House prices are still overvalued by around 25%, according to Fitch Ratings, which is apparently launching a new house price model.
Fitch's claims come as the latest Halifax report, out this morning, shows that house prices went up by 1% in the quarter to the end of August, although they fell 1.2% in August itself. According to Halifax, the average UK house price is now £161,743.
Martin Ellis, Halifax housing economist, said: "The underlying trend, as measured by the latest three months compared with the preceding three months, showed a modest improvement in house prices for the second consecutive month in August. Prices in the three months to August were 1.0% higher than in the previous three months.
"As we have pointed out before, the current low volume of sales tends to make house prices volatile from month to month. The 1.2% fall in August follows three months when prices have risen. As a result, the more reliable quarterly change, which smoothes out some of the monthly volatility, shows a rise in prices of 1.0%".
Whilst the gap between current prices and levels considered ‘sustainable’ then began to narrow, a Fitch report estimates that prices were still 25% overvalued at the end of 2010.
Taking into account Fitch’s inflation forecasts until 2013, the ratings agency claims this works out as a gap of around 15%.
The report says: “As of mid-2011 the weak economic outlook and restricted credit availability lead Fitch to consider a further decline of UK house prices of 5%–10% annually over the next two years as likely.”
Fitch also highlights major regional differences – for example, but not too surprisingly, between London and the North.
Fitch’s sustainable pricing model is based on rental yields, mortgage interest rates and employment rates.
Fitch says it is not an attempt to predict house prices but provide a more stable measure for house prices than those currently in use.
It is asking industry experts to give their opinion on its work, although the housing price model does not seem to appear on its website.
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Comments
@DavidB
Yes, that is depressing but it is reality.
I am surprised by how many people are in denial about the really bad state of the economy.
OK, if you are in work perhaps you can't see that others are losing their jobs. Perhaps you do not read the papers or turn the TV news on.
But what about all those empty shops from small traders through to big chains going under - how can you not see them. Must be some kind of mental denial taking place.
It seems more relevant as a way to look at house prices in hindsight, ie in the rear view mirror. Land Reg transaction numbers lag more than the price measure. Their latest data is for transactions of May this year, so prices agreed in March and April. The economy looked to be in a lot better health back then. Not sure how useful a forward looking indicator it really is.
It's not quite that simple. You also have to take into account supply/demand.
Take an extreme example, if the number of properties for sale was 10% of what it is now. This would lead to
transactions collapsing,but prices could possibly increase.
On the other hand, transactions in 95/96 were 50% more than today,but prices remained steady.
The three highest ever monthly figures were May,July,and
August 2002. This is was immediately followed by the only period of 20%+ annual price increases.
Everything else being equal,the current volumes point towards very modest decreases.
Jul 08 - Jun 09 was the lowest period for transactions...
Comparing the first few months of 2008 (ie, just before) with the first few months of 2011, the number of transactions back then was about 15% higher than so far this year. If this theory is correct, then significant price falls are just round the corner.
You can throw whatever statistics you want at this, but
The economy has flat lined, with no immediate prospect of improvement.
Graduates are coming out of University with BIG debts, and finding that the jobs they were expecting are not there.
Many High Street companies are folding.
Prices of essentials are increasing (food, electricity, gas, petrol)
Credit is shrinking
(Sorry I know this is depressing !!)
But, we are witnessing a Wile E. Coyote event..
He's over the cliff, with his legs spinning.
Over the last 3 years the break even has been about 625,000 sales per year. In the mid 90s this figure was much
higher.(land registry figures).
Lower prices may lead to less people willing to sell,this in turn will lead to a lowering of the break even figure.
The lowest 12 months figure was just under 490,000 (ending June 2009) . In that period prices fell 13.4%.
The following 12 months had 683,000 sales and prices increased 8.4%.
How low do sales have to go and how long for? According to the Land Registry, monthly transaction levels have only been above 60K twice since the start of 2008. They're currently running below the low levels seen 12 months ago too.
]You are probably right Paris Pete
",there will have to be many months of very low sales before house prices drop 25% from current vaues."
But like I said, whether 'Crash' or 'Hemorrhage', they will find their true value in the current climate. And for some areas it might be greater than a 25% fall.
Then of course there's always the Black Swan of a Bond Vigilante deciding the pound looks juicy, and the BoE having to raise interest rates to protect it.
Since house prices are linked to sales volume,there will have to be many months of very low sales before house prices drop 25% from current vaues.
Absolutely Jonnie, it would be a win-win were that the case. Kind of a gentleman's agreement; 'right, i'll knock 25% off my asking price if I can get my seller to knock 25% of theirs'.
Of course, where that falls down is those that bought in the boom and of course those deluded souls that are happy to believe other areas have crashed but not their street.
Exactly David, It’s not rocket science. When an average gal with an average salary in an average town can buy an average property for her age with an average deposit and we are seeing a healthy turnover of properties every month I will be happy that the market is in good shape once again.
Right now the market is curled up in bed with a painful hangover. And the insistence of some of my colleagues that the market just needs to get drunk on silly lending again and everything will be OK is depressing. How can they not see it, I mean really?
The two sensible commenter’s on here are Brit1234
and FTBOpinion further down the thread.
They are not asking for a Ferrari at a Ford Escort price. They want an average house in an average area, and they are sensibly budgeting on the expectations of their career prospects, student loans, pension contributions, plus having a life!
They know that asking prices are too high, and they can (and no doubt will), wait until vendors and estate agents get to the acceptance stage
.
