At the recent Great Housing Market Debate one of the panel suggested that increasing the number of homes for sale would increase the number of transactions and it therefore followed that more homes for sale ‘was a good thing’. I often hear that house prices – like other commodities are a function of supply and demand but I have always subscribed to Merryn Somerset Webb’s view at MoneyWeek Magazine that house prices are in fact a function of the availability of credit. If people can borrow more money (like through the misguided Help To Buy scheme) then more will people will buy and those that do will pay more for what the purchase.
So taking the transaction figures helpfully published by HMRC each month and over laying them on a graph of the number of homes for sale we ought to be able to see that more homes for sale = more homes being sold. Here it is;-
Opps! That’s embarrassing. Ok, it seems that there is some relationship between the number of homes for sale through 2008 and into 2009 but otherwise it seems to my eye that for example in 2005 when the number of homes on the market peaked at 1.4m in fact the number selling was tanking.
Here’s a graph meanwhile that shows interest rates and inflation. Is this any help?
Not much but then I guess we knew that the cost of borrowing money was never really linked to the base rates it was just an excuse lenders used to adjust the rates – usually in their favour. Inflation doesn’t seem to fit the trend either and going back to 1989 doesn’t seem to help either argument. So what else might it be. Well, if you consider the true cost of getting a mortgage – at the ‘availability’ as opposed to the ‘affordability’ of mortgage finance then I think you may find a rather stronger connection.
Today a mortgage is comparatively cheap (affordable) but access to mortgage finance is tough for all but those with a sterilised credit history and you need spare cash for the arrangement fees and valuation. Stamp Duty has risen with house prices and the cost of selling your previous home hasn’t fallen. Selling up and buying another home cost some people up to 10% which is the biggest break on transactions. Of the 750,000 homes on the market today just 85,000 will sell by June. If you want more to sell then there’s no point encouraging more people to put their property on the market, what is needed is for the cost of moving to get cheaper & access to finance needs to become easier.