John Wiley & Sons publish the widely read ‘For Dummies’ brand that covers over 1,300 topics from how to knit a scarf through to how to load your new iPod. Conspicuous by it’s absence in my opinion though is a guide to house prices and the future of the property market. Judging by the emails I get, this must be an oversight – something I’m sure they will rectify very soon.
When they come to write it, they will find that in the summer of 2009 there were two distinct views with evidence to support both. Sadly, only one can be right and although I lack the panache of a For Dummies editor here is my guide to the tensions in the current market.
In one camp we have ‘The Believers’. Those who keep their finger on the very pulse of the market, who monitor the phone calls to estate agent offices, record each click on a property web site and who extrapolate the prices achieved, the deals done and who conclude that having been shown the property equivalent of The Da Vinci Code have decided that the worst is over.
Their belief in the Market and of it’s history helps them keep the faith and for these people, we have reached the bottom. It will, they admit, be a long time before we see a market like that which existed before July 2007 but there is no need to panic, an orderly market is re-establishing itself, sales were up in July for the first time since 2007 and the rate at which asking prices (Rightmove) and sale prices (Land Registry) are falling has slowed to a few percentage points.
As with the publication of Dan Browns book, the Believers consider any suggestion that their ideas owe more to optimism and faith to be heresy. The skilfully planted suggestion that the reality is in fact much less exciting achieved much when the book and the subsequent film starring Tom Hanks came out. The notion that we had witnessed the unmasking of a two thousand year old conspiracy was the stuff of block busters. And so it is with the other camp of property market theorists.
‘The pragmatists’ suggest that it is simply wrong to take the sale of one property and suggest that you can value all other homes based upon that single transaction. They say that the reports of a surge in demand and of sales in London says nothing more than that in the wealthy south east there are more people who qualify for the new credit environment. The number of sales is over 70% down on the peak and statistically these bears argue, the market is only breathing because it is connected to a life support system.
In a recent update mortgage broker Charcol broke the unappetising news that out of the eleven million homes with mortgages in the UK, around three million were either in or as good as in negative equity. Fine say the Believers. These people don’t matter to the market unless they have to sell and most don’t.
However, as the mortgage guru Ray Boulger said, these people have no capital so have no deposit let alone the 25% that they would need if they ever were to try and they get a negative ‘imprint’ on their credit record each time they try in vain to apply for a solution. What the Treasury Select Committee missed in their recent review (catchily entitled “Mortgage Arrears and Access to Mortgage Finance”) is that the shrivelled market we currently see is unlikely to change much in the short or medium term. When interest rates rise above their historically low 0.5% then these three million households will be joined by many more all of whom will be unable to sell, re-mortgage or repay the mortgages that by then will have returned to the Standard Variable Rate after the tasty, discounted offer that enticed them in the first place has expired.
Two is twice one.
We’d all like to sit down with the Believers. They are good company and cheerful folk and much of what they say makes sense. Sales and values may well continue to rumble along at todays levels until 2010 but the Pragmatists are hovering in the wings to remind us all that whilst two sales is of course 100% better than one it is still just one sale in a market that used to have five!
Looking at the actual figures as both camps would encourage us to do we can see that in June 2007 there were 5,400 houses selling every day. In January this year there were just 1,300. Today there are 100% more but in July there were still only 2,645 sales. That’s less than three sales for each town in the country. From this, the Believers suggest that you can assess the value of the entire stock of twenty four million homes. What do you think?