The Greek effect.

Publication of the June report from HM Land Registry on Tuesday brought the final data to provide a summary of the health of the housing market half way through the year and with it some pretty important numbers.

The number of homes selling remains extremely low with just 2,194 selling across the UK every day (Source – HMRC). The long term average is 3,474 with 5,333 selling each day in February 2007.

5,115 new properties came onto the market every day last month, not too far short of the 5,244 that do normally although 8,210 were put on every day in May 2006.

The number of homes in London selling for more than £2m in March increased 85% on March last year and was 489% higher than March 2009! (HM Land Registry)

The number of months of unsold inventory (used as a guide to the ratio of homes for sale and the rate at which they are selling) over the last decade has averaged 12 months with a low of 7.6 months in December 2006. Today we have 15.4 months of stock.

At this rate and with the current volume of new supply coming onto the market the chances of a home selling in the first month of marketing is just 6% and if left on the market for 12 months is only 29%. It would normally be closer to 44%.

The gap between average asking prices (Rightmove.co.uk) and average sale prices (Land Reg) is at an all time high of £78,571. Whilst the two ‘baskets’ are not exactly comparable the trend suggests that sellers remain over-optimistic and those few that are selling are taking much less than they are asking. The long term average is £52k.

The total value of homes sold across England & Wales was £7.2bn, down 14% on March last year.

The number of homes worth more than £1m that sold across England & Wales in March was up 40% on the average with 200 properties over £2m sold compared to the usual 90 that sell in an typical month.

Normally we would expect just 3.4% of all sales in London to be over £1m. Last month more than 8% of all sales were at the top end of the market.

Cash buyers (those not dependent upon mortgage finance) still remain a hugely significant proportion of the market with around 40% of the relatively few transactions taking place without the need of a loan. Over the long term cash deals typically represent around 28% of transactions.

You can see these numbers and more by clicking here

The market remains extremely sensitive. Supply is arguably too good whilst demand from those who can actually transact remains very weak.

Sellers haven’t got the message with asking prices getting too far ahead of sale prices or values. Those few who are actually selling are often taking far less than they were asking.

“Cash buyers account for around twice the number of sales that we would normally expect which has an impact on the monthly surveys from lenders like Halifax and Nationwide. Their numbers don’t count the 40% of buyers who didn’t need a mortgage!

Estate agents at the top of the market have been making out like bandits with sales of homes over £2m in London 489% higher than in the same month two years ago. I expect this trend to continue as international buyers continue to flood the Capital with many prepared to risk paying 20% over the odds for a piece of ‘safe’ UK real estate rather than risk loosing their fortune to civil unrest and subsequent ‘redistribution’ of wealth’. (Expect Greeks bearing gifts in the form of used Euro’s over the coming days as the crisis there plays out).

Whilst those at the top of the ladder escape the worst of the difficult market not everyone is immune. If you put your house up for sale today you have a 6% chance of selling in the first month and less than 30% chance over a year. Selling a house remains almost as difficult as persuading a Greek he should pay more tax, over-paying is very easy as asking prices offer little help as a guide to value and buyers requiring finance continue to struggle to get acceptable terms.

We are in for a long hot, frustrating summer!

Links.
Henry’s graphs – http://web.me.com/henry.pryor/Housing_Expert/The_market.html
Land Registry – http://www1.landregistry.gov.uk/upload/documents/HPI_Report_May_11_cf4rvp10.pdf
Rightmove – http://www.rightmove.co.uk/news/files/2011/06/june-2011.pdf

Sales fall in May

The drought in house sales continues according to latest figures for May released this morning by the Tax Man. Just 68,000 homes are recorded in HMRC’s monthly report of homes sold over £40,000 across the UK which compares with the 71,000 in May last year.

Back in May 2007 over 140,000 homes were sold. Despite the optimism shown yesterday (Monday) in the Rightmove survey of average asking prices it is clear that buyers won’t move. Like the water shortages across much of England the drought in house sales is now a cause for concern.

Much of the wider economy relies on a healthy housing market with money spent in the High Street on home improvements as people buy and sell. Many jobs in the building and decorating businesses rely on a health turnover as well as those more directly employed like mortgage brokers, conveyencers and estate agents. Whilst you are unlikely to shed a tear for unemployed agents the money taken out of the housing market, spent on white goods, cars and invested elsewhere all contributes a significant amount to UK plc. This investment is drying up fast!

Last year there were 884,000 homes sold across the UK. This compares with over 1.66m in 2006. This year we could see fewer than 800,000 homes change hands. Most people worry about prices and may not see the connection with trading volumes but what this trickle of sales shows is that buyers are going on strike, unable or unwilling to pay the prices that sellers want. Average sale prices recorded by Land Registry and by lenders like Halifax are a record £75,000 lower than the average asking price reported by Rightmove.
The value of your house is based on what other homes sell for, not on how much their optimistic owners were asking!

State Subsidised drug users

State subsidised drugs. A good thing?

If the Government were suggesting that they offer subsidies to cocaine users one might expect the odd eyebrow to be raised and if alcoholics were tempted by cheap booze paid for by the tax payer there would be questions in the House. So why in the name of all that is holy are we now offering people who have never bought a house before and who can’t buy one because they are too expensive – a bunk-up onto the housing ladder?

This week we are seeing the detail of the something called ‘FirstBuy’ (written as one word so that the generation already limbered with student debt can relate to it I guess) which offers ‘subject to status’ up to 20% of the purchase price as a loan which should enable them to borrow the other 75% from a traditional lender leaving the poor punter who can’t afford to buy the property any other way with the task of finding the 5% balance. In other words a 95% loan-to-value mortgage.

Those of you who can remember all the way back to 2007 may recall that since the Credit Crunch it was high loan-to-value mortgages that got us into the mess in the first place. People who couldn’t afford to borrow were offered big loans that they er… couldn’t afford and the history looks certain to repeat itself.

Almost all those with a knowledge of the housing market expect prices to fall during the second half of the year. In parts of the UK cheaper homes are already cheaper and some you couldn’t give away. So with just a 5% cushion these vulnerable first time buyers are buying brand new homes from house builders who have put the Government up to this.

New builds often sell for prices that are set by the developer and it is not unheard of for them to have no relationship to the larger second hand market around them. So you could be buying a new flat that is already 5% over priced. Like a new car that depreciates as it leaves the forecourt, your new home could well be worth less after you have spent just one night in it!

If prices slide by 10% as the Halifax have predicted then we are already in negative equity. Until prices return – assuming that they do then this home owner can’t move and like so many first time buyers who bought in the last four years they will be stuck, unable to trade up the ladder.

Still, that won’t worry the house builders who by then will have moved on to clear another green field and built another estate of homes that wouldn’t sell unless the State stepped in to help. The truth is that homes in most parts of the country are over-priced. Figures from HMRC confirm that there were just 68,000 sales in May. Compared to 140,000 in May 2007.

A capitalist market will resolve this by forcing prices lower until people can afford them. By interfering to help ailing house builders the Government is acting like the Child Catcher of Chitty Chitty Bang Bang fame and tempting the most vulnerable with offers of sweets and candies! No wonder 100 developers have signed up for it!

If people can’t afford what they want then don’t lend them more money that they can’t borrow elsewhere – either they should save more or wait until what they want gets cheaper.