The Housing Market Is Being "strangled" To Death

[Realistbear]

http://blogs.telegraph.co.uk/finance/edmun...-credit-crunch/

Housing: still being strangled by the credit crunch

By Edmund "Ed" Conway Economics Last updated: July 28th, 2009

Some are characterising today’s Land Registry data on the housing market as a sign that, finally, the worst is over for property. They point to the fact that for the first time since January 2008, this, the most authoritative measure of house prices in Britain (since it’s based on actual transactions as opposed to mortgage approvals), has staged a month-on-month rise.

But don’t be fooled by this tiny (0.1pc) increase. In fact, the real story behind the figures (which ought to be accessible from the Land Reg site, but it’s so appallingly slow at the moment that you shouldn’t wait up for them to load) is the picture they paint of a completely moribund housing market. Activity has fallen to almost unprecedented lows as families struggle against the combined forces of the recession, with its rising unemployment and falling profits, and the credit crunch, which prevents them from getting hold of a mortgage at a reasonable rate.

Summer is supposed to be boom time for the property market. But, according to Nick Hopkinson of Property Portfolio Rescue (PPR), the total number of transactions - at 36,233 in April 2009 - is 75pc lower than the average summer sales over the past decade, not to mention 42pc down since April 2008, at which point the property market was already struggling.

I, for one, won't be fooled again.*

________________________

*Cue Pete and an SG teamed with a double stack at full volume.

[Alfie Moon]

Yep, Estate Agents need to get into their heads and understand that 'recovery' of the property market is NOT about rising asking and selling prices. Recovery of the property market is about rising numbers of completed transactions. Rising asking and selling prices will simply reduce the number of completed transactions to lower and lower numbers (i.e. strangle and kill off any chance of recovery in the property market). Estate Agents need to keep pressurising vendors to keep cutting asking and selling prices in order to get completed transaction numbers to rise, and keep rising - and hence see the property market recover. It would seem that the vast majority of Estate Agents have still yet to adapt to a falling market and the economic environment they find themselves operating within.

[Guest DissipatedYouthIsValuable]

Yep, Estate Agents need to get into their heads and understand that 'recovery' of the property market is NOT about rising asking and selling prices. Recovery of the property market is about rising numbers of completed transactions. Rising asking and selling prices will simply reduce the number of completed transactions to lower and lower numbers (i.e. strangle and kill off any chance of recovery in the property market). Estate Agents need to keep pressurising vendors to keep cutting asking and selling prices in order to get completed transaction numbers to rise, and keep rising - and hence see the property market recover. It would seem that the vast majority of Estate Agents have still yet to adapt to a falling market and the economic environment they find themselves operating within.

If the EAs wait too long they may find people dealing directly with the repo auctioneers.

[JonoP]

Yep, Estate Agents need to get into their heads and understand that 'recovery' of the property market is NOT about rising asking and selling prices. Recovery of the property market is about rising numbers of completed transactions. Rising asking and selling prices will simply reduce the number of completed transactions to lower and lower numbers (i.e. strangle and kill off any chance of recovery in the property market). Estate Agents need to keep pressurising vendors to keep cutting asking and selling prices in order to get completed transaction numbers to rise, and keep rising - and hence see the property market recover. It would seem that the vast majority of Estate Agents have still yet to adapt to a falling market and the economic environment they find themselves operating within.

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

[Realistbear]

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

Indeed. I have just sigtned a 6 month SH tenancy and the EA told me that they never used to deal with rental properties until this crash. The rental market is keeping them alive. He has been in "the biz" for over 30 years and says it is the worst he has seen and that I am right in waiting another year before buying. I liked him.

[Alfie Moon]

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

Yes, I think there has been a lot of this + cutting Estate Agency teams right down to the bone. However, if Estate Agents want a return to healthy and increasing income/profit they will need to start adapting to the 'sales' market and work towards increasing completed transactions - this will require ongoing price cuts not price stabilisation or rises which will simply kill off any recovery in the market.

Looking at Rightmove and the numbers of SSTC properties that are hanging around for months/indefinately it looks like much of the increased activity this year has simply led to offers being made, accepted, and then getting stuck in a chain unable to complete because people can't get mortgages for the price they offered. If asking and accepted offer prices come down then people will be able to get mortgages and successful transaction levels will rise. Rather stupidly it looks like Estate Agents and vendors have used the increase in activity to start pushing asking prices back up which has just added to the log jam of stuck SSTC properties and completed transactions remain at historically low levels. Estate Agents shooting themselves in the foot - again.

