NEW Year, no houses

New year, no houses!

By now you’d have to be living on Mars to be unaware that the number of houses selling has fallen to record lows. In an average year, around 1.25m homes change hands in England an Wales (sorry, I don’t seem to have numbers for Scotland and N. Ireland) but 2008 figures look to be a low as I predicted last summer with just 640,000 homes selling. 

During the year, demand fell as buyers became nervous, mortgages dried up with the number of different mortgage products falling from around 6,000 to less than 1,200 at Christmas. Oddly, the number of buyers registering with estate agents stayed pretty constant with numbers looking at the big web sites up at unbelievable levels. Rightmove, the biggest property portal, were reckoned to have nearly 2 million ‘unique visitors’ in November according to ComScore. Whether this counts the same person coming back five times in the month as 5 unique visitors isn’t clear to me but property is a big draw online – even in a recession. 

We have talked about supply and demand before. Many kitchen table economists hold that property prices are a product of supply and demand but I still argue that in fact, house prices are really a function of the availability (or otherwise) of credit. There may be 2 million people looking for a new house but if two thirds can’t get a mortgage then in fact 1.3 million are just tyre-kickers! The Council of Mortgage Lenders reckon that new home loans fell in October (their most recent figures) to just 33,000. That’s roughly half of the total sales for that month!

So, if there are 640,000 properties sold in 2008 with 320,000 mortgages between them then this suggests that at best, the remaining 1.3m people looking just couldn’t find what they were looking for. Despite there being three buyers for every house sold house prices fell like a stone.

So much for demand. What about supply?

In 2007, there were about 135,00 homes coming onto the market every month. As we have seen, demand may have slackened a bit but house prices rose for eleven years with this level of supply. At any one time there were about 900,000 individual homes on the market (don’t double count the same house being offered by two different agents. We’re talking unique addresses). Last year the number fell to just under 100,000 a month but now that figure has fallen further still.

The number of new properties coming onto the market has halved.

So, while demand has fallen off our armchair valuers would say this should depress values (as has happened) but supply has effectively dried up. Around 45,000 new properties came onto the market last month adding to the idea that prices should rise and yet they are still falling.

The Governments latest cunning plan is to inject yet more money into the banks. There’s talk of printing money but all this tax-payer cash seems to be being hoarded by the banks rather than being made available to borrowers. Even if it was offered, are we seriously expecting people to want to buy when the heads of the biggest mortgage lenders are predicting double digit price falls in 2009? 

We have to accept that for the foreseeable future, this is what the housing market is going to be like. Modest supply, held back by the cost of moving and modest demand reined in by lack of lending. All this will add up to stable house prices (eventually), fewer estate agents (shame) and the primary use of property as being somewhere to live rather than a money making machine.