Crash Over? Demand Greater Than Supply...

[InternationalRockSuperstar]

The price of any commodity is determined by demand and supply. It's the fundamental rule of economics.

If the demand for something is greater than its supply, then the seller has the upper hand.

I fear that is what is happening to the housing market.

you are confusing wants with demand.

humans have essentially unlimited wants.

it's only demand when you can actually afford to act on that want (and do).

[ParticleMan]

I have checked again, and the answer is still YES.

There are always exactly as many buyers as sellers... never more, and never fewer.

[InternationalRockSuperstar]

I have checked again, and the answer is still YES.

Particle man is correct.

[DownsizingDiva]

There are always exactly as many buyers as sellers... never more, and never fewer.

Ah, but there aren't - not for exactly the same amount of commodities. If your theory is true, then why are car manufacturers in so much trouble? (I could give you lots more examples, but I think this one serves the purpose).

[Guest AuntJess]

If you are getting divorced - don't sell the house. Live together and try to get on as freinds. Try to ignore the sound of your ex wife being dry-humped by "Dave" from "Images"

When Grandma need to go into a home, Don't sell the house, Peddle your ar5e to rich celebs so you can pay for her care feee's. It's the least you can do after she gave you all those tea & biscuits! Avoid the offer of a dip in the pool though

When the bank want to reposes your house because you cant aford the mortgage, dont let them sell the house, offer them your ar5e, or better still, your ex-wife's ar5e (after Dave has finished with it)

what are the other "D"'s again?

[Sybil13]

House in my street sold very quickly but now it is back for sale. I wonder if there was a problem getting the government (oh sorry I mean banks - but it is the same thing) to lend the money.

Chains Break as Surveyors Put Forward Realistic Valuations

Homebuyers Left High and Dry as Mortgage Offers are Cancelled

......A Sunday Times investigation found that in April, HSBC cut rates for borrowers with deposits of just 10% but admitted last week that of the 12,000 applications above 75% of the property purchase price, only one in five borrowers received funding. Even if you can stump up a hefty deposit (we're talking 30% to 40%) you are not guaranteed a happy ending.....

...John Charcol said lenders had been surprised by the strength of the market and were using up mortgage funding faster than anticipated. Estate agents added that buyers were interested in bargains but transactions were falling through as they failed to secure funding.

First-time buyers who want to get on the housing ladder have seen the number of mortgages available to those without a large deposit slump by 97% over the last two and a half years, according to new research released today.......First-time buyers are already paying a high price for their borrowing – in January 2007, the base rate stood at 5% and the average interest rate on a 90% home loan was 6.2%. Today, the average rate on a first-time buyer loan stands at 6.23%, 5.73% above bank base rate.

Ray Boulger, of mortgage broker John Charcol, said the increase in price had been driven by a lack of competition and by new rules under which lenders have to set aside more capital to cover high loan-to-value mortgages. "The cost to the lender of making one 90% LTV loan available can be four or five times the cost of offering a mortgage at 60% LTV," he said. "We're in a situation where the more lending a lender does at 90% the less lending they are able to do overall."

Doesn't sound good does it?

I started a thread similar to yours today here :

What Will Stop the Stand Off Between Buyers and Sellers

[Sybil13]

Other half and I went to see a house a couple of months ago. At the time the EA was all "Oh I'm not sure when I can get a viewing for you as so many people want to see it". Had to wait a week and go at 7 pm. Lovely house, overpriced by about 20% in my opinion. Didn't bother making an offer as it was "offers in excess". Guess what, two months down the line still on the market, hasn't gone SSTC hasn't done anything. Guess all the interest didn't help.

Yep got friends made 6 offers at 25% off peak, EA's said "had loads of higher offers" , ALL properties still on market months later.

I just think sellers are waiting the summer out to see if they are one of the small % who will sell to a cash rich buyer , some will , and you can't blame them waiting. However, I think the autumn will be a VERY different matter.

[Sybil13]

Funds, not credit.

Funds are made up of mortgage, money, government loan, parental advance and probably some stuff I havn't thought of.

Is that right? As I have already said I asked some Q's about this today here:

What Will Stop the Stand Off Between Sellers and Buyers

I know that economists agree that until mortgage approvals double property prices will continue to fall.

I know that lending levels are down nearly 2/3rds due to the closure of the RMBS market.

I know that a few weeks ago I read:

The Bank of England is concerned that the UK's banking system is heading for a third wave of crisis that could snuff out fragile signs of recovery in the economy.

On Thursday the Bank surprised the City by announcing that it would pump an extra £50bn of new money into the economy despite recent stockmarket rallies.

Now the Guardian has learned that this increase in quantitative easing was driven by fears in Threadneedle Street that the credit crunch is still sucking the life out of the British economy and the banking sector remains in deep trouble.

