In January 2007 in the FT and on the Today program I suggested we might be seeing the top of the market. Many scorned my suggestion at the time but at the risk of tempting fate, I wonder if this might now be the bottom. As I said many times since then, I suspect that prices for many will have fallen by up to 50% and whilst most indices don’t think we have got there yet, unless we are staring at Armageddon then perhaps this may be ‘the darkest hour’.

It’s a long argument, please bear with me.

Summary;-

• House prices have already fallen 22% from their peak according to Halifax Index (£157k from £201k)
• Asking prices are at least 10% more than property is actually selling for.
• The market has a further 18% or more to fall say respected commentators.
• Who would buy today something that they are told they could buy for less tomorrow?

“We’re all used to sensational headlines, it’s what grabs the readers’ attention and encourages you to read on. There have been predictions of house price carnage (and there are even web sites such as ‘housepricecrash’) but surely we are only experiencing an over due ‘correction’?

“Well, many hope so but I fear that in fact things are already worse than the main house price indices suggest. Here’s why;-

“House prices, like the value of any other asset, are part art (appreciation of a picture or bottle of wine) and part science (supply, demand, the amount you can borrow and on what terms etc.,). In the current market, there are precious few motivated by pure esthetics – looking to buy just because ‘it’s got the perfect view’.

“The science part is in many ways the easier bit because it boils down to what else has sold and at what price. ‘Facts’ don’t require Brian Sewell to explain what you should appreciate. But the science is looking pretty grim.

“Irish house prices are already 50% off their peak and in Japan, homes lost over 80% of their value during what became known as ‘the lost decade’ in the early ’90’s so the first thing to accept is that house prices can fall a long way.

“According to the web site Rightmove, asking prices are about 10% above the levels that deals are being done but the statistics suggest it may be much more. Rightmove’s average asking price last month was £222,077 compared to £151,861 which was the average selling price of those few homes that sold according to Nationwide. The few buyers who can perform are clearly being merciless when it comes to making offers and there’s a big difference between what people are asking and what those that are selling are accepting.

“The Halifax Index says that prices are academically 21.89% off their peak in the summer of 2007. Like other indices, this is based on completions in the previous month which in turn reflect deals that were agreed two or three months before that. According to the likes of Nationwide and Hometrack prices are falling at nearly 2% per month So in some places we are probably nearly 28-30% down today.

“Question. Would you pay £10 for something today that you are told will cost £8 tomorrow?

“Most experts be they the chief economist at the Halifax or the wise men and women on the Monetary Policy Committee now say publicly that house prices will be cheaper tomorrow than they are today. Respected Surveyors Jones Lang LaSalle thinks that house prices could fall a further 18%. This obviously frightens potential buyers who don’t want to spend more than they have to. Another 10% to go before we hit the bottom? That may turn out to be conservative but lets be reasonable 22% so far according to the likes of Halifax and a further 18% to go – in total it’s still 40% less than it was at the peak.

“In fact, the value of a property (or any other asset) isn’t as is often said “what someone will pay for it” but actually what the under-bidder will pay. If you put your hand up for something and get home to find your spouse thinks you’ve made a mistake comparable with the one they suspect they made when they said “I do!” you will find that the value of the ‘bargain’ you have just snapped up isn’t what you paid for it but what they chap who lost it bid. At the moment around 5% less than the top offer. 43-45% off the peak then.

“If you are one of the few who can actually extract a mortgage offer from a bank then you are going to find that whatever you have agreed to pay will mean a nice man in a shiny suit is going to pop round and check that the bank isn’t lending 75% of an over inflated price (old dog, new tricks?). The valuer has at stake – both his reputation and his insurance is on the line so it isn’t a surprise that his instinct might be to be cautious. Much easier to under value than to get it wrong and get sued!

“Academically then house prices might be around 45% below their peak. As many can verify, there are a lot of properties on the market at present that can’t find a buyer at any price. If you put your property on the market today you have roughly a one in ten chance of selling it. Now there are those who will disagree and there are examples that challenge these numbers but there are so few sales (down 67% in London in January) that I would argue that if you have just sold you should be very pleased and if you have just bought then you almost certainly paid too much.

“The Halifax states that house price to average earnings ratio is back down from the peak of 5.84 in July 2007 to 4.26. However, the Council of Mortgage Lenders tells us that last month the Average Income Multiple (mortgage to average earnings) was just 2.95 – down from 3.35 in February 2008.

“If you buy a home to live in then paying 10% more than you ought is fine because that will be where you live for the next ten years. What price a happy home? But those whose business is based on the value of property will only lend 75% of what the man in the suit thinks. It’s how we know which way they think prices are going.

