Selling castles in the air

published 31 October 2005

I'm getting an awful lot of emails from estate agents at the moment. Most have a confessional tone, and all make it clear that the slowdown that started in London last year is fast making its way across the country. "Over the last four or five record-breaking years we have been achieving one sale to every seven or eight viewings - now we are having to do 25 to 30 viewings to get a sale," says one from Cornwall. The same news comes from Wales, and even from Scotland, where one reader tells me, "In the last six weeks we have driven about 1,500 miles in the Highlands and Islands of Scotland and during that time we have seen 113 estate-agent house for sale signs and a staggering three sold signs!"

Still, the message doesn't seem to be getting through: it is a clear sign of the delusional mentality of the house-selling public that, since the beginning of the year, asking prices for houses have actually gone up by 2.3%. Where's the logic in that? Since when, if your house isn't selling, do you raise the price? No wonder transactions have completely collapsed: the Inland Revenue says that only 112,000 property transactions were registered for stamp duty last month. That's 18% down on December, which is supposed to be the quietest month, and a horrible 30% down on last January. One day - and it can't be long now - the sellers and the estate agents (the ones that haven't gone bust already) are going to have to face the fact that if they want anything to move, they will have to cut their prices. A lot.

That will be particularly true if - as we have been suggesting for some time - the next move in interest rates is up, not down. Not only did one member of the MPC vote for a rise at the last meeting, but another is hinting that she will too at the next one, thanks to the fact that inflation is quite clearly on the up. High commodity prices are playing a part, but for evidence that inflation above 2% is here to stay, look no further than the public sector, where pretty much everyone is getting a pay rise well above the official inflation level of 1.6%: MPs are helping themselves to a healthy 2.8%, for example.

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The Office for National Statistics is a helpful sort of organisation. I wonder if there will soon come a day when having found a way to get housing costs out of the official inflation measure while they were rising, they might not find a way to get them back in now they are falling. That would sort everything out nicely. There'd be no more inflation and hence no need for the rate rises the Government is surely keen to avoid.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.