The new mood of caution chimes with comments from business leaders yesterday, who warned that apparent green shoots in the economy had shallow roots.

Bank of England officials are concerned that big banks now supported by the taxpayer, such as Royal Bank of Scotland and Lloyds Banking Group, are struggling to increase lending volumes, as they had promised in return for help from the government.

.......

And:

Mervyn King said although banks' survival had been assured by recent bail-outs, they would not start lending freely unless more capital was pumped into their balance sheets.

Mr King said: "There is a big difference in practice between the levels of capital banks need to be stabilised... and those required to persuade banks to exhibit normal levels of risk-aversion. How big that gap is is impossible to say... but it looks as if it will be quite big.

And I know that with regards Moodys downgrades made on the "assumption now being 40% falls" I read :

Despite being skewed towards more secure retail deposits, 30pc of the sector’s funding – or around £100bn – comes from institutions, who may think twice following the Moody’s downgrade, and the wholesale markets, which remain effectively closed. Without funding, mortgage lending will dry up. “To the extent that funding is restricted, it will restrict our ability to lend,†Nationwide chief executive Graham Beale told the TSC. The BSA’s Adrian Coles reckons “it is quite conceivable that lending will fall this year†as funding evaporates.

I also read in an article a few weeks ago about mortgage lending being down 60%:

"It looks almost inevitable that May approvals will be higher than a year ago for the first time since early 2007. However, activity remains at extremely low levels on any historic comparison – and weaker than at any point in the early 1990s. Limited lending capacity and the impact of further job losses are likely to act as a ceiling for how far the improvement can continue, although there could be further modest rises in the coming months."

So it would seem that mortgage lending is down down down ......and Merryn said that house prices are about supply of lending......so if lending is down down down and apparently lenders are turning down the bank of Mum and Dad as a deposit also, why are property prices going up? Are they just being skewed by cash rich buyers?

[simpleton]

The price of any commodity is determined by demand and supply. It's the fundamental rule of economics.

If the demand for something is greater than its supply, then the seller has the upper hand.

I fear that is what is happening to the housing market.

Phoned an EA today about a property which came onto Rightmove yesterday. Asked for a viewing. (Property is reasonably priced - not a bargain, but in line with what I would expect to pay for that property, in that road, based on previous LR selling prices for that area in 2006/7 - it's about 12% less than 2006/7 - the area is good, it has a fair amount of land, etc.)

EA said "Ah, yes, we've had a lot of phone calls about that property today - it's created a huge amount of interest" (this was at 10.00am). "I'm afraid you can't view it yet, because the HIP isn't ready. However, I can take your name and add it to the list, so that when the HIP is ready you MAY get a phone call."

This leads me to ask two questions:

1. I thought EA's weren't allowed to market properties until HIPs were available to buyers

2. If reasonably-priced properties are in short supply, then sellers will be able to dictate the price (to a degree).

I've seen a few properties recently which have gone SSTC within 24 hours of appearing on RM. All have been reasonably priced (but not "bargains").

If this continues, then surely prices will rise again?

Lunchtimes, I sometimes take a little stroll down my local High Street.

A few months ago a little detached cottage caught my eye, advertised in the window of an estate agent.

Nothing all that special. Not all that big, but it had that quality..... Quaint

Needed "some improvement," apparently.

My interest mildly piqued, I shuffled inside to make some enquiries.

Oh yes! Had a lot of interest in this one! What's that you say....? Yes, it needs new a kitchen and bathroom.... and windows... We could possibly manage to "fit you in" for a viewing next week.

I uttered an inward groan, and trudged wearily away.

Never - when you're buying something, put yourself in the position of humble supplicant pleading for the opportunity to make an offer.

Estate agents? I shit 'em. Here's a handy little tip. How can you tell when one's lying to you? Their lips are moving.

That cottage. It's still in the window.

[shedfish]

The price of any commodity is determined by demand and supply. It's the fundamental rule of economics.

If the demand for something is greater than its supply, then the seller has the upper hand.

I fear that is what is happening to the housing market.

Phoned an EA today about a property which came onto Rightmove yesterday. Asked for a viewing. (Property is reasonably priced - not a bargain, but in line with what I would expect to pay for that property, in that road, based on previous LR selling prices for that area in 2006/7 - it's about 12% less than 2006/7 - the area is good, it has a fair amount of land, etc.)

EA said "Ah, yes, we've had a lot of phone calls about that property today - it's created a huge amount of interest" (this was at 10.00am). "I'm afraid you can't view it yet, because the HIP isn't ready. However, I can take your name and add it to the list, so that when the HIP is ready you MAY get a phone call."

