What’s your house worth?

So, this time last year we were getting back from holiday to news that there were problems with a provincial bank in Newcastle. Some people had heard of Northern Rock but few knew that they were the bank lending one in every four mortgages in the first half of 2007. Further more most of the mortgages they were advancing were what were to become known as ‘toxic’ loans made at high loan-to-values often to people with a less than gold-plated credit history. Loans from the Rock exceeded the value of the property on nearly 2,500 mortgages, with a value of £263m. Three years before, the figure was just £13m on 158 properties. We witnessed the first ‘run’ on a UK bank for over a century.

We know now that what happened was that the music had stopped and that Northern Rock was the one left holding the baby. It could have been one of a number of different banks – all seem to have had their fair share. The result has been that lenders have stopped lending, house buyers have not been able to buy and that sellers have therefore not been able to sell. Estate agents are shutting around 125 branches a week and the Daily Mail have been able to get stories on house prices on more front pages than they have the Royals.

But what’s my house worth?

When any market seizes up the old model of supply and demand ceases to work. Although this may surprise you there is a lot of supply – agents have nearly 80 properties on their books in each branch that remains open as well as lots of people who would like to buy – if someone would lend them the money. Because they can’t borrow they can’t buy and that means that in reality there are actually very few buyers. The number of homes that completed in June 2006 was 124,000. In June last year there were 105,000. This June, so far, just 17,681 house sales completed in England and Wales. 

I know that but what’s my house worth?

The price of any commodity – stocks, shares, wheat, steel even Range Rovers is set by the price at which the last sale was done. Even the owners of Range Rovers who don’t want to sell have to accept that the value of their commodity or asset is determined by the few sales that are happening. No one wants a gas guzzler at the moment so the price of 4 x 4’s has dropped faster than a whores drawers. The very few sales of homes that are happening at the moment typically involve people who have to sell to those who have the cash to buy and think they are getting a deal.

Get on with it….

The recognised property indexes – Halifax, Nationwide etc., are saying that house prices are around 8% down on last year. Not much when you consider how much ink has been expended on the housing crisis. Rightmove, who record asking prices suggest that they are about 5% down. At least some sellers have accepted that prices have fallen and have reduced their expectations accordingly. The problem is that in the real world people are making offers of up to 20% below these already reduced asking prices according to the Bank of England who reported this week.

What are you saying?

If you wanted to sell today then your house is probably already worth 25% less than it was 12 months ago. 
Ok, before your hit the email button telling how well you have just sold this is a sweeping generalisation but before you dismiss this as just another media scare story consider this. I have spoken to 100 professional valuers across the country in the last three days and asked them what they were valuing homes at today compared to this time last year. I couldn’t find one who was less than 20% down and the worst was over 35%!

So what?

House prices have roughly doubled over the past seven years. Most of their owners can stomach a fall like this. However, last year a million people bought a new home. When Northern Rock was busily handing out mortgages the average borrow put just 5% of the value into the pot. As I have said, one in four or 25% of all mortgages was offered by the nice people in Newcastle. That’s how many people who having bought last year alone are now in negative equity. Standard & Poors predicted at the start of August that as many as 1.7m UK households could be in negative equity by next year. 

Are you all right Jack?