Sunday, Apr 05, 2009
Value of holiday homes dropping by up to 24 per cent
Telegraph: Holiday homes: Second place
Having a terrace house in Wandsworth and a small stone pile in the Cotswolds has been one of the great aspirations of the high-earning upwardly mobile for half a century. Now, however, a subtle change is taking place. Just as the sale of Agas has dropped by 15%, so the number of second homes has fallen. Owners in the second-home havens of Salcombe and Rock are holding their breath to see what the market will do. "They grew exponentially in the boom times, hugely fuelled by City money, with thrusting young buyers eager to purchase at any price," says Martin Lamb of Savills in Exeter. "The market has gone very quiet here now. We have not yet seen distress sales but this was a real bubble, fuelled by high levels of gearing, and debt-driven sales are a distinct possibility." [Clever man!]
4 Comments
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1. voiceofreason said...
This is why we need 2 currencies in the UK.
M25Sterling and Sterling. M25Sterling is the funny money earned within the M25.
Exchange rate is ~7xM25Pounds = 1xPound.
Admittedly I haven't thought this through :)
2. will said...
Lady selling her cottege in St Ives for £825,000 illustrates just how out of shape the property market has become. She made one wrong assumption when she bought the home for her retirement fund, that she would be able to sell it on when she wanted to. How arrogant of her and others to assume that the next generation would simply come along and snap up her cottage in order for her to retire. How did she expect us all to afford to buy it from her? I live in Devon and see many top of the markets homes by the sea that have been trying to sell for several years now without success, and without the City Bankers to snap them up who wil?
3. britishblue said...
There are many factors that are working together to push the housing market downwards. There are very few factors apart from spin that are pushing the market upwards. Not all downward factors come into play at once, some are now only having an impact. The problem for the housing bulls is that you just can't talk some of these factors away with the odd survey or report, because these are real factors effecting real people:
a. People selling 4th, 3rd, 2nd homes. This factor is probably a delayed factor. Most affluent people who have second homes, don't immediately think of disposing them. However, losing a job in the city or realising that houses are no longer a one way bet starts coming into play. It is likely that this factor is coming more into play now than a year ago when the crash was just starting.
b. Immigrants going home. At least 1/2 million Poles have gone home. This means they aren't renting property which means, less demand for lower value rental properties, many which are buy to lets.
c.The entry of REDC into the UK market making repossessed auction properties more mainstream, accessible and an alternative option for an ordinary person to buy. Whilst most people won't buy here, they will increasingly be fed with messages about getting bargain homes, so when they come to purchase the price they pay will be foremost in their minds.
d. Professional people with some assets being made redundant. I have several friends who have been made redundant and who have cash reserves to keep them going for 6 months or so, after that they have credit cards. But if they don't get a job after nine months, they are going to have to sell their house on a distressed basis. Given that unemployment is likely to top over 3 million some of these are not going to be able to get another job. If you look at the unemployment figures they are getting worse and are likely to for at least another year.
e. Surveyors down valuing. From overvaluing to undervaluing or 'reasonable valuing' is what is increasingly happening. Surveyors have to be careful they don't over value. It is safer for them in a falling market to undervalue.
f. A shift in public opinion. Two years ago, we HPC'ers were derided if we suggested that property would go down let alone crash. As little as 12 months ago many eminent people were stating that house prices would be flat for a year. Public opinion tends to be like a tanker when it comes to house prices. It takes quite some time to reverse the mentality that house prices will never go down, to the mentality that they will never go up. It took a few years in the last crash. We haven't even reached the stage yet where people are commonly saying that they will never go up, with many people still stubbornly saying, 'well they haven't dropped in my area.'
g. Lenders have to recapitalise whether they are banks or credit cards. We can expect to see an increasingly wider range between the base rate and the mortgage rate for new mortgages in the coming years, plus increased hidden charges. Low interest rates make this the perfect time for the banks to introduce this strategy but it means that the common man or women will gradually be stung over the life of the mortgage. If you like this will be the hidden tax that people will suffer because of the bank bail out.
h. Many more small businesses are now going to the wall. I spoke to an insolvency practitioner on Friday and his view was that business failure was increasing. The dividing line between surviving and not surviving was often just capital. Remember the last quarter of 2008 was the worst so far. We haven't yet had the results for this quarter. This is current not past. Its effect will be on house prices going into the future.
i. The difficult of getting mortgages. This factor may actually start getting BETTER as the money pumped into the banks earlier this year may start becoming available in the next few months. If and when it does, I would expect a lot of noises from the vested parties about 'not missing the boat'. However, it might be available but by that time the tanker mentality may just have started to turn.
j. More properties becoming available to rent because of (b) above and also people renting out second homes. This is driving down rents and making the 'need' to buy less important or urgent.
k. The almost 100% certainty that interest rates are going to have to rise again due to the liquidity that is being pumped into the economy and the fact that the long term average of interest rates in 5.5%.
These are just a few ramblings on a Sunday afternoon. I expect in the coming months we will see the vested interests jumping on isolated reports or surveys as a reason as why you should buy now. If you are considering it, it would be worth putting together a personal check list of all factors and judge for yourself whether overall the factors are increasingly negative or increasingly positive.
4. drewster said...
britishblue,
Excellent post. Couple of points:
a. It's not just people selling second homes. In a normal market, there are some people buying and some people selling. Right now however, nobody is buying second homes. That leaves only the sellers on the market.
d. Redundancies are only half the equation. Underemployment and massively slashed salaries are a bigger factor. Look at Japan, where despite nigh on two decades of recession, unemployment remained low. Anybody on commission-based jobs will see their incomes dwindle. (Bankers selling CDOs and paid massive bonuses are effectively paid commission, so I include them in this category.) While the headline unemployment rate may remain reasonably low, the loss of earnings will be far greater.
k. Interest rates in Japan have been hovering around 0% for over a decade, while Japanese government debt is 180% of GDP. Unless we hit an Icelandic-style crisis and a gilt-buyers strike, there's no certainty that UK interest rates will rise above 2% any time soon.