In the Kubler Ross, 5 stages of grief we have:
Denial
Anger
Bargaining
Depression
Acceptance
You individually, will decide where you are on this process.
But until Estate Agents and vendors get into the zone of acceptance where Brit1234 is, there will be deadlock.
Will there be a house price crash? Who knows, but it may well look like a 5 year hemorrhage, until Brit1234 is (rightly!) satisfied that his purchase is within his budget.
Yo To Jonnie,
We need owners to sell for £1, buyers buy for £1, cut out the middle men... banks, tax man, top chains off with probates where property is left to a cat charity. Every HPC'er happy !
Let,s get on it. I am speaking to my printer now to get the leaflets done. I will help out with your footie stadium idea if you help me.
Hi. My name is PeeBee. That comment is NOT mine !
Dear Mums,
Fun Boy is on the money – bit obvious but its right, agree an offer on yours subject to securing a suitable purchase then get out there and find what you want and bid according to the cost to change.
If your 300k house has dropped 20% (made up figure but nice a round) then you sell for £240,000 and bid 20% down on the £450k house you want, £360,000, strictly speaking you are £30,000 better off.
But, and it’s a biggy, if you bought in October 2007 with a very high LTV you will not be moving just yet, if you are looking at moving up then you’ll have to stay in you current house and do some saving / pay your current mortgage down, do an extension or rent it out and rent a bigger place.
What im going to do is rent football stadiums across the land and do chain building events, fill them with people that want to buy / sell and everyone that wants to move but cant sell drops their house to a price that it sells for on the day and then finds their next house from someone in the crowd, and no one has to exchange / commit to the deal unless they secure what they want…….loveley.
Jonnie
My advice to the Mums would be,
"the market you sell in is the market you buy in"
If prices go up you get more for yours but you pay more for the one you move to.
If prices go down you get less for yours but you pay less for your forward move also.
Look at the jump cost, not the headline figure, make the market work for you. It is a market, you can't force it to yield you more than 'market value' no matter what the over eager EA advise or what you 'believe' you want.
Just for fun, try to undersell your house just before you totally give up. Advertise it for £30k less than it's really worth and watch the full asking price offers roll in, go to sealed bids, and surprise yourself.
Gotta grin... lol
Seems that the mumsnetters are struggling to sell their houses nad having to accept price reductions...
http://www.mumsnet.com/Talk/property/1273361-Is-anyone-slowly-going-mad-with-trying-to-sell-a-house
Grant Schapps has also come as close as he ever has to saying that house prices are too high:
http://www.bloomberg.com/news/2011-09-07/u-k-homeowners-shouldn-t-count-on-capital-gains-minister-says.html
QUOTE: “People can’t afford to buy the product because they can’t get the mortgages,” Shapps said. “They can’t get the mortgages because the multipliers are so high for how much they require compared with their salary.
RE Stockport Struggler "And a depression? dont make me laugh. in the 30s there was a world war going on. you seriously saying its gunna be like that again?!"
Sorry but I thought I was pretty good with my history, would you like to tell me which world war which was going on?
Is it World War 1.5? Somewhere between the Great War and WW2?
Unless you mean these smaller wars:
1928-37: Chinese civil war
1931: Japanese Manchurian War
1932-33: Soviet Union vs Ukraine
1932-35: "Guerra del Chaco" between Bolivia and Paraguay
1934: Mao's Long March
1936: Italy's invasion of Ethiopia
Stockport I think you will find that WW2 came after the depression. Some even ague that the depression itself helped the Nazi party rise to power. WW2 then happened many years after.
The comment from the prat below calling him/herself 'PeeBee' is irrefutible proof of the dangers when cousins marry...
The post IS correct, however - this comment was NOT made by him/her! ;o)
Last comment was NOT mine and the next one will NOT be mine either !
Bob, Bob,
Wake up love, it's time for your sense of humour pill.
'I Can Sell That' is making fun of you my love, now let me wipe your chin. There's a nice article here in the paper I bought in for you. It'll cheer you up it's about house prices falling 99%
Bob!!!!! No, stop it, put it away and pull your pyjamas back up
@I can sell that
Sorry to hear that.
I doubt you are the only EA in this position. Does not help you I know, but it is just a stagnant market now.
Something has to give but with interest rates so low and banks reluctant to repossess a lot of deluded sellers can just sit there waiting for some magical buyer to turn up.
I think large numbers of EA firms will go bust this winter and many will have simply brought it on themselves. The problem is that they may well take down everyone else as well.
We need the government to solve our problem.
They should pass a law, with immediate effect, that every house for sale should be reduced by 20% and future valuations would reflect the same.
The market would pick up overnight and more sales mean more commission. Another 3 months of this market and I'm finished.
I am considering Bob, and how intelligent he is !!!
I have a goldfish named Bob.. he can say his own name too.
Similar me thinks
Raymondo - a 25% reduction in house prices will not cause economic collapse and you know it. Come on educate me otherwise!
...and that the most wildly bullish types on property are teachers. Any one else notice that?
Jonnie - Interestingly I find most bloke in the pub types to be Estate Agents!
@Jonnie
and any negative bit doesn't?
Aye, the Express would have had their knuckles rapped by the Press Complaints Commission a long time ago for their blatant spin on house prices... except that the PCC is a voluntary scheme which the Express aren't part of.
The owner of the Express, Richard Desmond, has half a billion quid 'invested' in property. The reporter who puts together their house price articles is the wife of an MP who nearly got into trouble during the expenses scandal.