“Most home owners have always thought that their property is worth more than it is and while there is always the ‘art’ part to add into the value of any property, the scientific part suggests that today, your home is really only worth roughly half what you might have thought it was at the peak of the last boom in the summer of 2007.

“Perhaps then this is the bottom.”

Rupert Murdoch bought Propertyfinder in 2005 for £14m via News International and it’s subsidiary realestate.com.au from Asserta Holdings. News Corporation were reported to have paid over £50m through another subsidiary News Ltd., for it’s stake in REA which in turn owns property websites across the globe.

Propertyfinder launched in 1995 is the ‘original’ property portal listing over 300,000 properties in the UK. Recently Propertyfinder acquired it’s smaller cousin Hot Property

Asserta was a VC backed company part funded by Arts Alliance and some estate agents like Hamptons.

When she took over in early 2008, Gillian Kent was recruited to take on the battle with Rightmove. At the time she was quoted as saying “The property website market is ready for a shakeup, Rightmove’s spot as No 1 is not pre-ordained and I am looking forward to challenging their position.

Previously DMGT had paid £48m for Primelocation and a six figure sum for FindaProperty. The Guardian bought ThinkProperty and it’s software parent Vebra and Trinity Mirror spent £4.4m on Email4Property.com

In a announcement to the Australian Stock Exchange, REA Group will “commence a review of the UK online businesses which runs Propertyfinder, Hotproperty and UK Propertyshop.”

News of all this comes from the ex-boss of REA Group, Simon Baker. On his blog he says “While a sale of the business would be the best outcome, this announcement by the REA Group appears to be laying the foundations for a potential closure of the business. The next four weeks will be very interesting.” Could he be a buyer, I wonder?

98% of people use an estate agent when they sell but less than 2% when they buy. Why?

When it came to selling a home in the UK last year over 885,000 people used an estate agent despite a wealth of alternatives. Less than 10,000 buyers sought advice.

There is no law requiring one to make use of an estate agents’ services, there are numerous web sites dedicated to ‘For Sale By Owners’ and it’s not as if estate agents are the most popular profession. Complaints of over charging and slippery habits turn an otherwise nice young man your daughter might bring home into something only slightly more attractive than a prospective member of parliament!

The vast majority of those few lucky enough to sell their home at present will do so with the help of an agent – helping with the pricing, strategy, viewings, negotiations and finding a buyer. The buyer will be totally on their own. No help looking, no coaching on what to say and when to stay schtum and certainly no help in working out what something is worth or what to offer.

Exactly the same number of people will buy a home as will sell but only a handful will retain a buying agent or someone to hold their hand Yet this is the very market that having a professional by your side can help you save thousands – in some cases hundreds of thousands of pounds.

“n a bull market the seller has the upper hand and buyers queue up hoping that somehow they will be able to persuade the smug looking agent to get out of his BMW and deign to show you around his clients over-hyped property. These days, buyers are as rare as duck houses and sellers and their agents are offering all kinds of inducements just to get you just to come and look.

But the average person buys only once every seven or eight years. They probably have a tooth extracted as often as they buy a new home and yet they wouldn’t pull their own teeth! Up against a professionally advised and motivated seller most buyers approach the process as they would buying a used car but there’s not even a Glass’s Guide.

“In this market it’s impossible for the professionals to value a property any closer than 10% although buying agents today are frequently getting 20% or 30% off an asking price. We are negotiating on a property at present that came onto the market last year at £1.6m. We are expecting to secure a purchase at around £1m.”

Something as simple as not being the first to bid can save a buyer 3-5%. When you think of the millions that tune in to watch my colleague Phil Spencer help someone negotiate a purchase on telly you’d have thought that more people would be keen to get the inside track. Interestingly though, it is those who spend more who usually take advice. Closer to 30% of people spending more than £1m get advice and with house prices falling at the current rates, even those looking to spend the UK average £157,000 on a home could have saved themselves between 15-20% in the last year if they had sought advice from any one of the under-worked BMW drivers, many of whom are now only to eager to offer advice to the few buyers out there looking to drive a hard bargain.

Buying agents include;-
Middleton Advisors
Stacks
Haringtons

Three reports out today suggest that there may be some reasons to celebrate and that there may be life the UK housing market. However, despite each being put out by respected organisations, It’s no surprise that each has strong ties to those who would like to earn a crust by actually selling homes. To suggest that the glass is half full is one thing but these people aren’t looking through rose-tinted spectacles, they are mistaking a dead parrot for one that has expired!

