Pivotal Times At The Ea Office Indeed

[HonestEA -]

The next 6 months may well be the most interesting in the UK housing market since 2008 in my opinion.

I have not posted this year since the market has been broadly unchanged for ages. Basically the story has been one of gently increasing prices with buyers competing for anything of quality in a good areas underpinned by low transactional volume. This year in particular the paucity of choice for potential buyers has been more dominant than overwelming demand. Essentially buyer numbers in my SE location are up a modest 5% Year on Year but the number of sellers is down over 20%. As this gap has progressively widened , so the upward pressure on prices has intensified , but crucially the transactional volume is still not above 50% of the long term average achieved 1945 - 2007. I am reminded of standard advice to traders to not extrapolate pricing signals from a thinly traded market.

There has been a few more sellers tempted to the market this September but not nearly enough to affect the trajectory of the market. Low end freeholds (<200K) are attracting triple demand from first time buyers, downsizers and still a significant number of cash rich BTL types and are therefore virtually an instant sale when presented to the market. Highend stuff (for Kent) 500K - 2M still turning over bouyed by price refugees from more affluent parts of London & Home Counties. Middle bracket also turning over but more downsizers from higher value properties than people trading up the market. Very little vertical movement locally as the gap between each "rung of the ladder" has become prohibitive for most. 60% of our sales are cash buyers or cash from sale.

Asking prices have bidded up agressively by agents desperate to secure the business along with downward pressure on fees. Sale agreed prices are increasing , but not as fast as asking prices. Actual selling prices up approx 5% this year in my location , projected 6% by year end.

New Homes division of our EA absolutely flat out making hay while sun shines on the back of Help to Buy. New Homes collegues starting to become a little nervous that the government will actually go through with making Help to Buy available to the second hand market from January 2014 which will collapse demand for their overpriced offerings overnight.

The forward announcing of Help to Buy in the last budget has been a very clever piece of market manipulation. Basically it has been a sentiment changer in that those who were waiting in the wings hoping for some sort of correction have actually been buying in significant numbers. This is my anedotal evidence from the front line backed up by many posts over the last few months on this forum from people who have thrown in the towel and decided to buy fearing a wall of government subsidy money will push prices further away from them next year. No serious money has yet been spent by the Government on this policy yet it has succeeded in bringing back the general populations confidence in perpetual house price growth. However, the history of government intervention in the housing market is full of unintended consequences.

Clearly the plan is to restore the "missing 50%" by enticing people to the market who previously could not afford to participate due to lack of equity in their current property to fund the onward deposit. It is spun as help for First time buyers but those who bought with those 100% to 120% mortgages around 2006 - 2008 are the real target audience here. If they come to the market and use Help to Buy then provided every seller becomes a buyer then then we are well on the way to restoring the missing 50% and stand a chance to restore the transactional volume far closer to the long tem average while attaining price stability along the way. The more volume in the market , the more reliable but less extreme become the pricing trends. So goes the theory.

In reality the number of these people is very significant indeed and their ability to distort the supply side of a local market is considerable if they act en masse. Every year that has passed since 2008 had added to the surpressed demand to sell. People delay selling, become reluctant landlords etc but very often the underlying demand to sell has not gone away. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014. There are simply not enough buyers to assorb this potential surge in supply particularly from would be first time sellers and this could very quickly turn sentiment sharply negative again and more in tune with the harsh realities of the UK PLCs still precarious financial position. So a policy designed to prop up the market could actually cause a correction. That would indeed be ironic.

[zugzwang]

The next 6 months may well be the most interesting in the UK housing market since 2008 in my opinion.

I have not posted this year since the market has been broadly unchanged for ages. Basically the story has been one of gently increasing prices with buyers competing for anything of quality in a good areas underpinned by low transactional volume. This year in particular the paucity of choice for potential buyers has been more dominant than overwelming demand. Essentially buyer numbers in my SE location are up a modest 5% Year on Year but the number of sellers is down over 20%. As this gap has progressively widened , so the upward pressure on prices has intensified , but crucially the transactional volume is still not above 50% of the long term average achieved 1945 - 2007. I am reminded of standard advice to traders to not extrapolate pricing signals from a thinly traded market.