For posterity, someone over at HPC has made a nice collage of all their property ramping headlines:
http://www.housepricecrash.co.uk/forum/index.php?showtopic=168562
Rant,
Despite the impression I may have given Bob im not an Express man, although I stopped for petrol the other day and it was either the Mail or Express in the paper stand (struggle to tell the difference) had a headline something like HOUSE PRICES TO RISE 20% - I spotted it from the other side of the forecourt and wasn’t best pleased, the problem is that any positive bit of house price news gets blasted into sight and im sure a number of would be sellers think, well that’s okay then I don’t need to listen to Jonnie and reduce my price / put it up for what he says
……….in short the prices up, up, up headlines are not helpful at all and never were as everybody adds the new headline increase to what they THINK its worth and feel all warm inside so we have ;-
What owner thinks + figure in paper = today’s price.
The issue is for every HPC Mega Hawk there seems to be the polar opposite the Seller Super Bear (sound like Super Teds dad)
……….yes – I agree, when the voice of economics of the BBC has played hide the sausage with Balls and Milliband its not going to be all that balanced as she clearly moves in circles where doom and gloom on the economy became important to them the minute our old mate Brown packed the removal van at Number 10 and it stopped being in their interests.
Dear Dedrie was good today though and Amii from Brighton is a very pretty girl.
Jonnie
Jonnie - Just out of interest, have you noticed a change in the way the BBC news site has been reporting house prices? I've spotted a dramatic change there. A few weeks back there was an article on some survey that had shown a smallish rise and the writer went off on one about how the Land Reg proved NE England was leading the crash!
Their Economics Editor, Stephanie Flanders, is an expert in hindsight. She first acknolwedged the existence of a possible bubble in house prices in 2009! Given that she's dated Ed Balls and Ed Miliband at separate times in the past, then she's not exactly an obvious choice for balanced reporting.
For what it's worth, I tend to follow the Al Jazeera English news channel and read the International Herald Tribune. Got tired of too many Maddie, Diana and house price ramping stories a long time ago.
@Jonnie
Reading the financials meant I got my cash out of Icelandic banks before they went bust, got my money out of shares before the 2008 crash and got my cash into non-related separately protected UK banks.
I remember the early 90s recession and this is nothing like it YET, nor is it like the 1980s YET but the debt of individuals, house owners, banks and even countries is greater now than at any time since the 1930s. You do not need to be an economic genius to see where this is all heading.
IMPO when the inevitable crash comes it will come fast and swift taking us all by surprise and by how great the crash is.
***** NEWS FLASH *****
Due to rising and popular demand from HPC'ers 20,000 3 bedroom houses have been put on the market in Bolton for £50 each.
When asked if this will help the market, most HPC'ers lamented that these houses were still too expensive and needed to be priced 25% less.
There's a lot of other news out today which seems to reinforce what Fitch is saying:
In the Telegraph: London Property Prices About To Burst
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8746833/London-property-bubble-about-to-burst.html
In the FT: Second-Home Owners Forced To Cut Prices
http://www.ft.com/cms/s/2/bd2ee2ae-d4c1-11e0-a7ac-00144feab49a.html#axzz1WYfYkwH8
In Moneyweek: Britain's Secret House Price Crash
http://www.moneyweek.com/investments/property/uk/britains-secret-house-price-crash-13701
@Bob,
Apologies, hadn’t noticed you before – but my lord you read a lot in a day don’t you?
Im more of a Sun man and BBC on line during the week myself with a Sunday Times to top the week, are they okay or is there a conspiracy amongst Murdoch and the BBC to keep prices high?
YVO (Your Valuable Opinion, see what I did there? Bit like your cunning use of IMPO) would be most welcome.
Your earlier post, third paragraph, fourth line – important phase you used, and credit to you ‘when you have SOME of the estate agents on here’ helps you with that not sounding like a know it all prat thing you do so well by pointing out its SOME, sort of makes us mates, im definitely not in the SOME pile so nice to be recognised by a chap of your intellect and stature, once again, sorry for not recognising you.
Anyway, keep us posted with your views, very interesting stuff, and im glad you had an education, good on you; no one likes a self taught economist gorging on bits and bobs of news and oinking on about to anyone that will listen eh mate, proper education and decades in business, that’s the way we like it.
Jonnie
@ Unhappy chappy
"no it means that if you add all the IQS up and divide it by the number of people it comes to 100".
Actually, since iq scores are normally distributed, the median will approximate the mean (and mode) ergo half of the scores will be under 100. And to be really pedantic, scores are standardised so the mean/median is 100, rather than it being an arithmetical average of scores. But we're shooting off on a slight tangent and I'm boring myself - I'd much rather talk about houses being overvalued!
I do agree though about how using average wages gives a misleading picture of affordability though.
On the subject of bank shares..... I wonder how many folks knew the "Sigma X" position taken a few weeks ago against our banks?
Google sigma X british banks
@rantnrave
Wasn't Royal Bank of Scotland's share price something like £14.00 4 or 5 years ago. Now it is about 20p - TWENTY PENCE!
The Telegraph is now reporting that some financial firm is reporting that London prices have gone negative with some drops as great as 15%.
If true, that is the bubble bursting as no EA anywhere else in the UK will now be able to point to London as a reason why asking prices in Skegness, Doncaster, Truro, Swansea or anywhere else are ludicrous.
If London is going down by 15% then what do you think the ripple effect will be on the rest of the UK over the coming months?
@Gloria Andaluza.
I also do not think the market is 'healthy'.
BTW, if nobody is moving, so what, they are staying.