The National Association of Estate Agents has calculated that each agent has agreed 10 sales in April, well up on the five last August. What they don’t seem to acknowledge is that since the peak of the boom they themselves estimate that around 3,000 agents have shut up shop. Might it actually be that the apparent rise is down to just dividing a pathetically similar small number of sales by a much smaller number of estate agents?

Rightmoves’ monthly survey out this morning has more attractive rises but in amongst the headlines they confirm that the number of new instructions is down over 50% last month! Asking prices might have risen slightly but only 61,000 new properties were put on the market. In April last year there were 136,000! When instructions dry up there are more reports of some agents ‘valuing for instructions’ giving clients an inflated view of the price in the hope of getting the job. It’s not surprising perhaps therefore that asking prices rose slightly by 2.4%

Don’t be fooled by talk of percentage increases. Two sales may be a 100% increase on one but it’s still only two! Before we crack open the champagne, remember that according to the Council of Mortgage Lenders last week, average loans to value were just 75%. With average house prices still over £150k, this means that buyers are having to scrape together nearly £40,000 as a deposit out of taxed income. (Average pay is just £26k). How many can do that without a parliamentary allowance?

The April survey from RiCS needs some explanation. The Institution says members were “universally optimistic” reporting that more surveyors expected prices to keep falling but that the decline could stabilise in the coming months. However, if you read the survey you find the following;-

1. The number of surveyors who contributed was just 245.

2. The percentage of surveyors who expect prices to fall is the same (48%) as those who think they will stay the same. Just 5% thought that prices had risen in April.

3. The number of sales completed per surveyor stands at 10.6. I grant that this is up from 9.7 last month but still well below the 23.5 in August 2007, the peak of the market.

The RiCS are reporting that the members they sampled witnessed around 2,600 sales (245 contributors multiplied by the number of sales completed). According to the Land Registry in April last year there were 62,129 sales and in April 2007 95,273 so not much more than a modest sample. New instructions continue to fall sharply and RiCS blames changes to the HiPs rules for this. However they also note that the total stock of homes for sale has risen suggesting that there is still an oversupply of property.

But it is the headline that new buyer enquiries have increased to their best levels for a decade that I think is misleading. This is just playing with numbers. In fact there is very little detail in the survey about the numbers of new buyers other than some indistinct regional graphs. What RiCS seems to be reporting is the percentage change in new buyer enquiries and we should remember that two enquires are a 100% increase on one the month before!

People talking about green shoots would do well to watch out for sharp frosts!

The launch of “licensing” for lettings agents by ARLA, the Association of Residential Letting Agents is all well and good but frankly we are not expecting those who have voluntarily joined and paid up to a trade body to be the ones who are skipping off with the tenants deposit. I welcome the enthusiasm for some form of registration but have concerns about today’s announcement.

At the House of Lords the Association of Residential Letting Agents (ARLA) launch their move into ‘licensing’ by announcing that all those who are paid up members of the lettings part of NFoPP (the National Federation of Property Professionals) will henceforth have a ‘license’ and later this year they will add the ‘provisional’ wing of the organisation (the National Association of Estate Agents) who will be doing the same.

Is Arthur Daley back?
Now I’m a great fan of improving the image of the industry and have been working with NFoPP and RiCS and many others to introduce a register of estate agents but the move by ARLA to simply call their members ‘licensed’ is a recipe for disaster. Today, landlords and tenants will wrongly feel relieved that they need no longer worry that they may be caught by a rogue agent dressed like Arthur Daley but it won’t be long before yet another headline screams “Dodgy estate agents rips off customer…” despite the new licenses that have been issued. The reason is that NFoPP only speaks for about 50% of agents!

I calculate that between them the RiCS and NFoPP represent less than 20,000 estate agents in the country. NAEA’s own survey at the start of the year said that there were close to 40,000 estate agents so a voluntary scheme like this is really just a PR puff to remind the public that they should be better off using a NFoPP sales or letting agent. A good idea but I suspect that the public will read the headlines and assume that they can relax and that this covers ALL estate agents.

Tenant deposits.
Tenants deposits are often cited when discussing renegade agents but these deposits are now required by law to be lodged in one of three approved schemes which help protect the tenant from unscrupulous agents and landlords. The Office of Fair Trading was in the High Court just last week dragging Foxtons in front of the beak in a row about fees but Foxtons aren’t members of ARLA and therefore won’t be ‘licensed’ like the thousands of other agents up and down the land.

Neither the Government nor the opposition has the stomach to legislate and until a way can be found to ensure ALL agents are at least registered then todays announcement will achieve little other than to convince a skeptical public that all agents are rogues. I bet that God isn’t often bothered by Jehovah’s witnesses calling on him – even they understand that its a complete waste of their time. A bit like licensing just the good agents….