There has been a few more sellers tempted to the market this September but not nearly enough to affect the trajectory of the market. Low end freeholds (<200K) are attracting triple demand from first time buyers, downsizers and still a significant number of cash rich BTL types and are therefore virtually an instant sale when presented to the market. Highend stuff (for Kent) 500K - 2M still turning over bouyed by price refugees from more affluent parts of London & Home Counties. Middle bracket also turning over but more downsizers from higher value properties than people trading up the market. Very little vertical movement locally as the gap between each "rung of the ladder" has become prohibitive for most. 60% of our sales are cash buyers or cash from sale.

Asking prices have bidded up agressively by agents desperate to secure the business along with downward pressure on fees. Sale agreed prices are increasing , but not as fast as asking prices. Actual selling prices up approx 5% this year in my location , projected 6% by year end.

New Homes division of our EA absolutely flat out making hay while sun shines on the back of Help to Buy. New Homes collegues starting to become a little nervous that the government will actually go through with making Help to Buy available to the second hand market from January 2014 which will collapse demand for their overpriced offerings overnight.

The forward announcing of Help to Buy in the last budget has been a very clever piece of market manipulation. Basically it has been a sentiment changer in that those who were waiting in the wings hoping for some sort of correction have actually been buying in significant numbers. This is my anedotal evidence from the front line backed up by many posts over the last few months on this forum from people who have thrown in the towel and decided to buy fearing a wall of government subsidy money will push prices further away from them next year. No serious money has yet been spent by the Government on this policy yet it has succeeded in bringing back the general populations confidence in perpetual house price growth. However, the history of government intervention in the housing market is full of unintended consequences.

Clearly the plan is to restore the "missing 50%" by enticing people to the market who previously could not afford to participate due to lack of equity in their current property to fund the onward deposit. It is spun as help for First time buyers but those who bought with those 100% to 120% mortgages around 2006 - 2008 are the real target audience here. If they come to the market and use Help to Buy then provided every seller becomes a buyer then then we are well on the way to restoring the missing 50% and stand a chance to restore the transactional volume far closer to the long tem average while attaining price stability along the way. The more volume in the market , the more reliable but less extreme become the pricing trends. So goes the theory.

In reality the number of these people is very significant indeed and their ability to distort the supply side of a local market is considerable if they act en masse. Every year that has passed since 2008 had added to the surpressed demand to sell. People delay selling, become reluctant landlords etc but very often the underlying demand to sell has not gone away. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014. There are simply not enough buyers to assorb this potential surge in supply particularly from would be first time sellers and this could very quickly turn sentiment sharply negative again and more in tune with the harsh realities of the UK PLCs still precarious financial position. So a policy designed to prop up the market could actually cause a correction. That would indeed be ironic.

Super post. Word of what's happening on the ground, you can't beat it. Your analysis seems to confirm several current strands on here viz. HTB setting off a stampede of frustrated buyers not wanting to miss out on what they believe is their last opportunity, cash-rich price refugees from London/abroad holding up a thin market, and the possibility of an avalanche of sellers in the New Year if prices keep rising (apeing the recent American experience).

Invaluable stuff. Most appreciated.

[StainlessSteelCat]

Agreed. It would be interesting to hear a non-South East based Honest EA's thoughts too.

There are people I know who fit the description to a tee. 100% mortgage in 2006. A sinking of the value since then. Struggling to cover the mortgage at times but not quite gone the interest only route. Also need to move because house no longer big enough for growing family. Some of them have been planning to move and rent a new place, while renting out their own. Only difficulty in accumulating the rental deposit holds them back.