Edited July 29, 2009 by Alfie Moon

[Bloo Loo]

funny, but I thought strangulation was bad for the patient.

guess I misunderstood about the housing market.

[Minos]

Indeed. I have just sigtned a 6 month SH tenancy and the EA told me that they never used to deal with rental properties until this crash. The rental market is keeping them alive. He has been in "the biz" for over 30 years and says it is the worst he has seen and that I am right in waiting another year before buying. I liked him.

I hope he remembered to doff his cap.

[interestrateripoff]

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

Probably, but will they now be trying to keep rents artificially high to keep bigger commissions?

[munimula]

Housing: still being strangled by the credit crunch

By Edmund "Ed" Conway Economics Last updated: July 28th, 2009

Summer is supposed to be boom time for the property market. But, according to Nick Hopkinson of Property Portfolio Rescue (PPR), the total number of transactions - at 36,233 in April 2009 - is 75pc lower than the average summer sales over the past decade, not to mention 42pc down since April 2008, at which point the property market was already struggling.

He's just highlighting what we already know. House prices have been stabilised on very low volumes by the minority that have cash or good secure jobs (public sector workers!). My parents are a very good example. After STR in early 2007 they complete on their new house this week. Partly driven by the drastic cut in interest rates on their savings which meant, for them renting didn't stack up anymore. Interest went from £25k pa to about £7.5k within 6 months.

Once these buyers have been flushed out then the next leg down in the housing market will begin...probably this autumn/winter

Edited July 29, 2009 by munimula

[Bloo Loo]

He's just highlighting what we already know. House prices have been stabilised on very low volumes by the minority that have cash or good secure jobs (public sector workers!). My parents are a very good example. After STR in early 2007 they complete on their new house this week. Partly driven by the drastic cut in interest rates on their savings which meant, for them renting didn't stack up anymore. Interest went from �25k pa to about �7.5k within 6 months.

Once these buyers have been flushed out then the next leg down in the housing market will begin...probably this autumn/winter

just wondering, if what you say is true about the next leg, just exactly how the renting wont stack up for them?

this is not aimed at your parents in particular, but the thought behind it in general.

[lowrentyieldmakessense(honest!)]

just wondering, if what you say is true about the next leg, just exactly how the renting wont stack up for them?

this is not aimed at your parents in particular, but the thought behind it in general.

reduction in income earned from cash at bank

not that im advocating buying just yet

[IMHAL]

Yes, I think there has been a lot of this + cutting Estate Agency teams right down to the bone. However, if Estate Agents want a return to healthy and increasing income/profit they will need to start adapting to the 'sales' market and work towards increasing completed transactions - this will require ongoing price cuts not price stabilisation or rises which will simply kill off any recovery in the market.

Looking at Rightmove and the numbers of SSTC properties that are hanging around for months/indefinately it looks like much of the increased activity this year has simply led to offers being made, accepted, and then getting stuck in a chain unable to complete because people can't get mortgages for the price they offered. If asking and accepted offer prices come down then people will be able to get mortgages and successful transaction levels will rise. Rather stupidly it looks like Estate Agents and vendors have used the increase in activity to start pushing asking prices back up which has just added to the log jam of stuck SSTC properties and completed transactions remain at historically low levels. Estate Agents shooting themselves in the foot - again.

The problem is that the gov and the banks have conspired to keep repo properties off the scene which has lead to very low supply. So EA's do not have a choice but to compete for properties by keeping asking price high.

[munimula]

just wondering, if what you say is true about the next leg, just exactly how the renting wont stack up for them?

this is not aimed at your parents in particular, but the thought behind it in general.

My parents were asset rich and cash poor. They sold their house for £475k but only have an income from my dads work around £19k pa. Therefore they needed the interest to justify paying the rent and putting some aside. To be fair they have got a very good deal on their new property and it isn't the kind of property to come up very often, they are downsizing and will have approx £175k fund left over as their pension pot - previously they had nothing!! For them the aim was to sell high, downsize (price wise) and have a decent amount left over for pension - that has now been achieved. The £192k they are paying for their new home would not fall much more. It needs about £100k spending on it and now's a good time to make that go further with builders etc.

Edited July 29, 2009 by munimula

[VeryMeanReversion]

I'm selling a house for probate at the moment and fighting off the buyers. Very small house but good location.