As I said EA's are not owed a living
P.S. In the business over 35 years ;>)
@Unahppy Chappy
1. Yes - think more about it
2. They won't - at least for some years
Some of the share prices of our beloved banking institutions are now down circa 95% on their 2006 peak. Banks in this country are not focused on a return to 2007 lending levels. Many of them are just trying to remain solvent and avoid the need for even more taxpayer bailouts.
In technical terms, the recession is over. Strip out the £200Billion of funny money that was printed and thrown at the economy, then I don't think we ever really left recession.
Are we entering a 30s type depression? I can't answer that, but in 1932, three years after the 1929 stockmarket crash, people then didn't know they were living in the period that would later become known as the Great Depression.
Well I have been watching zoopla in my area and now for some reason I have seen a swamp overload of reductions of "asking prices". Of course this is not selling prices but it is a good start.
My friend is an EA and he is worried about business as he relies on sales as opposed to lettings.
So many auctions appearing and "offers over" etc I think reality has started to sink into sellers minds however they are a bit late as the smart ones got out in the last 12 months and sitting on a nice Sold To Rent fund.
Personally I am sat here with cash to buy but in no way am I throwing my money in the bin nor will I take a 25% hit as we all should know that we will overshoot on the way down just as on the way up.
Folks say "I cannot sell for less that x,y,z" to pay off the mortgage.... I say read your documents again as they do state "prices can go up and down"... it has been an investment for the last 10years but now it is game over.
If I were to talk to financially literate people who understand what money is and what currency is and inflation etc then they we would be talking about house prices in GOLD. Gold is the only money (I know many do not understand that), paper is currency and subject to manipulation.
What I find really funny are the barrage of stories regarding, cost of things going up, childcare, etc etc but not one story has spoken about the elephant in the room "HOUSE PRICES". If we get back to normality then people will have more money to spend elsewhere towards GDP etc...
I wish no one financial nightmares but I know it will cause pain to a lot of people sadly but for the sake of the future and our children we need to take the medicine now and get this out the way.
We do not inherit anything from previous generations, we just borrow it from the future generation (not referring to financial anything in that snippet)
@Blank
Spot on Blank.
The want 20% and 25% deposits because that is how much they expect house prices to fall by.
Demanding that big a deposit then the banks do not lose anything when the housing market eventually crashes - only the poor buyers lose their hard-earned deposit and, if anything, it makes the buyer more in hock to the bank.
If the banks did not think the housing market was going to crash then they would be offering 100% or silly 125% mortgages again.
Yes, some are advertising 100% but you actually try and get one without a huge deposit or a high IR.
@Jonnie
1. I have been posting on here for several months.
2. It's called an education.
3. It is decades of being in business
I recommend reading the business dailys and financial papers.
Go read sites like the FT.com, the Financial section of the Telegraph, the Economist, Der Spiegel, Marketwatch, Moneyweek, SeekingAlpha and the DailyReckoning.
If you truly wish to know how bad things are go and read Zerohedge.
Best to give up reading the Express IMPO. Those crazy house price rising headlines are just messing with your head.
Banks want a 25% deposit for a reason. Unlike everyone here, on hpc or whereever, they have to put their money where their mouth is. And they obviously think 25% is a resonable figure of what house prices can fall.
@F Fortescue-Smyth
Yes, you are right - the banks don't want a crash but they know full well, given how bad the UK and global economy is, how unemployment is rising and how inflation is leacing people with less cash in their pockets, that a big house price crash is coming to the UK.
They know that when it happens - not IF - it will cause them big problems as it will mean that the value of each bank is written down considerably, potentially bankrupting one or more of the major banks.
I was going to write this in my below post but I feared that it would confuse the issue even more. I mean, what is the point of trying to explain fractional reserve banking and the current economic crisis - I am in my late 40s and have not seen a crisis like this in my lifetime before - when you have some of the estate agents on here thinking that they will wake up one morning soon and the bubble years of house prices rising almost hourly will be back.
The problem, as I see it, is that too many estate agents are simply too young to remember even the 1990s let alone the 1970s and certainly not the 1930s. They appear to think the last 10 years was normal but it was just a huge global ponzi fraud that has resulted in, as I said, huge banks the world over becoming effectively broke.
Ladies and Gentlemen,
I present to you our new EAT resident misery………Bob – Tadaaaah!!
Not sure what happened to the other bloke who used to do the job but you must all agree Bob is much better at it, oh hang on I think the last bloke might have topped himself after gorging on fistfuls of gloom.
Any way, great to have you here Bob, one comment though fella – if you’re going to hang around and not as they say ‘close your own account’ like old Bob did keep the posts a bit shorter mate, if people bang on it can sometimes gives the impression they are an armchair economist that knows very little but have a swallowed the ‘bloke in the pub guide to everything’ – it can also look at bit like they are contradicting themselves and chucking a fair bit of misguided opinion in as well………………..not something you want people to think about a clever chap like you eh Bob?
Anyway, good to have you here.
Jonnie
to Bob, I assume you are saying this because you WANT prices to be lower rather than actually thinking they WILL.
As for still being in a recession, we're in a recovery albeit an endangered one. You seem to want to kill it off whilst its getting started, causing misery for homeowners and struggling agents like myself. (although its worse for some others i imagine).
And a depression? dont make me laugh. in the 30s there was a world war going on. you seriously saying its gunna be like that again?!
Wishful thinking for a bitter renter that should have saved for a deposit rather than spend everything on 'bling'!
SS
BOB - I think you about summed it up.