If Help to buy enables them to sell, and buy - they would be there like a shot. Only their ignorance of what it offers (so far) has stopped them eagerly anticipating it. I guess there will be an aggressive media campaign over the next six months which will put that right.

Edited September 20, 2013 by StainlessSteelCat

[wherebee]

The next 6 months may well be the most interesting in the UK housing market since 2008 in my opinion.

I have not posted this year since the market has been broadly unchanged for ages. Basically the story has been one of gently increasing prices with buyers competing for anything of quality in a good areas underpinned by low transactional volume.

Can we agree that the Honest EA will not be up against the wall when the Immobilienmakler Messer Nacht comesa round? I really appreciate his reports from the ground and he is doing us all a service that he does not have to.

[TheCountOfNowhere]

That all matches what everyone is seeing.

The question is what comes next...mini market bubble for 12 months then collapse, HTB fizzles out, HTB brings a rush of sellers but no one stupid enough to buy into it out or real sustainable growth in prices ( sorry couldn't resist that last one. ).

Ultimately the government's interference in a housing market where interest rates are 0 and they have to guarantee loans is not sustainable and will just generate a deeper more painful correction at some point in the future. best case we get a crash and some kind of sanity returning to the country...worst case monetary collapse and WW3.

As an honest cash buyer I see no value in buying a house right now and have stopped looking completely. In fact estate agents care not for cash buyers, they seem happy to wait for a house seller who are happy to pay full asking price and enter a chain. I guess they are hoping the HTB scheme will prop up the market for the FTB so the chains can complete. Renting is till much better value than buying with none of the ties/problems/taxation/etc that home/mortgage ownership has.

Edited September 20, 2013 by TheCountOfNowhere

[Damik]

The next 6 months may well be the most interesting in the UK housing market since 2008 in my opinion.

I have not posted this year since the market has been broadly unchanged for ages. Basically the story has been one of gently increasing prices with buyers competing for anything of quality in a good areas underpinned by low transactional volume. This year in particular the paucity of choice for potential buyers has been more dominant than overwelming demand. Essentially buyer numbers in my SE location are up a modest 5% Year on Year but the number of sellers is down over 20%. As this gap has progressively widened , so the upward pressure on prices has intensified , but crucially the transactional volume is still not above 50% of the long term average achieved 1945 - 2007. I am reminded of standard advice to traders to not extrapolate pricing signals from a thinly traded market.

There has been a few more sellers tempted to the market this September but not nearly enough to affect the trajectory of the market. Low end freeholds (<200K) are attracting triple demand from first time buyers, downsizers and still a significant number of cash rich BTL types and are therefore virtually an instant sale when presented to the market. Highend stuff (for Kent) 500K - 2M still turning over bouyed by price refugees from more affluent parts of London & Home Counties. Middle bracket also turning over but more downsizers from higher value properties than people trading up the market. Very little vertical movement locally as the gap between each "rung of the ladder" has become prohibitive for most. 60% of our sales are cash buyers or cash from sale.

Asking prices have bidded up agressively by agents desperate to secure the business along with downward pressure on fees. Sale agreed prices are increasing , but not as fast as asking prices. Actual selling prices up approx 5% this year in my location , projected 6% by year end.

New Homes division of our EA absolutely flat out making hay while sun shines on the back of Help to Buy. New Homes collegues starting to become a little nervous that the government will actually go through with making Help to Buy available to the second hand market from January 2014 which will collapse demand for their overpriced offerings overnight.

The forward announcing of Help to Buy in the last budget has been a very clever piece of market manipulation. Basically it has been a sentiment changer in that those who were waiting in the wings hoping for some sort of correction have actually been buying in significant numbers. This is my anedotal evidence from the front line backed up by many posts over the last few months on this forum from people who have thrown in the towel and decided to buy fearing a wall of government subsidy money will push prices further away from them next year. No serious money has yet been spent by the Government on this policy yet it has succeeded in bringing back the general populations confidence in perpetual house price growth. However, the history of government intervention in the housing market is full of unintended consequences.

