Housing market on the edge?

99% of what you read in the papers about the housing market, hear on the radio or see on tv is put out by people with something to sell. Estate agents, mortgage brokers, mortgage lenders and websites – all know about the market because they are selling houses, mortgages or financial services but they must be optimistic or they lose business. No one will instruct a depressed estate agent. You wouldn’t want to borrow money from a pessimistic bank so these commentators must have a glass that is half full. They celebrate ever rising prices because if they walked out of the Today studio having suggested that the market might be sliding their clients would dis-instruct them on the spot. In fact, the only reason that I get the absurd amount of airtime that I do is because the BBC Charter requires ‘balance’. There are few people who can be anything other than bullish about the market, there aren’t many of them who will get up at 4am to go on the program and of those who are there are only a handful who would make any sort of sense!

The Mishcon de Reya 2016 Budget Breakfast

“So what is happening?” I hear you ask. Well at a recent Budget Breakfast at Mishcon de Reya I presented my conclusion and thanks to some new research from Lonres.com I was doubtless a pretty disappointing turn for the 100+ property folk who attended.

As you can see from the graphs below, what we can see is that half of all homes sold in the first quarter of 2016 sold in London went for more than 10% below the guide price. Not just in some parts but across central London and across price bands! 60% of the property that did sell in Knightsbridge and Belgravia had it’s guide price reduced prior to selling. The market is on the turn.

8 9 10Meanwhile, in Wandsworth a client got her home valued by four agents, two recommended asking £3m. Two suggested asking £3.25m but she should expect to be ‘chipped’. The house has been on the market for five weeks at £3.25m and she has not had one single viewer!

The selling agents say that following last months Stamp Duty changes and ahead of the Referendum in June there is really no market about about £1.5m. My friend should either wait until October or if she has to sell then cut the guide to £2.5m. I’m not sure that frankly that would be enough to secure a buyer. I think that in the first quarter of the year London prices above £2m are down 20% and turnover is down 50% year-on-year. Above £5m sales are down 75%!

These is still a market below £1m but for how long? The new-build market I believe is struggling although those involved tell me that it’s all still fine. I think that they are smoking something.

The big question is will the market firm up in July or is the beginning of a downturn. I’ve worked through three property recessions and this feels like a downturn. The problem for my friend and for all those looking to buy or sell is that at present we are parachuting in the dark. We don’t know how fast we are falling and we have no idea where the bottom is.

This is not just a London story. What happens in the Capital ripples out. You may not yet feel it outside the M25 but it’s likely that you will soon. It may take ten months to reach Shropshire but it usually makes it out across the country in the end. So, be warned. Whilst few experts can say it I think that the market may well be on the turn. Would I buy now? Only if I wanted something to live in. I’d recommend that anyone thinking about investing pauses for a moment just to see if you too can feel the wind in your face, gravity tugging at your soul and the impression that the ground may be rushing up to meet you!