A flight to quality

Following the recent collapse of Bear Stearns, activity in the financial markets will have a large bearing on the housing market over the coming weeks. To date, despite difficult economic conditions, the prime London and country markets in which Garrington operates have demonstrated a good degree of resolve. It is the sub-£1Mil mainstream market where the effects of the credit crunch have been felt. The fundamentals which support the top end remain in reasonable shape, but there is a danger that further bad news from the financial world could tip the balance of confidence.

Easter is always a poignant moment for the housing market, I expect that this year it will be particularly so. There are lots of potential buyers and sellers out there who have been perched, watching and waiting for the last six months. These are people who need, or at the very least would ideally like to move, but for whatever reason have not implemented their plans. Although I acknowledge people always love an excuse not to go house hunting, quite what it is that they wait for I’m never entirely sure. Activity levels have decreased as a result of this mindset. Easter was D-day. Either these spectators will now decide to come out to play, or commit to staying where they are for another year. It always surprises me when the market softens that so many people trading upwards fail to see a potential drop in price as a relative one, which can be more than recouped by purchasing under similar conditions. But that is precisely what ‘sentiment’ is all about and the reason why it affects activity to such a great extent. Needless to say, the Bear Stearns news from across the pond could not have come at a worse moment!

By its very classification, the prime sector is inhabited by people of good credit rating who tend to apply for smaller ratios in terms of loan value and has therefore been largely unaffected by the credit crunch or the reduction in available mortgage products. If our own experiences are anything to go by, Garrington currently has a far higher value and greater number of retained search business than at the same time twelve months ago. Our deal numbers are also up and sensible prices are being negotiated in London where supply has been improving; but the lack of choice of quality product across the home counties, south west, north west and particularly in the eastern regions is proving challenging for all concerned. It is of course this very same lack of choice which has been underpinning values so effectively.

Post Easter it now remains to be seen whether the slowdown becomes more entrenched, or whether the market gets a spring in its step as we head into that time of year. Will there be a greater number of sellers who panic and rush to sell, so increasing supply? Or will it be buyers who decide to plough ahead in the reluctant acceptance they can’t wait any longer? Or might it be that everybody feels that enough is enough and either withdraws altogether, or that both sides come out to the centre spot for a kick off? Whatever the outcome, Garrington will be monitoring the situation extremely closely.

There are risks and what is sure to happen is that just as everyone is repricing risk in the financial markets – so they will try to do so in the property markets. There is a natural flight to quality in these periods which means anything less than perfect will be the first to suffer.
Chief Executive
28th March 2008