The missing link in the chain

The missing link in the chain: As I mentioned a couple of weeks ago, the beginning of 2009 has been marginally more positive for estate agents. A combination of low interest rates, low prices and the tentative introduction of more realistic mortgage products is increasing inquiries, with the Halifax even reporting a month on month rise in house prices. However, as is common with this downturn, just when things start to look positive, a new dilemma rears its head.

The ability of first-time buyers to return to the market and carry out their vital function of completing the bottom link in property chains is essential to any market recovery. However, many agents we’ve spoken to are telling us that more and more first-time buyers are purchasing new homes as their prices are slashed by homebuilders.

Intrigued by this phenomenon, we asked a number of our developer clients if they had noticed a similar trend. Indeed, most said that since the New Year they had noticed an increase in foot traffic and reservations and a greater proportion of sales being agreed with proceedable buyers with no house to sell.

Traditionally, developers have built in premiums for their new homes which have kept them out of reach of most first-time buyers. However, the current competitive market conditions coupled with a need to increase sales volumes and maintain turnover have seen these premiums eliminated. Add to this the range incentives offered on new homes by both developers and the Government (with schemes like HomeBuy Direct) and it’s clear why many first time buyers are attracted to new homes.

If this trend continues, there is a possibility that the market could hit a wall with too few “liquid” buyers available to complete chains, leaving buyers with sales agreed but unable to complete their transactions and move to their next home.

I would be interested to hear from agents who have noticed any change in the number of transactions linked to an inability to complete chains. One agent I spoke to last week told me that just one in four of their vendors are actually buying on.

Whether developers can continue to offer such competitive prices in the long run is something that will be of interest to both their shareholders and the rest of the market. It’s quite possible that premiums will be added back to new homes as soon as the finite supply of part-exchange and repossessed properties runs out and demand and prices increase. This should mean new entrants to the market take up their traditional role purchasing lower-priced resale property, enabling the rest of the chain – and the housing market – to start moving.

For the time being, one thing is clear – to maintain turnover in the current climate, agents need to build in the sale of developer properties to their current business models. Whether new homes or corporate resale properties, homes being sold by developers are the most sought after in the current market and a vital source of income to any estate agent.