Place was ~£210-20K at the peak.

Current asking price £180K. (~-15% from peak)

One investor offering £170K (~20% from peak).

One LTB (last time buyer!) expected to offer slightly higher.

Both have funds to buy.

The investor wants to buy since they are getting no return on their cash in the bank. Their potential gross yield before any costs is below 5% so I doubt they could net much more than 2% even if they had no mortgage. Doesn't make sense to me but I don't care.

Another house is being prepared for sale. Potential buyers had tracked me down after hearing via the local grapevine before the EA has advertised the house. Although they viewed a couple of times and decided not to buy, they say the market for decent family homes is dead and they are desperate to buy.

So my view is that there are a few buyers out there with finance but the supply is extremely limited at the moment. That is keeping prices stable.

However, once the effect of unemployment kicks in, I think we will see a large swing towards excess supply and phase 2 of the HPC can start.

VMR.

[Guest KingCharles1st]

So reading between the lines- it's now 4 x more difficult to sell your house...

-assuming you are in a position to do so-

-and in a position to obtain lending if required to buy another property..

[grizzly bear]

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

an agent handed me a flier at the tube station yesterday - a special promotion - £2000 to sell a house!!!! They must be desperate!

[athe]

I'm selling a house for probate at the moment and fighting off the buyers. Very small house but good location.

Not what we're seeing with the house we're selling in Birmingham. On at 13% below peak. A total of four viewings to date. One offer well below asking (about 30% - own up you barstewards - which of you was that!)

[SarahBell]

Probably, but will they now be trying to keep rents artificially high to keep bigger commissions?

Nah rents are coming down.

property bee watches them too.

[Flat Bear]

Hmm, I am not seeing very many go bust though. So maybe their strategy for adapting to the market is to try to get vendors to rent out their house. This way they make money from agency fees.

Yes, there hasn't been the closures I had expected. Infact many other industries/sectors seem to have been hit harder. The businesses that have been hit hardest are those unable to shrink back with high borrowings and those reliant on steady high turnover figures.

But why not EAs?

Although EAs deal with highly leveraged business people (BTLers) and individuals they themselves, in most cases, operate on very little leverage.

To set up as an EA is relatively low cost and running costs can be shrunk back to include just any business premise rentals, business rates and small amounts on other misc. utilities. Other costs involve sales which most EAs have been cutting back on and as EAs are poorly paid as basic salaries any bonuses are tied to increased business.

It is very similar to the boom in double glazing in the 80s. Over the last 2 decades double glazing industry has changed but slowly as other more lucrative areas for the high pressure salesman has emerged such as ..... EAs? How many EAs were once selling double glazing?

[juvenal]

It is very similar to the boom in double glazing in the 80s. Over the last 2 decades double glazing industry has changed but slowly as other more lucrative areas for the high pressure salesman has emerged such as ..... EAs? How many EAs were once selling double glazing?

Or timeshare, orthopaedic beds, encyclopaedias, stairlifts, snake oil?....

[VeryMeanReversion]

One investor offering £170K (~20% from peak)

I've just gone SSTC with the investor at £170K with proven funds (all cash if necessary). It was £127K in 2002 so seem to be in line with Halifax Price Index changes since then.

VMR.

[Guest Daddy Bear]

I've just gone SSTC with the investor at £170K with proven funds (all cash if necessary). It was £127K in 2002 so seem to be in line with Halifax Price Index changes since then.

VMR.

All this cash has to go somewhere

[Bloo Loo]

All this cash has to go somewhere

cash? or bankers credit...there is a difference.

[Jim B.]

I'm selling a house for probate at the moment and fighting off the buyers. Very small house but good location.

Place was ~£210-20K at the peak.

Current asking price £180K. (~-15% from peak)

One investor offering £170K (~20% from peak).

One LTB (last time buyer!) expected to offer slightly higher.

Both have funds to buy.

The investor wants to buy since they are getting no return on their cash in the bank. Their potential gross yield before any costs is below 5% so I doubt they could net much more than 2% even if they had no mortgage. Doesn't make sense to me but I don't care.

There was a very good thread on here a while back, about how the banks/government's only way out of the housing mess is to get the bad debts (i.e. the houses in NE) sold on to the cash rich to get them to take the hit. And all that I see would seem to support that this 'campaign' may well be happening, with zero return on savings forcing people to buy still over-priced housing, thus removing the bad debt from the banks books. It's despicable really, but many people seem to be falling for it.