The truth about housing? The party’s over
“Autumn fever has arrived” in the housing market, says Rosie Murray-West in The Sunday Telegraph - but MoneyWeek is not sure she is right.
"Autumn fever has arrived" in the housing market, says Rosie Murray-West in The Sunday Telegraph.
For a few months it seemed as though they had disappeared, but now "prospective homebuyers are pounding pavements near you".
Transactions are up on a monthly basis and Nationwide tells us that prices rose in October: according to its index, they jumped 1.3%, bringing the annual growth rate up to 3.3% from 1.8% in September.
More encouraging news comes from Propertyfinder.com, which claims that househunter confidence in the market is "surging": buyers are borrowing, on average, 58.5% of the value of the property, up from 54% at the beginning of the year. Stability, says Murray-West, has returned.
MoneyWeek is not sure she is right and nor, for that matter, is Nationwide. The building society's headline declaration of an "autumn rebound" is actually riddled with buts'. The annual house-price inflation rate may be up, but it "remains subdued in comparison to this time last year, when house-price inflation was running at over 15%", says Fionnuala Earley, Nationwide's Group Economist. And in the three months to October, prices rose a more modest 0.2%. October's rise simply reverses the falls seen in August and September, something, admits Earley, that's likely to be a direct result of August's interest-rate cut. If so, it's likely to be a short-term blip rather than a sustainable trend: with inflation on the up, interest rates probably aren't coming down again any time soon.
Your Mortgage magazine is with the sceptics too. According to a forecast prepared for it, the downturn of 2005 will continue, seeing "another small fall in average house prices across the whole of London in 2005". And not everyone thinks prices rose in October anyway: property website Hometrack.co.uk has an index that shows house prices fell in October for the 16th month in a row, and that prices have dipped 3.5% in the past year.
So what about those pavement-pounders plaguing Murray-West's streets? Perhaps she lives in Belgravia, where estate agents are expecting a bumper City bonus season (see below). The number of buyers registering with estate agents did pick up by 2.1% in October and those buyers do seems more confident. But bear markets generally ride occasional waves of hope (prices fall a bit and buyers, instead of seeing prices continuing to fall, think they see a bargain). And even famously optimistic housing economist John Wriglesworth has admitted (to the FT) that more price falls are inevitable. There may be more buyers about, but there are even more sellers.
The "real story is the amount of stock that has come on to the market", Ian Springett, chief executive of website Primelocation.com, told Catherine Riley in The Times. Springett says the level of unsold stock is 50% higher than a year ago, and rising. The property sector needs "a reality check on prices", he added.
In October, sellers were forced to accept offers of an average of 6% below their asking prices, but with prices relative to incomes still near all-time highs in the UK, and with repossession orders up 66% on last year, they're going to have to start accepting less before this market begins to clear. The best we can hope for? "Stagnation", is Geoff Marsh of London Property Research's answer. "The party has ended."
Don't bank on big bonuses to boost top-end house sales
The City bonus is back, and nobody is more excited than estate agents.
The golden era of the bonus was in 1999 to 2000, says Ross Clark in The Daily Telegraph. But in 2001, as the equity markets slumped, so did payouts. As a result, the prices of houses at the top end of the London property market fell too.
Good news then that this February up to 3,000 bankers are expected to earn £1m each in the biggest City bonanza for years, says Michael Clarke on Thisismoney.co.uk. Two Goldman Sachs bankers are rumoured to be expecting £10m and 24% of City bankers say they are expecting their bonus to be more than double last year's, according to research by Morgan McKinley.
In the past, a huge proportion of bonus money has been poured straight into the property market which is just what it needs right now. Ed Lewis, Savills director of London sales, told Clarke: "Around a third of our buyers are City based, and there has always been a direct correlation between the performance of the City and how the housing market performs." There is expected to be a strong demand in Belgravia, Knightsbridge and Mayfair.
Sounds good, doesn't it? But we'd say that there is a limit to how many houses each City boy can buy, and that the top end of the market never stays disconnected from the bottom end for long. Perhaps, instead of buying new houses now, savvy City dealers might consider selling into strength instead?