Why estate agents need house prices to fall

Britain's estate agents need high sales volumes more than they need high prices. And the only way they're going to sell more houses is if prices fall.

Early on Easter Monday, I joined in a BBC Radio Scotland discussion about the Scottish property market. I was on as the bear (obviously) and the other participant, representing ESPC (the Edinburgh Solicitors Property Centre), was to be on as the bull.

But it didn't quite work out as the BBC had planned. I was participating in the discussion from my car (I couldn't get to the studio and there were too many chocolate-sick children moping around inside for me to use a land line). It was also raining pretty heavily.

So when my supposed opponent announced that the best we could hope for for the rest of the year was that house prices would stay stable before they fell again, I thought I must have misheard.

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But I hadn't. Further discussion showed that he really meant it. Unlike most property market professionals, he not only thought the market was unsustainably fragile, but was prepared to say so. Amazing.

But the weird thing is not that he suddenly came over all honest, but that for so long most other estate agents have not been prepared to do so.

The collapse in the number of houses for sale (the main factor behind the mini-boom in prices over the last 10-12 months) has not been driven by a sudden shortage of housing in the UK. It's been driven by a belief among would-be sellers (pushed in part by over-optimistic agents) that the longer they wait to sell, the more likely things are to return to 'normal' i.e. the more likely they are to get the price they think they would have got in 2007.

But this is not in the interests of estate agents. As we've written here before, agents need high sales volumes more than they need high prices if their businesses are to succeed. So it makes sense for them to try to persuade reluctant sellers to come to the market by telling the truth. The truth being that with house prices still massively overpriced by historical standards; with interest rates only able to rise from here; with unemployment and taxes set to soar; and with mortgages still relatively hard to come by, it is almost impossible to make a case for house prices across the nation to keep on going up.

In the process of looking for a house for my own family I have seen a huge number of overpriced houses. Many are still on the market thanks to the fact they have been too highly valued by the agents. Once a seller has a price in their head it is really hard for them to take less, and that's one of the main reasons why the current market (outside prime London) is so very illiquid. It is also why I was so pleased to hear the man from ESPC being so honest: if he can persuade his fellow property professionals to do the same, we might suddenly find some liquidity returning to the market.

Merryn Somerset Webb

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.