Surveys out from RiCS and Price Waterhouse Coopers give two distinct views on the housing market. For the here-and-now the regular RiCS bulletin aims to help with it’s quaint report on ‘sentiment’ – the number of Chartered Surveyors who feel better (or worse) than the rest of the 246 who take part in the monthly exercise.
To be blunt, RiCS own numbers tell us that their ‘view’ is based on only about 4,500 transaction out of around 80,000. There are more accurate, better informed and more useful indications on the health of the property market – most backed up by actual numbers!
Although nationally RiCS describes “the net price balance” as being +9 suggesting perhaps a modest rise in prices over the past three months in fact 64% of their surveyors thought prices had remained the same over this period.
Due to the odd way they undertake their survey (asking their members to “Indicate by how much average house prices have changed over the last three months.” to which answers can be falling, the same or rising) the survey lacks credibility. Bizarrely, in London for example an area generally acknowledged to have seen growth in all other indices 44% of RiCS surveyors reported prices rising whilst 45% that they stayed the same. 10% felt prices actually fell! So they can’t agree what has just happened so I’m not sure we would want to hear their precious insight into what might be to come. Shall we move on?
The monthly reports from the Halifax (Lloyds Banking Group provide 1 in 4 mortgages) or the Land Registry (who see 90% of all sales) are both much more useful to buyers, sellers and to the legion of commentators who try to make sense of it all. In summary the market is thin, new supply exceeds new demand by a factor of two, prices in most places are falling slightly and cash buyers are driving much of the business that is being done. Asking prices are completely detached from sale prices and London and the South East is detached from the rest of the country. Generally sale prices are still below their peak although up on last year for most people.
So much for the snap shot of where we are.
Out of the shadows rides a report from accountants PwC who are suggesting that there is a 70% chance (don’t you just love accountants!) that house prices may not get above the 2007 highs in real terms until at least 2015 and could indeed (well, a 50% chance) take until 2020 to do so.
For what it’s worth I broadly agree although as with the Credit Crunch it is probable that estimates made now will turn out to be as much use as a chocolate fireguard. The irony of what for many will make gloomy reading is that this may actually be the best outcome!
6m people work directly for the State. Cuts of the order we are being softened up for by the Government suggest that there are likely to be significant redundancies for both the public sector workforce and for the millions of private sector employees who work as subcontractors and who had assumed that a Government Contract was gilt edged business. They are going to feel pain!
Add to this the lack of reserves available to Banks to make available as loans, mortgages will remain scarce and it is the availability of credit (of the lack of it in this case) that determines the direction of house prices longer term. I expect the direct cost of finance to increase over the period covered by the PwC paper as well as the arrangement fees etc., that already makes getting a mortgage more expensive in real terms than at any time in the past decade.
Readers may hope that the scenario pitched in the PwC report comes to pass since there are many reasons to think that prices may in fact fall. Considering the illiquid nature of property, the cost of trading, it’s unaffordability for many and the fact that prices can fall as well as rise makes it is difficult to see how yields (based on rents) of under 5% can justify the risks involved when investing in property. Rents may increase marginally but this is a another reason that I believe that prices are more likely to fall to accommodate this imbalance.
House prices may have been a one way bet thus far for anyone under 40 but the legend “your home is at risk if you cannot keep up repayments” should be tatooed onto the backside of every borrower from here on.