I like Fun Boys idea 25% pay rise for evereyone perhaps he can negotiate with all our bosses :0)
I think people would benefit from a reverse in thinking - ie put themselves in the buyers shoes and or the sellers shoes. I tell sellers that why would someone buy yours for x when they can buy that one for x minus 20k. They may see this but not be able to afford the move.
High stamp duty tax ect reduced the propensity to buy on, all the talk about what is or isnt over inflated is all in the eye of the beholder. Its easy to say a seller should drop but many are not able to and are facing the same issues re frozen income with higher cost of living.
New build prices are highly inflated against the prices asked at present - why is no one ranting against them - especially as they are getting morgages approved on them?
The fact is if the housing prices came off by 25% in a short time that means that regardless of if a mrotgage is paid off or not ALL homeowners will lose 25% of their nest egg. The fact that some will not be in negative equity is irrelevant.
In areas with low emplyment/wages and little to offer prices will need to reduce as there is not market to buy them. More affluent areas where emplyment is higher and schooling good ect will remain higher as there is still good demand, more so in face of a shortage of stock.
Also the fact that the previous govt has managed to leave a whole generation on benefit and are paying the bill for housing for them means that the lettings market has replaced much of lost income from sales.
EIther way as stated the postcode could make it more or less likely that your dream of sub 180k is likely or not - or if it gets to that price will the area be a ghetto because all of the houses have been reposessed?
@bob, I fear your analysis is spot on, with one exception, the banks don't WANT a drop (as it will cause no end of trouble for them in terms of capital ratios) but they do EXPECT one, which is the main factor constraining lending (and in particular the requirement for high deposits) - who in their right mind would lend freely on assets they expect to fall in value?
As I keep saying, all we can do as a profession is to try to stay ahead of the curve. Ostrich behavior is comforting in the short-term but commercial suicide in the longer term.
NEO "Average IQ is 100. That means half the population has an IQ below this"
no it means that if you add all the IQS up and divide it by the number of people it comes to 100. This is often a mistake made when discussing average salaries and afordability!
@Stockport Struggler
I hope the lettings side keeps you going but...
1. We are still in a recession, never left the recession and it is going to get a whole lot worse.
2. It is not the banks not lending that is the problem - it is the silly asking prices.
The banks are not lending because:
1. They know that house prices are hugely over-valued.
2. The crazy price rises of the past 10 years was due to the global ponzi scheme of giving mortgages to anyone - this is what has brought the global financial system to its knees. The banks are basically broke - they do not have the cash to lend and will not have the cash to lend for many years to come.
3. The banks are in such a precarious state that several major UK banks - Lloyds, Barclays RBS and others - are in danger of having their own credit ratings downgraded this month. This will mean that it will cost those banks higher interest rates to borrow money from other banks and bond holders - what do you think that will mean? Yes, they will either lend even less on mortgages or they will raise their mortgage rates. They probably will do both.
This is the fundamental problem with the UK housing market now in that estate agents keep on blaming the banks, but people just seem oblivious that the last 10 years of housing boom was a once in a lifetime bubble that is not coming back. It bankrupted banks worth trillions and has almost bankrupted every Western country including the UK.
The only way that the housing market will begin working again is if house prices drop considerably. That is clearly what the banks wish to happen. They will just not lend until it does happen.
If estate agents wish to carry on thinking that the banks are going to soon go back to lending loads of money on mortgages then, yes, keep on thinking it all the way to the dole queues.
The country is in a financial hole, the recession has only truly just begun, it is going to get a lot worse and may well become a full scale depression not seen since the 1930s.
Ric timing is every thing at the moment. If I keep saving while prices are falling month after month there will be a time when seller expectations will be down. I then hope to make my offer to get it in my affordability range.
I need the sellers to realise the market is continuing to fall.
That is the time to make offers. Not when the Daily express is doing front page stories saying house prices to rocket.
Secret Agent "The supply of homes for sale goes down overy time a long term buy to let investor makes a property purchase so the available housing stock is probably shrinking every year. "
So
The demand drops by the same amount when a potential buyer begins renting from said BTL investor
Gloria is spot-on both about the three kinds of estate agent and about the negative social consequences of a dysfunctional market such as we have at the moment.
I believe Fitch is right .. that doesn't mean 25% reductions are imminent, but the market trajectory is clearly down for the foreseeable, and the only option EA's have to stay in business is to work with those sellers who are serious to set prices that are genuinely perceived as good value, staying just ahead of market sentiment as prices fall.
Gloria's strategy of straight-talking is exactly the one I have been adopting and it means that on the whole, the properties we take on sell more quickly than the majority of those placed with our competitors at fantasy valuations.
Meanwhile, those EAs out there in Gloria's second category, whose concern is more for their BTL portfolios than to help customers from finding a sale through to completion,can continue their King Canute exercise as long as they want, right through to collecting their dole cheques.
Assuming they are eligible of course - the DSS probably won't care whether their mortgage payments are less than their rental income, or not, they will only be concerned with what's coming in rather than what's going out!
An alternative to HPC
Everyone should get 25% pay increases, leave house prices the same!
Yipeeeee.. I solved it.
Everyone happy. Can I have my OBE?
Great news, but not a surprise for anyone with a small amount of common sense.
Got my eye on a property that is £150k more than the one I am in at present - this drop equals a substantial saving... SUPERB !
@Brit, thanks for the reply, BUT no post code or property type......and I never said it was FTB greed,
I fully agree and understand with the logic of buying as low as possible or a price you feel comfortable with....you have been fair to offer your price criteria.....BUT to help people like me really understand how wrong the prices are FOR YOU the post code and property type would help.