Clearly the plan is to restore the "missing 50%" by enticing people to the market who previously could not afford to participate due to lack of equity in their current property to fund the onward deposit. It is spun as help for First time buyers but those who bought with those 100% to 120% mortgages around 2006 - 2008 are the real target audience here. If they come to the market and use Help to Buy then provided every seller becomes a buyer then then we are well on the way to restoring the missing 50% and stand a chance to restore the transactional volume far closer to the long tem average while attaining price stability along the way. The more volume in the market , the more reliable but less extreme become the pricing trends. So goes the theory.

In reality the number of these people is very significant indeed and their ability to distort the supply side of a local market is considerable if they act en masse. Every year that has passed since 2008 had added to the surpressed demand to sell. People delay selling, become reluctant landlords etc but very often the underlying demand to sell has not gone away. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014. There are simply not enough buyers to assorb this potential surge in supply particularly from would be first time sellers and this could very quickly turn sentiment sharply negative again and more in tune with the harsh realities of the UK PLCs still precarious financial position. So a policy designed to prop up the market could actually cause a correction. That would indeed be ironic.

I am also expecting a Dubai style crash for London - from the top end

Also the HB limit of £2k pm has been implemented accross the rest of London in Aug/2013. This can create a pressure on the effected landlords for a quick sale. As the private rents for these bigger properties in London are much lower and less demanded than the HB private rentals

Fingers crossed !!!!

[Wurzel Of Highbridge]

The forward announcing of Help to Buy in the last budget has been a very clever piece of market manipulation. Basically it has been a sentiment changer in that those who were waiting in the wings hoping for some sort of correction have actually been buying in significant numbers.

Interesting..

Until last year ROI has MIRS, that ended in December last year and encouraged those sitting on the wall into the falling market here. The effect of ending mortgage interest relief was a flurry of activity before the end of the year as people rushed to get 20% of their mortgage interest paid for the next 5 years.

Roll forward to January, there were a lot of people who did not or were not able to buy, they started panicking that they had missed the boat / bottom of the market and the flurry continued.

9 months later people can now clearly see that they did not miss the boat and there is still lots of property for sale, activity has now taken a nose dive as people wait and see. Infact now there are much better bargains available and far less competition.

How this translates to the UK market:

The threat of HTB has caused and increase in activity of people sitting on the wall who are frightened they are going to miss out, you can tell that from these pages over the last 6 months.

IF HTB is scrapped demand will die back after 6 months and prices will resume their slow and steady decline,

IF HTB is NOT scrapped - People will look at the scheme in January, realize that they will have to proportionally give up 20% of their paper gains and the scheme will have little effect.

What you do not see covered in the media is the fact that if you take the 20% loan from the government then they will take 20% of any gains in the properties value and you will pay for any falls - It's there is the small print.

Another thing that comes to mind is that the western economy appears to be in lock step. Property prices rises across Capital cities in major countries (Paris, NY, Dublin, London), regional prices falling..

The UK is no different - you have been told it is by endless propaganda from the BBC, believe me it's not any different.

Excluding external factors (devaluation, the coming derivatives and bond crisis etc.), there is a small 'forward guidance of interference' bump going on now that will fizzle out.

They would have to reduce lending criteria to really reckless levels to cause a spike back up to 2008 levels.

Though interest rates have fallen since 2008, REAL incomes having fallen 3.5% since then in effect eating up the affordability slack.

Based on affordability

The peak market prices in 2008 were with mortgage interest rates at 6% and earnings 3.5% higher.

The peak market prices the market can NOW achieve is with mortgage interest rates at 4.5% and earnings 3.5% lower.

Perhaps someone could calculate these figures using 'average' mortgage interest rates?

[The Knimbies who say No]

Thanks a million HonestEA, your updates have been missed.