This leads me to ask two questions:

1. I thought EA's weren't allowed to market properties until HIPs were available to buyers

2. If reasonably-priced properties are in short supply, then sellers will be able to dictate the price (to a degree).

I've seen a few properties recently which have gone SSTC within 24 hours of appearing on RM. All have been reasonably priced (but not "bargains").

If this continues, then surely prices will rise again?

the 2007 playbook in 2009. this is catching up with them, bit by bit. i don't think it's long now until the penny drops. in human years about 0.5

[ParticleMan]

Ah, but there aren't - not for exactly the same amount of commodities. If your theory is true, then why are car manufacturers in so much trouble? (I could give you lots more examples, but I think this one serves the purpose).

The buyers and sellers of the number of units sold are (somewhat tautologically) in balance.

Unsold stock remains just that - there is neither a buyer nor a seller of it.

[HAMISH_MCTAVISH]

Merryn said that house prices are about supply of lending......

Merryn (or you) are oversimplifying.

If the number of transactions remains the same, but the amount of available funds to purchase those houses is cut by 50%, then house prices also must fall by 50%.

However, if the amount of funding available falls by 50%, but the amount of transactions also falls by 50%, then there is now enough funding for all of the houses to be sold at the original full price.

Yes, there is less credit avbailable now. But there are also less transactions now, and less houses coming onto the market now, and less people wanting to move now.

A 50% fall in lending does not therefore have to equal a 50% fall in prices........

why are property prices going up? Are they just being skewed by cash rich buyers?

I don't agree that cash rich buyers pay more for property. If you are in a position to pay cash, no chain, no delays, then you are in a position to negotiate a better deal, not a worse one.....

[ParticleMan]

if ... the amount of transactions also falls by 50%, then there is now enough funding for all of the houses to be sold

You may wish to refine this.

[Sybil13]

Merryn (or you) are oversimplifying.

If the number of transactions remains the same, but the amount of available funds to purchase those houses is cut by 50%, then house prices also must fall by 50%.

However, if the amount of funding available falls by 50%, but the amount of transactions also falls by 50%, then there is now enough funding for all of the houses to be sold at the original full price.

Yes, there is less credit avbailable now. But there are also less transactions now, and less houses coming onto the market now, and less people wanting to move now.

A 50% fall in lending does not therefore have to equal a 50% fall in prices........

I don't agree that cash rich buyers pay more for property. If you are in a position to pay cash, no chain, no delays, then you are in a position to negotiate a better deal, not a worse one.....

Not sure it works like that though does it?

I am not sure buyers want to buy at peak prices which is why so much property is just sitting there is it not?

There may be a 60% drop in instructions but they haven't sold the last lot yet or the ones before that either have they?

A small % are selling to people who do not believe in HPC, but that is not sustainable in the long term is it?

We all know that people are finding it VERY hard to get high LTV mortgages , the figure quoted at the weekend was two-in-three chance of being rejected.

And then there were the two articles last week about:

Homebuyers Left High and Dry as Mortgage Offers Are Cancelled

And:

Realistic Valuations Breaking Chains

Which both seem to suggest that if you need a mortgage then the seller NEEDS to put a realistic valuation on the property.

As you know this is what RM said when they said that "Raised Asking Prices Are Doing More Harm Than Good" , saying :

"Some sellers are still pricing wishfully high, though it is encouraging that elements of the market have adapted relatively quickly to find a new price floor at a discount of around 25% from peak. "

"Until banks get their own houses in order, the active minority of sellers and agents who have drastically adjusted pricing will remain frustrated by the limited functioning of the financial services sector."

So yes if lending is down 60% and new instructions are down 60% logically it would seem that lenders can afford to lend at 2007 values BUT THAT IS NOT HAPPENING is it?

Hometrack said that the majority of sales are to cash rich buyers but that will not sustain the market in the long run.

As for your belief that buyers with cash can negotiate better deals certainly that has not been the case with the people I know who have put in offers at 25% off peak , cash buyers nothing to sell and had them all rejected. Sellers are waiting out the summer in the hope that they might find the one buyer who does not believe in HPC and is therefore prepared to pay 2007 value.

Edited June 17, 2009 by Sybil13

[DownsizingDiva]

Lunchtimes, I sometimes take a little stroll down my local High Street.

A few months ago a little detached cottage caught my eye, advertised in the window of an estate agent.

Nothing all that special. Not all that big, but it had that quality..... Quaint

Needed "some improvement," apparently.

My interest mildly piqued, I shuffled inside to make some enquiries.

Oh yes! Had a lot of interest in this one! What's that you say....? Yes, it needs new a kitchen and bathroom.... and windows... We could possibly manage to "fit you in" for a viewing next week.

I uttered an inward groan, and trudged wearily away.

Never - when you're buying something, put yourself in the position of humble supplicant pleading for the opportunity to make an offer.

