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Charterhouse

Some Analysis Of Uk Property Volumes

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A mate of mine and I did some analytics on the UK property market this morning and yesterday.

Net Lending on dwellings for June = £300mio

HBOS average house price = £159,623

June Mortgage Approvals 47,584

Assume an LTV of 60% on average.

So 300,000,000/(159,523 * 60%) = 3,134 sales per month.

So how are mortgage approvals 47,000? That's a ratio of sales to approvals of 6.66% (the number of the beast!!).

Are 93.34% of approvals never completing due to chains failing? Could well be....

House Price stats since the beginning of the year are completely and utterly irrelevant in reality, although they may boost the mood in the market, because volumes are so completely ridiculous - we should be seeing sales/approved ratio of ~50% and number of mortgages above 50k before this rally means anything.

This also explains the number of SSTC boards - let's say the average chain is 5 people? 5 boards for every sale... all held up waiting for the one person in the chain who can't get the mortgage/valuation he needs.

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Here's a picture to show it more clearly.

left hand scale (white line) is the number of UK mortgages actually being lent on.

right hand scale (yellow line) is the ratio of approved mortgages to sales.

Need to see some improvement in both of these before we can draw any sensible conclusions from the "rally".

Oopps forgot the graph, here it is..

UK_PropertyVolumes.jpg

post-21544-1249467847_thumb.jpg

Edited by Charterhouse

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A good piece in MoneyWeeks Money Morning email

Is the house price crash over?

So what’s going on? Is the house price crash over? We don’t think so. There’s certainly been a bounce in prices. But there are good reasons to believe that this is unsustainable.

We believe that the price of property is largely set by supply and demand for credit. In other words, the more you can borrow, and the more relaxed banks are about giving it to you, the higher house prices will go. The boom years demonstrated this amply. Products such as the above-mentioned “Together†home loan, and the rising number of interest-only loans taken out, were fantastic examples of the phenomenon.

But right now, physical supply and demand is having an impact. Because interest rates are so low, the number of forced sellers has fallen sharply. The idea of moving house when the future looks uncertain is also no doubt making many people stay put. So the number of houses coming on to the market has dived.

According to figures from Henry Pryor of HousingExpert.com, the number of properties coming on to the market has fallen from “a peak in February 2004 of over 7,400 per day to just 3,100 today.†Meanwhile, the number of sales has dived from a “peak of 5,200 per day in the summer of 2007… to just 1,300 last Christmas†before recovering a little during the “spring selling season to 2,500 a dayâ€.

So both the number of sellers and number of buyers has dived – but the gap between the two has closed. So you’ve got more buyers chasing fewer properties. And if all of those buyers are cash-rich and fussy, they’re only going to be chasing the best homes on the market. That suggests that the average price paid is going to be higher than you’d see in a more typical market with a larger number of transactions.

As Pryor puts it, “if there were just one home on the market and two buyers in the whole country then estate agents and mortgage brokers would no doubt jump up and down and point excitedly at the excess of buyers and predict a rise in prices as a result… but can we really base the health of the nation’s housing stock on this?â€

This house price bounce won't last

The point is that this can’t last. As David Smith of property consultancy Carter Jonas puts it: “There is a stark shortage of property on the market and this, above all, is driving the rebound we are seeing. The worry is that this shortage of property will cause buyers to sit on the fence again, as they shy away from committing to a purchase at a higher price.â€

But the other point is that sellers who’ve been holding off may see prices rising and decide to stick their homes on the market. The trouble is, while the number of sellers can rise easily, the number of buyers may not go up to match.

That comes back to the availability of credit. To keep house prices propped up where they were, the market needed lenders like Northern Rock, who would extend reckless loans at ridiculous rates to desperate first-time buyers. Or their counterparts at Bradford & Bingley, who would do the same for amateur property speculators.

Those lenders are now out of business as far as the housing market is concerned. And no one is coming in to take their place. That’s why this bounce is going to be temporary.

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This is my favourite bit from the piece :

But the other point is that sellers who've been holding off may see prices rising and decide to stick their homes on the market. The trouble is, while the number of sellers can rise easily, the number of buyers may not go up to match.

The weak residual demand is being filled in this mini bounce.

The pent up supply is waiting in the wings .......

Edited by LuckyOne

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I can't find the right numbers to look at Gross Lending. It says in one of the articles that gross lending was 1.98bio in June, which sounds about right, but I can't find the data series, and then I found this article which contradicts that hugely:-

http://www.cml.org.uk/cml/media/press/2338

Can anyone find the right data series so I can work this out properly?

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good stuff, Charterhouse - you'd make a good bear!

This is my favourite bit from the piece :

The weak residual demand is being filled in this mini bounce.

The pent up supply is waiting in the wings .......

...just to add to that, based on my observations the number of 'accidental' rentals on the market has exploded in 2009, and perhaps some of these will add to the supply if they're drawn back on the sales market by this seasonal rise.

there's certainly little demand for rentals round here - the market is so saturated, even the 'classic' BTL properties (cheap terraces in crap spots...and i mean cheap) are attracting no interest. 2 years ago, they would have been 'snapped up'

e.g. (you'll need The Bee)

80k - year and a half on market

http://www.rightmove.co.uk/property-for-sa...y-16003591.html

change of agent.. been on much longer than The Bee says

http://www.rightmove.co.uk/property-for-sa...y-19769017.html

see also

http://www.rightmove.co.uk/property-for-sa...y-12459801.html

http://www.rightmove.co.uk/property-for-sa...y-20535370.html

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A mate of mine and I did some analytics on the UK property market this morning and yesterday.

Net Lending on dwellings for June = £300mio

HBOS average house price = £159,623

June Mortgage Approvals 47,584

Assume an LTV of 60% on average.

So 300,000,000/(159,523 * 60%) = 3,134 sales per month.

So how are mortgage approvals 47,000? That's a ratio of sales to approvals of 6.66% (the number of the beast!!).

Are 93.34% of approvals never completing due to chains failing? Could well be....

House Price stats since the beginning of the year are completely and utterly irrelevant in reality, although they may boost the mood in the market, because volumes are so completely ridiculous - we should be seeing sales/approved ratio of ~50% and number of mortgages above 50k before this rally means anything.

This also explains the number of SSTC boards - let's say the average chain is 5 people? 5 boards for every sale... all held up waiting for the one person in the chain who can't get the mortgage/valuation he needs.

i didn't mean to torpedo your thread! bumping again because this still needs figuring out...

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