Interesting view on HTB2 killing HTB1 overnight, I'd have thought the fact the schemes operate a bit differently will still mean a steady flow of young people unable to save a deposit being forced down the HTB1 (Equity loan) route, but who knows.

Are you able to give an insight into the typical Help to Buy customer for newbuild? Am I right in thinking they are predominantly under 30? Do you know if many applications for HTB are refused?

Apologies for the 20 questions, any info appreciated and I hope you'll be back to post prior to Q1 2014.

[juvenal]

Great post, HonestEA. Gives a considered overview that we often lack here, and enables us to compare our own areas with your bigger picture.

[Frank Hovis]

Very interesting, thank you for posting. I've always assumed that there was a build up of people who want to sell but the suggestion that it represents 6 years' worth and it may suddenly hit the market is amazing.

[The Masked Tulip]

EAs are very confused in Swansea. They were expected a rush of buyers to their offices in September. Not happened.

One bod in one of the bigger chains was telling me that valuations are down 50% on last September. He then suggested that this will drive up asking prices.

[The Masked Tulip]

In reality the number of these people is very significant indeed and their ability to distort the supply side of a local market is considerable if they act en masse. Every year that has passed since 2008 had added to the surpressed demand to sell. People delay selling, become reluctant landlords etc but very often the underlying demand to sell has not gone away. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014. There are simply not enough buyers to assorb this potential surge in supply particularly from would be first time sellers and this could very quickly turn sentiment sharply negative again and more in tune with the harsh realities of the UK PLCs still precarious financial position. So a policy designed to prop up the market could actually cause a correction. That would indeed be ironic.

I think this is what is going on in my area.

I think people have not only over-extended themselves enormously on property but they have done so on interest only mortgages.

This, I think - and am hoping, is why I am seeing so many people wanting double what they paid just a few years ago. They

realise that they are fecked. That they have a huge mortgage on a property that they are only paying interest on.

To be honest, it is only higher IRs I think that will force these people to sell. Already my area is full of over-priced properies on the markets, sometimes for many years, without selling. Nothing is forcing these people to sell.

[okaycuckoo]

I think this should be pinned for future reference - only 6 months.

[credo]

Just wonder whether this may prove to be the catalyst along the debt ceiling not being raised in the states.

http://www.theguardian.com/world/2013/sep/29/us-government-shutdown-house-delay-obamacare

[Tankus]

. I (and any EA that have out there for the last 6 years) will have conducted literally hundreds of valuations over the last few years where the agents best and most generous assessment of value has simply not been enough to make the move financially viable even though there are strong personal reasons for the move to take place. My gut feeling is that at a certain pricing point , encouraged by Help to Buy , 6 years of pent up demand to sell will hit the market in Q1 2014.

I think that this is actually now underway east of Cardiff ...... In my local area for almost two years there was around 25/30 houses at a time up for grabs , its now at just under 100 in the last two months .

[The Masked Tulip]

I think that this is actually now underway east of Cardiff ...... In my local area for almost two years there was around 25/30 houses at a time up for grabs , its now at just under 100 in the last two months .

What is happening with prices?

[HonestEA -]

Small Update: Well things are changing for us as a result of Help to buy 2.

Up to the week when the announcement that the start date for HTB2 was to be brought forward , we were ticking along just fine. Not as many sellers as we would have liked , but enough fresh buyers registering to enable us to sell anything we listed fairly quickly.

Then , the monday after the announcement and ever since , basically tumbleweed time. December conditions in mid October. Not good. Buying enquiries down 70%.

At the same time , selling enquiries up 25% with the diary starting to pack out with valuation appointments. Significant increase in selling demand from 1st time sellers out there.

HTB2 not that all that great a deal actually. If they had subsidized the interest rate on the guaranteed part (as HTB1) then it would have been quite a significant game changer. The first time sellers now just about have enough equity to provide a 5% deposit to qualify, but they can t afford the payments on the the new 95% mortgage at rates of around 5% which is not very affordable for many, particularly if you are trading up the market to get a bigger place which is the typical scenario.