Estate agents? I shit 'em. Here's a handy little tip. How can you tell when one's lying to you? Their lips are moving.

That cottage. It's still in the window.

So what on earth are these EAs playing at? Surely it is in their best interests to get as many viewings as possible (the higher the number of viewings, the quicker a sale is achieved).

If I were you, I would post a letter to the vendors through the door of the cottage explaining your position, saying you seem to be having a little difficulty persuading the EA to let you see it. I am considering doing exactly this myself.

[djm1972]

Local EA (DB Roberts & Partners, Telford) are listing in the bullet points of pretty much all their properties "* Sensibly priced". If that doesn't stink of desperation I don't know what does.

[Jim B.]

The price of any commodity is determined by demand and supply. It's the fundamental rule of economics.

Wrong. In case no-one has said this already, it is supply and the availability of credit. Demand is neither here nor there.

[DownsizingDiva]

Wrong. In case no-one has said this already, it is supply and the availability of credit. Demand is neither here nor there.

So if the commodity is in plentiful supply and there is credit available, but no one wants the commodity... what then???

[Jim B.]

So if the commodity is in plentiful supply and there is credit available, but no one wants the commodity... what then???

Prices continue to fall.

[othello]

"EA said "Ah, yes, we've had a lot of phone calls about that property today - it's created a huge amount of interest" (this was at 10.00am). "I'm afraid you can't view it yet, because the HIP isn't ready. However, I can take your name and add it to the list, so that when the HIP is ready you MAY get a phone call."

Come on, don't tell me anybody really believes EA hype? They will ALWAYS pretend a high level of interest and possibly go further - unless of course they've never been on a training course for EAs. It's standard stuff.

[Soul Reaver]

The price of any commodity is determined by demand and supply. It's the fundamental rule of economics.

If the demand for something is greater than its supply, then the seller has the upper hand.

I fear that is what is happening to the housing market.

Phoned an EA today about a property which came onto Rightmove yesterday. Asked for a viewing. (Property is reasonably priced - not a bargain, but in line with what I would expect to pay for that property, in that road, based on previous LR selling prices for that area in 2006/7 - it's about 12% less than 2006/7 - the area is good, it has a fair amount of land, etc.)

EA said "Ah, yes, we've had a lot of phone calls about that property today - it's created a huge amount of interest" (this was at 10.00am). "I'm afraid you can't view it yet, because the HIP isn't ready. However, I can take your name and add it to the list, so that when the HIP is ready you MAY get a phone call."

This leads me to ask two questions:

1. I thought EA's weren't allowed to market properties until HIPs were available to buyers

2. If reasonably-priced properties are in short supply, then sellers will be able to dictate the price (to a degree).

I've seen a few properties recently which have gone SSTC within 24 hours of appearing on RM. All have been reasonably priced (but not "bargains").

If this continues, then surely prices will rise again?

Wrong!

The price of any commodity is determined by demand, supply and available means of purchase. It's the fundamental rule of economics.

Edited June 18, 2009 by Soul Reaver

[pablopatito]

I'd say "Right!"

Demand has increased, supply has fallen, and house prices have risen. The OP is just wrong about the crash being over. The worsening economy will increase supply and decrease demand, and prices will soon start to fall again - for the same reasons they've risen in the past couple of months.

Edited June 18, 2009 by pablopatito

[Sybil13]

"EA said "Ah, yes, we've had a lot of phone calls about that property today - it's created a huge amount of interest" (this was at 10.00am). "I'm afraid you can't view it yet, because the HIP isn't ready. However, I can take your name and add it to the list, so that when the HIP is ready you MAY get a phone call."

Come on, don't tell me anybody really believes EA hype? They will ALWAYS pretend a high level of interest and possibly go further - unless of course they've never been on a training course for EAs. It's standard stuff.

I was surprised to read in the NAEA report today that many of the prospective buyers putting in offers have not even put their properties on the market yet , I assume because they do not want to pay for a HIP + agents fees unless they have found something ! So are sellers accepting offers close to peak from people who haven't a clue what is happening in the market and thinking they TOO will be able to sell close to peak? No wonder so many houses go "Under Offer" and SIT and SIT and SIT, I assume all the time with others putting in realistic offers that are being refused. It will dawn by the autumn that they should have accepted 30% off peak whilst they had the chance. given that lenders are already valuing 30% + below peak resulting in chains breaking. Good to see the CML figures today showing a 58% fall in gross mortgage lending yoy, says it all really doesn't it! Couple that with the April approvals , 35,600 home loans granted compared with an average of 88,000 loans during April in the last seven years its easy to understand why the government have said that politicians are not allowed to speak about "green shoots" on "sustainable recovery."

Edited June 18, 2009 by Sybil13