My sister is trying to sell a one-bedroom flat in Battersea. It is on the fourth floor of a Victorian mansion block. It is perfectly decorated and, being on the corner, has two terraces with fabulous views over the park. If one single property were to be immune from the housing collapse in the UK, this would be it. But it is not immune.
Last year, less perfect flats in the building were selling for £375,000-plus. This year, my sister's agent advised her to put her flat on at £350,000. Three weeks on, she's had one offer at £300,000.
She's mildly surprised by this hiccup in her life but she has a perfectly reasonable excuse for not being up to speed with national economic trends: she is a handbag designer, not a City housing analyst.
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The same cannot be said of some of the housing team at UBS. Noting that sales of new-build homes are down hugely, that prices are falling fast and that the "extreme pressure" on margins will probably mean dividend cuts across the sector, UBS has produced a report downgrading most of the UK's listed housebuilders to 'sell'.
The extraordinary thing about this is not that UBS thinks that housebuilders should be chucked out of all rational portfolios. Of course they should. It's that the bank didn't start thinking it ages ago. After all, the people writing these reports aren't handbag designers they are trained analysts primed to keep an expert eye on the environment in which the housebuilders operate. And it's been obvious to most of the rest of us for some time that the environment is horrible.
The prices of new-build flats in city centres are frequently reported to be down 30%-plus. In Plymouth a year ago, new-build one-bedroom flats went for £135,000. Now, you can have one for £90,000. Several builders have announced that they are halting new development. And volumes have been in freefall for months.
In April, new mortgage approvals were down 40% on last year. The spring selling season has been a disaster. Sure, the housebuilders have been telling the few people who are prepared to listen that things will pick up soon and that they won't be cutting their dividends. But most of us have been taking this kind of nonsense with the same large pinch of salt as we now take with announcements from banks about the health of their balance sheets.
On the plus side, at least UBS managed to get its report out before this week's Halifax numbers came out showing house prices down 2.4% in May, and Bellway became the latest builder to announce a profits warning.
The analysts might also take heart from the fact that they clearly haven't been the only people shutting their ears to bad news. When their report came out, shares across the housebuilding sector fell, suggesting that there were other people out there who had thought that the housebuilders were in good shape, that a 30% fall in new-build flat prices was no big deal, that self-certification loans and 100%-plus mortgages would soon make a comeback, and who were therefore still holding housebuilding shares at the beginning of the week.
It's all another lesson, were one still needed, that analysts should very rarely be listened to at market inflection points. It isn't often that markets are easy to read but the housing market over the past few years really couldn't have offered the City many more clues that it was about to turn. And this isn't been the only example.
Think of the oil market. Seven years ago, when emerging market growth was just getting going, the oil price was $20 a barrel and a few voices were pointing out that it might go higher, members of the analyst community weren't having any of it. They dismissed the peak oil theory as the blathering of kooks and considered predictions of $50 a barrel to be the height of insanity.
Now, just as the oil price has run ahead of fundamentals in a cheap-money-fuelled mini bubble (already deflating as price controls are removed in various countries and the Americans mothball their Hummers), they can't get enough of peak oil. And anyone who suggests that the price today should be not $400 a barrel, but $80, is suddenly the kook.
Anyone still in doubt need only look to recent research pointing out that over the past year the average UK analyst 'strong buy' recommendation has under-performed the FTSE 100 by 10.8%
So, back to housing. How bad will it get? Well, in January UBS was forecasting that prices would fall 3% this year. So that's one forecast we can safely dismiss.
Instead, we might note that house prices in terms of average incomes are still at record highs; that with global inflation, out of control UK interest rates aren't coming down anytime soon; that mortgage rates are still rising; and finally that, according to Hometrack, is it still a good 30% cheaper to rent than to buy across the country.
The pace of house price falls has also begun to accelerate, something that suggests sellers are finally capitulating taking offers well below asking prices to get their houses away. It is going to get very bad.
First published in the Financial Times.
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