Basically Brit I want to try and demostrate that it may not matter what the asking price is....you should be focusing on what a vendor will take and to do that sometimes you need to go and make it happen.
i.e view a house, make an offer to suit your pocket, or call the agents and say this is what I have, how much do you want to sell me something and what vendors are keen!
We have more and more vendors, annoyingly unwilling to reduce their asking price BUT very open that they will take a bid and some 10 and 15% less...I know get the asking price down then, make it easier bla bla bla.....20 years in the job I would agree! but the market is not always that simple, and the reason some asking prices are not coming down is the agent knows the vendor will sell for less so are simply bringing the buyers to meet the prices rather than the other way around. Many vendor fear take 15% off the asking price and still get knocked down, so perhaps adjust the way your thinking slightly?
RE Stockport "What we really need is better mortgage availability when the government sorts out the banking mess, but in the meantime, lettings is the safe option. "
Why? Mortgages are fine. If you have a good credit rating, salary and depoit you can get a mortgae no problem.
It sounds like you want a return to irresponsible lending to increase transactions and prop up overvalued but falling prices.
House transactions will pick up when prices reach affordable levels, we don't want mortgage meddling. We want a free market to allow prices to find a natural level.
We have recently changed our model by focusing much more on lettings ... and in retrospect should have done this sooner.
The number of transactions round here has stayed low at levels that will wipe us out eventually. Fair enough during the recession, but they just haven't bounced back.
Lettings is more reliable, and kicking myself for not doing this sooner.
We're finding that many clients who could not find buyers are opening to letting if they need to move, so the two go together.
What we really need is better mortgage availability when the government sorts out the banking mess, but in the meantime, lettings is the safe option.
How are other agents reading this situation and how are they adapting?
@ Secret agent
"All the talk of property prices being too high is complete tosh if people are paying it."
Average IQ is 100. That means half the population has an IQ below this. A small subset of these will currently have access to sufficient funds to buy over-priced homes (mainly due to past house price inflation). As time goes on, their number will decrease - as will volumes.
"The supply of homes for sale goes down overy time a long term buy to let investor makes a property purchase so the available housing stock is probably shrinking every year".
Do you have any figures to back this up or is it pure supposition? Are they not building new homes? Are people not dying? Nobody emmigrating? Current BTLers not selling? etc.
"When FTBs can't afford to buy, the investors step in and rent to those reluctant FTBs."
If memory serves, BTL sales are outnumbered by first-time buyers by about 2:1, even now with historically low numbers of FTBs and everyone spouting on about what a good it is to invest in BTL. Hardly filling the gap are they?
"While UK residents might be baulking at prices, foreign buyers will step in a fill the gap"
Think of the percentage of all UK transactions involving foreign buyers. Now compare this to the percentage of transactions involving FTBs. The results of this comparison will tell you how ridiculous that argument is.
RE RIC "If you are UNwilling to share a postcode sector and house type, I can only assume your wish will be like me saying I am waiting for brand new Lambo's and Ferrari's to come down to £20k and they must be a top of the range ones aswell."
You assume wrong. This is for a smaller property in the same area where I grew up as a child when my farther bought on a similar wage there.
I am not even contemplating that type of bigger property that my farther could afford then and looking at a small starter home.
Ric this isn't about first time buyer greed but simply affordability for a whole generation priced out.
Asking prices are too high, pure and simple.
Let's be blunt, Summer has now come and gone. This month, according to some EAs, is the boom month for house sales. A colleague points out that it is in fact the last chance saloon for sellers and estate agents alike.
If people do not sell now then we basically go into 6 months of traditionally very little selling.
Lots of properties in Swansea are now doing the rounds of EA firms. Some of them appear to have run out of firms with which to be on the market.
As I said below, I will be surprised if every Swansea EA firm survives through till the Spring.
The only way that the market can get moving again is 20% plus drops on asking prices right across the entire local market. It is not going to happen though.
I suspect some of the EAs currently in work will still be saying that asking prices are fair value in Swansea when they are signing on the dole.
@Brit your getting closer to giving us the perfect answer.....! but never quite there in allowing us to FULLY understand your problem.
Which post code sector are you looking in and what is that "certain" type of property? PLEASE let us know! we know we need to get it for you at £180k or less....so come on a little more!
If you are UNwilling to share a postcode sector and house type, I can only assume your wish will be like me saying I am waiting for brand new Lambo's and Ferrari's to come down to £20k and they must be a top of the range ones aswell.
RE Jason "So by about half then? I assume your 25% deposit is actually 12.5% of current average prices based on this?
I assume you are in your 30's with no children? so why do you expect your salary to reduce in coming years rather than rise with your career advancing – you are still young why are you assuming your career ‘topped out’?"
My deposit is £45k+ that's over 25% of a £180k.
My career has no way topped however promotion has been frozen for over a year and will continue to be frozen for next year. On top of that I will have to make higher pension contributions, have over time phased out, wages frozen and yet the prices for food and energy rapid rises.
I am not alone, people will continue to have less money going ahead these next few years so buying at these high home prices is going to get far harder.
I am lucky that I saved a deposit in the good years, peopl trying to save now are going to have it far harder.
Asking prices are simply too high for the economy but thankfully Estate Agents are starting to realise this.
Jason,
I know you are engaged in debate with Brit1234, but I'm in a similar situation and your question regarding 'Why assume your career has topped out' is relevant to me too.
In my case, it's not that I do not see higher earnings in future(I'm in my mid thirties) etc, it's simply a case of forming a view of the medium-term risk to earnings/prospects and the implications of taking on large amounts of debt in the face of that.
