend is down. The graph is getting steeper and if you extrapolate or extend the line it suggests that 2009 isn’t going to be much better.
We will see more numbers in the next couple of weeks. I am already calculating just how much revenue the Exchequer has lost in Stamp Duty due to the fall in sales working out (with a big calculator) the stamp duty paid on each sale. When compared to the amount that the Government seems to announce almost every week it is pumping into the banks then I expect it will look like loose change. In the meantime, which ever view you take, you can either point to the reduction in both supply and demand and claim that this will help to underpin values or your will pronounce the end of home ownership for a generation. Either way, I hope you will find these numbers useful and do check back soon for yet more definitive proof that you were right all along!
New year, no houses!
By now you’d have to be living on Mars to be unaware that the number of houses selling has fallen to record lows. In an average year, around 1.25m homes change hands in England an Wales (sorry, I don’t seem to have numbers for Scotland and N. Ireland) but 2008 figures look to be a low as I predicted last summer with just 640,000 homes selling.
During the year, demand fell as buyers became nervous, mortgages dried up with the number of different mortgage products falling from around 6,000 to less than 1,200 at Christmas. Oddly, the number of buyers registering with estate agents stayed pretty constant with numbers looking at the big web sites up at unbelievable levels. Rightmove, the biggest property portal, were reckoned to have nearly 2 million ‘unique visitors’ in November according to ComScore. Whether this counts the same person coming back five times in the month as 5 unique visitors isn’t clear to me but property is a big draw online – even in a recession.
We have talked about supply and demand before. Many kitchen table economists hold that property prices are a product of supply and demand but I still argue that in fact, house prices are really a function of the availability (or otherwise) of credit. There may be 2 million people looking for a new house but if two thirds can’t get a mortgage then in fact 1.3 million are just tyre-kickers! The Council of Mortgage Lenders reckon that new home loans fell in October (their most recent figures) to just 33,000. That’s roughly half of the total sales for that month!
So, if there are 640,000 properties sold in 2008 with 320,000 mortgages between them then this suggests that at best, the remaining 1.3m people looking just couldn’t find what they were looking for. Despite there being three buyers for every house sold house prices fell like a stone.
So much for demand. What about supply?
In 2007, there were about 135,00 homes coming onto the market every month. As we have seen, demand may have slackened a bit but house prices rose for eleven years with this level of supply. At any one time there were about 900,000 individual homes on the market (don’t double count the same house being offered by two different agents. We’re talking unique addresses). Last year the number fell to just under 100,000 a month but now that figure has fallen further still.
The number of new properties coming onto the market has halved.
So, while demand has fallen off our armchair valuers would say this should depress values (as has happened) but supply has effectively dried up. Around 45,000 new properties came onto the market last month adding to the idea that prices should rise and yet they are still falling.
The Governments latest cunning plan is to inject yet more money into the banks. There’s talk of printing money but all this tax-payer cash seems to be being hoarded by the banks rather than being made available to borrowers. Even if it was offered, are we seriously expecting people to want to buy when the heads of the biggest mortgage lenders are predicting double digit price falls in 2009?
We have to accept that for the foreseeable future, this is what the housing market is going to be like. Modest supply, held back by the cost of moving and modest demand reined in by lack of lending. All this will add up to stable house prices (eventually), fewer estate agents (shame) and the primary use of property as being somewhere to live rather than a money making machine.
It was easy to make a mistake last year and many people did when it came to quoting a sensible and realistic guide price. I’m not saying it was easy – there is always the concern that you could ask too little but there’s a knack to pricing a property in a falling market.
So many people either ignored the advice they were given or followed what they wanted to hear and appointed an estate agent who was out of touch with the market. As I have said before, your agent has to be over 35 to have worked in a property recession before.
We know that the number of properties being rented out has grown by nearly 56% in the past three months and with less than half the number of houses selling compared to 2007, values are falling like a stone. Over 6,000 people every week having to reduce the asking price of their property.
The market has officially fallen by around 16% in 2008 although agents would say that in many places, for those who have actually sold, the fall has been nearer 25%! With fewer than one in seven homes selling, many have had to reduce the optimistic price they originally quoted.
I expect repossessions to rise to around 75,000 this year which will make up around 10% of all homes sold and whilst these sales are not included in the Land Registry figures, if they were, I would expect the Land Registry index itself to fall by another 20% in 2009.
An extreme example that illustrates that even the rich can get it wrong is Ancaster Lodge in Richmond being sold by Foxtons and which has just had a cool £6m trimmed from the original guide price of £20m quoted last year. The price reduction may be extreme but even those at the top of the market have found that it’s easy to get your asking price wrong.
Ancaster Lodge has five bedroom, four bath rooms, an indoor pool and separate studio. Off-street parking is a big plus in London of course but hasn’t been enough of a draw to pull in a punter willing to spend £20 long ones!
The moral of the story is ‘price ahead of the curve’. Buyers won’t take an optimist seriously so set your guide price with care. It may be painful to realise that your home is no longer worth what you had hoped but if you are buying and selling in the same market it makes little difference since what you buy will be similarly effected. As long as there are people who refuse to accept that the world has changed the housing market will remain choked with few sales and prices that look like the January sale in a Pound shop!
The number of homes sold in November falls and the outlook for 2009 is pretty bleak.
The latest statistics have been produced for sales that completed in November. Not surprisingly, the number of properties sold in the month has fallen to a new low. So far, just over 10,000 sales have been recorded by the Land Registry in England & Wales, down from 90,581 in November 2007 and 115,873 in November 2006. The total number of sales in November is expected to end up at around 42,000.
Looking at the whole country, figures from HMRC confirm my analysis – that the total number of sales for November is down from 135,000 to just 56,000. With around 45,000 repossessions expected, the total for the year as a whole is therefore likely to be little more than half the 1m sold in 2007.
Nationwide won’t play ball.
News that the Nationwide will not be passing on any rate cut next week to tracker mortgage holders together with the latest figures from Halifax confirm that the start of 2009 will be very bleak for all involved in the property market. The number of estate agency offices has fallen by over 4,200 in 2008 with around 30,000 individuals having lost their jobs.
One in five homes on the market today has been for sale for 12 months or more. Whilst the number of homes coming onto the market will grow I expect fewer than one in five homes will find a buyer in 2009.
It’s not about supply and demand.
House prices are not dictated by supply and demand but by the availability (or not) of credit. The number of mortgage products available has fallen from around 13,600 in July 2007 – just before Northern Rock hit the fan. Three months later in October there were just 10,000. In October last year there were around 3,200 but there are fewer than 1,200 products available today.
There will be many people who would like to buy a new home in 2009 but who will be unable to find a suitable mortgage that will allow them to participate. For those who can get a competitive quote the terms of the loan will mean that most will have to continue to save to afford the increased deposit that lenders will require.
But it’s not all doom and gloom. The Government will still take over £52m in VAT from Home Information Packs produced for homes that never actually sell. There ought to be a law against it!