It now appears to me from my anicdotal experience that the mini boom this year has mainly been driven by purchasers trying to get ahead of anticipated price rises from HTB2 and this has suddenly subsided now it the details on HTB2 are becoming more widely known. All it has done is increase the availablility of 95% mortgages, but it has done nothing to increase the numbers of buyers who feel comfortable taking on this much debt or who can actually afford the repayments based upon the lenders still stricter lending ciriteria. It seems the banks are having to play along , but would still rather lend to a middle class BTL investors with a 50% deposits.

Edited October 20, 2013 by HonestEA -

[Bland Unsight]

Small Update: Well things are changing for us as a result of Help to buy 2.

Interesting stuff. Thanks for posting!

[the_duke_of_hazzard]

Interesting stuff. Thanks for posting!

Seconded, and completely against my expectations.

[StainlessSteelCat]

Seconded, and completely against my expectations.

Ditto - but very encouraging for future buyers (even if not for HonestEAs).

[pras]

HonestEA, what part of the UK are you based?

[The Knimbies who say No]

Small Update: Well things are changing for us as a result of Help to buy 2.

Up to the week when the announcement that the start date for HTB2 was to be brought forward , we were ticking along just fine. Not as many sellers as we would have liked , but enough fresh buyers registering to enable us to sell anything we listed fairly quickly.

Then , the monday after the announcement and ever since , basically tumbleweed time. December conditions in mid October. Not good. Buying enquiries down 70%.

At the same time , selling enquiries up 25% with the diary starting to pack out with valuation appointments. Significant increase in selling demand from 1st time sellers out there.

HTB2 not that all that great a deal actually. If they had subsidized the interest rate on the guaranteed part (as HTB1) then it would have been quite a significant game changer. The first time sellers now just about have enough equity to provide a 5% deposit to qualify, but they can t afford the payments on the the new 95% mortgage at rates of around 5% which is not very affordable for many, particularly if you are trading up the market to get a bigger place which is the typical scenario.

It now appears to me from my anicdotal experience that the mini boom this year has mainly been driven by purchasers trying to get ahead of anticipated price rises from HTB2 and this has suddenly subsided now it the details on HTB2 are becoming more widely known. All it has done is increase the availablility of 95% mortgages, but it has done nothing to increase the numbers of buyers who feel comfortable taking on this much debt or who can actually afford the repayments based upon the lenders still stricter lending ciriteria. It seems the banks are having to play along , but would still rather lend to a middle class BTL investors with a 50% deposits.

Thanks, as always.

[bubbleturbo]

HonestEA, what part of the UK are you based?

Sounds like he is SE London / NW Kent area but I am not 100% sure.

[Damik]

HTB2 not that all that great a deal actually. If they had subsidized the interest rate on the guaranteed part (as HTB1) then it would have been quite a significant game changer. The first time sellers now just about have enough equity to provide a 5% deposit to qualify, but they can t afford the payments on the the new 95% mortgage at rates of around 5% which is not very affordable for many, particularly if you are trading up the market to get a bigger place which is the typical scenario.

It now appears to me from my anicdotal experience that the mini boom this year has mainly been driven by purchasers trying to get ahead of anticipated price rises from HTB2 and this has suddenly subsided now it the details on HTB2 are becoming more widely known. All it has done is increase the availablility of 95% mortgages, but it has done nothing to increase the numbers of buyers who feel comfortable taking on this much debt or who can actually afford the repayments based upon the lenders still stricter lending ciriteria. It seems the banks are having to play along , but would still rather lend to a middle class BTL investors with a 50% deposits.

plus London prices going up 10/15% this years only. With HtB2 mortgage rates about 4/5% the end of London boom must be in sight. I suppose that London will burst like Dubai, from the top to the bottom.

[pras]

I wonder if most agents are going through what HonestEA is going through. And I wonder how many EAs would try and spin a negative into a poisition situation?