There's also the double risk element (as I see it)- if things go wrong for me, then likely they will go wrong for many others and I view that as another downside for prices.
It is beyond dispute that price levels reached in the last five years are historically high in real terms, the debate is whether these are sustainable or not. I question whether they are, but of course I could be wrong. However the consequences involved in being correct are potentially severe if I were to buy a property at the moment.
The obvious solution to this is to wait and not commit to buying at historically high prices in the face of job uncertainty. It's a no brainer when it comes down to it for me.
Of course, if prices do drop, then the case for buying is strengthened, as any wage cuts have less impact on my ability to service a smaller debt.
AUstrian Economist, just basing the fact on loads of graduates, experienced economists ect, well none of them forsaw what has happened nor can anyone tell the future. They themselves have asked for industry input as to if the information they are using is valid - ergo they know that the model they have used is or maybe incorrect. To qualify myself I spend 20 years in international banking, and my specialist areas are economics and accountancy. PWC and KPMG have many highly eductated and nexperienced people working for them and they have also failed to report on the fragility of institutions to the shareholders.
Your point about Fitch being top this that and full of graduates is baseless and moot.
@BRIT1234
Apologies for not adding my name first time, I am Jason
So by about half then? I assume your 25% deposit is actually 12.5% of current average prices based on this?
I assume you are in your 30's with no children? so why do you expect your salary to reduce in coming years rather than rise with your career advancing – you are still young why are you assuming your career ‘topped out’?
RE "@Brit1234
How much do I need to get my vendors to drop by in percentage terms to get you interested? "
About 3-4 times average salary with a 15%+ deposit.
I'm watching a certain area waiting for prices to come down just below the £180k for a certain type of property. I have a 25%+ deposit saved as well as £5k costs.
My wages are frozen and look like my salary will be cut in the coming years. So I will buy when the time is right, I have very cheap rent in a secure venue. The one thing I won't do is rush in and overstretch my self. I can afford to be patient and jump straight in when the time is right.
Its deluded asking prices which are stopping me buying like 10,000s of other first time buyers.
Here is a little pause for thought. This scary reduction by 25% that Fitch is talking about is only going to take average house from 6x average salary to 5x.
Anybody in their 30’s and upwards probably remembers that just ten years ago it was considered normal for houses to cost about 3 times salary. If we returned to that level then house prices would have to fall 53% from here.
One could very reasonably argue that Fitch are being very bullish.
Secret Agent, Your argument would make sense if your facts held up. They do not.
75% of people are not paying these prices, that’s why volumes are 25% of normal, and even that is under pressure.
Secondly housing supply does not go down over time. Indeed it goes up by about 80-90k new homes a year, surely in your town you can regularly see new developments going up?
It’s really not a question of sellers being able to choose not to sell, it when they have to sell that the pack of cards comes falling down.
@Brit1234
How much do I need to get my vendors to drop by in percentage terms to get you interested?
Rant – I wont bother ‘re quoting’ your first post you know what you said and im only really aiming this comment at you so there’s no need, but my god im getting to like you chap.
Plus ive got another idea – I think everyone will like this right, you see for ages the world was up, up, up trailer park trash yanks getting mortgages you know all that boom stuff and everyone went along with it nodding agreeing like one of those witless types you come across that say ‘’yeah, yeah, absolutely, yeah’’ all the time in meetings then it all went pear shaped and now its fashionable / trendy amongst forecaster types to just be negative, its probably safer too.
……….so, economists, pundits, forecasters – no flippin use at all except for telling us what has already occurred to the rest of us – bit like getting yesterday’s weather forecast today – no bloody use but it will be correct.
I believe this might be the same lot (Fitch?) that told us the Americans aren’t as credit worthy as they were the day before and just after we all guessed there was a problem when it turns out Apple had more cash than Uncle Sam
Jonnie
Its clear that house prices are still very overvalued. They got that way by mass irresponsible lending and speculation.
Without that irresponsible lending people can't afford these overvalued prices hence the collapse in transactions.
Its clear that the spring bounce lag in the house price surveys has worked itself out and we are going to have months of falls.
Estate agents if you want to sell more properties get your sellers to drop their prices. The lower the prices the higher your pool of buyers will be and you will survive.
So we can expect the Chinese to be snapping up two-bed terraces in Doncaster?
This is the latest RICS report. Sales volumes down, stock up. Something will have to give and it is the price. Watch the trend, it is your friend. The graphs on the page 3 are pretty clear.
http://www.rics.org/site/download_feed.aspx?fileID=10174&fileExtension=PDF
All the talk of property prices being too high is complete tosh if people are paying it.
The supply of homes for sale goes down overy time a long term buy to let investor makes a property purchase so the available housing stock is probably shrinking every year.
When FTBs can't afford to buy, the investors step in and rent to those reluctant FTBs.
While UK residents might be baulking at prices, foreign buyers will step in a fill the gap just as buy to let investors replace FTBs.
Financial 'experts' overlook the trend for buyers to emerge when traditional buyers leave a gap, which makes their predictions extreme and innacurate. They also ignore the inelasticity of supply where sellers refuse to sell if prices fall too much. When sellers say no, the reduce the supply still further putting upward pressure on prices.
It may all look good on their graphs but they are miles from reality.
What do you think?
Raymondo - Do you really believe that if house prices fall 25% the economy would collapse, please expand on your reasoning why.......conversly what do you believe would happen if they rose by 25%?
I agree with Rant, you have not really thought or researched this through
I agree with this Fitch report particularly in the South East but i dont think that this means prices will fall.
