Supply Side Measure Confirm Property Price Decline - A Slow Bleed

[proprlyst]

Low transactions volumes usually indicate a stalemate between buyers and sellers. - Looks a long slow bleed in property prices. the 1990s crush had higher inventory levels - http://wp.me/pTU04-5p

[fallingbuzzard]

Low transaction volumes usually indicate lack of finance.

Low transaction volumes usually indicate that there is no liquidity, for whatever reason. Low liquidity means that there is inefficient price discovery, so no confidence in pricing. No-one knows what property is worth, buyers, sellers but more importantly those that finance the purchase of it.

It has nothing to with inventory levels. A pile of £5 tins of beans stacked high still won't sell.

On reflection, there's always a mug around to be a £5 tin of beans, but the last one is sold for 20p

Low transactions volumes usually indicate a stalemate between buyers and sellers. - Looks a long slow bleed in property prices. the 1990s crush had higher inventory levels - http://wp.me/pTU04-5p

Edited December 6, 2010 by fallingbuzzard

[rantnrave]

There's no actual analysis, conclusion or predictions here IMHO. The document could also benefit from some proofreading. Both of which undermine the work really.

[proprlyst]

Low transaction volumes usually indicate lack of finance.

Low transaction volumes usually indicate that there is no liquidity, for whatever reason. Low liquidity means that there is inefficient price discovery, so no confidence in pricing. No-one knows what property is worth, buyers, sellers but more importantly those that finance the purchase of it.

It has nothing to with inventory levels. A pile of £5 tins of beans stacked high still won't sell.

On reflection, there's always a mug around to be a £5 tin of beans, but the last one is sold for 20p

[/quote

I agree about the argument of liquidity. However, my argument is that high inventory levels are an indication of excess supplier of demand. Elevated inventory levels can be caused by low demand, due possibly to the lack of mortgage financing, earnings, or high interest rates. Excess supply can arise from forced sales repossessions (in US foreclosure coming onto the market). In the current economic environment characterised by low interest rates and rising rentals: forced sales or foreclosures are going to be relatively; especially when compared to the 1990’s. The lack of transactions results loss of confidence and inefficient price discovery. Especially important for non exchange traded asset like property, since valuations are based on comparables of prior sales. In short inventory builds because more property on and coming on the market than being sold. Results in an inventory over-hang (e.g. USA). Prices will be slow to recover as long as inventory levels remain high. However, sellers can withdraw property from market as long as they can service their debt. This is possible in low interest rate environment and also was rental levels are growing.

[fallingbuzzard]

Too many maybes for me, everything is possible but markets are defined by people that buy and sell, not people that don't need to sell - or buy for that matter. Everyone else in a market is an observer.

On the side, your assertion that actual mortgage borrowing rates are low versus recent historical rates (10 years) is totally wrong. we all know that base rate is 0.5% but thats not really the point. There were many mortgages available at around 2.5% 8 years ago and 5 years ago. Its not at a historical low. The base rate level is designed to support banking sector recapitalisation and repayment of the government stake through this hidden tax.