Ray, I have been in this business longer than some of my customers have been alive, and I have a pretty good idea as to how many properties change hands in a healthy market for a whole range of reasons. And I can tell you that right now that number is way too low. There are a lot of young people, not buying a home, there are a lot of young families not trading up, or retirees trading down. Even from people moving for work reasons are not swapping like for like much. The current market is not healthy whether you like it or not.
Why would the economy collapse Ray? If you group together those who do not own a house, have already paid off their mortgage or have more than 25% equity, they would easily be the majority of people in this country.
Here we go again, a “feeding frenzy” for the HPCers
@austrian economist.
Do you mean the FITCH that rated sub prime backed securities as AAA rated bonds? oh, you do mean that FITCH. ahhhh. Yes they are really smart. making AAA out of junk is very very clever. Apologies, they are very very bright people.
It's clear that house prices are AT LEAST 25% overvalued.
You don't need to be an economist, quant, or rating agency to see that.
Now that the banks have returned to sensible lending, there is simply not enough money finding it's way into the property market to support the ponzi scheme.
High house prices have been living on borrowed time for a few years now, but with no new entrants able to pay these silly prices, they will fall and fall hard.
@Gloria Andaluza
"In my office we are still selling, but nowhere near as many as we should,........"
Who decides how many you SHOULD sell? People are not just cannon fodder to keep EA's in business.
@Austrian Economist
These are the "clever" types that got the western world into the mess it is - do they know - for real?
IF prices did drop by 25% from their "current figures" the economy of this country would collapse - in my view the worst scenario is 5/10% from now
Gloria is spot on. Houses are hugely over-priced at present, only the stupid cannot see this and they are backed up by the BTL brigade who don't want to see their investment depreciate. Luckilly there'll be one or two experienced, local, independent EA's who will price sensibly in order to survive and will make it out the other side.
Who know's, one day I may even get to spend the £180k the bank have offered me. Not whilst prices are so deluded though. I'm not gonna bail out some fool who paid too much during the boom then spunked whatever equity they had on Chelsea tractors and holidays in Dubai.
I would say IMPO that 20% over-valued is spot on for Swansea asking prices, with some in the Mumbles area leaning more to 25% to 30% over-valued.
I think the problem we now have in Swansea is that some EA have bid up asking prices, either to simply get the business on their books or because they truly still believe in bubble prices.
Until the penny drops with all EAs in the city it will prove impossible to get asking prices to a sensible level where people will begin buying again. It only takes one EA firm to keep ramping up asking prices and the market becomes stagnant.
Then there is the issue of going back to vendors and telling them that the house that was valued for 300K is actually worth nearer 230K or less.
I will be surprised if all the EA firms operating in Swansea are still in business next Spring.
Thanks for your input Bob, helpful comments like that really help advance the debate. Now I could tell you all about me, but you may well simply not believe me anyway. A better response would be to ask if you feel the same way about the thousands of people working at Fitch. Are they all Smart @rse, know nothings as well?
Lies, damned lies and statistics...
But EVERYBODY knows that Fitch is right.
Supply and demand arguement is currently invalid as there are external influences affecting it.
London has an international property investment bubble because the exchange rate is SOOO favourable.
At the moment, even if property prices fall hard, most international buyers would still be in profit.
London is also skewing the national average figures as most property transactions in the UK are happening there.
In my area completions appear to be running at about 20-25% of normal.
The statistics show an increase in the price of detached properties of 12% over the last 6 months.
That's because only a few houses have sold and they are bigger than the ones sold in the previous 6 months.
It is comparing Apples and Oranges.
When you factor in "SENSIBLE LENDING" then prices are indeed 25% over the top.
And sensible lending is what we need.
There are 3 types of agents. Those who have never seen anything but a rising market. Those that have their own BTL properties, and those that actually want to survive this market and come out the other side.
As much as the first group I mention cannot understand and the second group will not understand I think this rating agency is probably right. In my office we are still selling, but nowhere near as many as we should, it does not help that my area has a lot of flats in it.
Every valuation I go to I have to lay it on pretty strong as to why we need to be realistic on price. We do not win as many instructions as my corporate competitors, but then again I cannot remember the last time I saw one of their sold boards go up either. All of the ones they do have up I’m sure have been up a lot longer than two weeks now. Waiting for the last fool to overpay will get you closed down, not that I’m going to be shedding a tear for Countrywide, and all of the Independent Agents/Landlords that won’t face reality.
@ Austrian economist. What do you know? I suspect you are a smart ar@e graduate who thinks the world runs in excel. Go away.
What a buyer is willing to pay eh CharlieP??
So that explains why volumes are in the toilet does it not. Very few people are prepared to pay these prices.
And before you start on that old gem, mortgage rationing, banks are regularly reporting that they are offering loans well in excess of what is being taken up. I myself have been offered £350k to buy a house, but will I at these valuations?..... Not a chance, property is overvalued Fitch, me and the vast majority of ready buyers who are staying away from EAs doors can see that.
CharlieP, They are one of the world’s largest rating agencies with thousands of professional economists, financiers and quants. It is highly likely that the average work experience or graduate trainee at Fitch knows more about Supply and Demand than you will ever know.
@Charlie P
. . . .and what a lender is willing to lend.
Have they never heard of supply and demand? A scare commodity always attracts a premium and until we build more houses there is the risk of house price inflation which Mr Shapps tells us he wants to avoid.
There are too many people telling us what our property is worth. The true value is what a willing seller wants to get and what a willing buyer wants to pay.
Halifax says house prices fell 1.2% last month, so presumably they are now 23.8% overvalued...