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House Sales Have Fallen So Why Are Prices Still High?

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Was just on the BBC website reading the latest from Norway, when this article caught my eye, featuring FP.

http://www.bbc.co.uk/news/business-14020457

Why are house prices apparently so resistant to the normal laws of supply and demand?

It is one of life's great mysteries.

Houses are still expensive, by anyone's reckoning.

The supply of buyers has been restricted by banks and building societies, who continue to ration their mortgage funds.

The economy is flat, with unemployment high and people's real incomes being driven down by a combination of inflation and low wage rises.

And the level of home sales is roughly half what it was before the banking crisis. So why have prices not fallen?

Up or down?

The first thing to say is that not everyone believes the statistics.

Each month a slew of house price figures are published by the government (DCLG), Land Registry (for England and Wales), lenders such as the Halifax and the Nationwide, and industry bodies such as the Royal Institution of Chartered Surveyors (Rics).

They often show different monthly movements and variations in medium term trends.

This year they show, variously, that average prices have either been falling gently, have stagnated, or, in the case of the Nationwide, have actually been going up since the start of the year.

Economist and financial adviser Jonathan Davis, a long-term believer that prices can only go down in the medium to long term, casts a jaundiced eye over these figures.

In his view the national position is being distorted by what is going on in London - where prices have been most resilient.

Even that will change, he reckons.

"The big picture remains the same - for most of the country we have not just a state of collapse in transactions, but prices," Mr Davis says.

"The volume of transactions is very low and is not going to get any better, especially when asking prices are 35-40% above actual selling prices."

He said that in London and the South East transaction numbers had collapsed, and that prices were set to follow.

The London effect

Why are prices in the capital still going up, and are not far off their all-time high?

Ed Stansfield of the consultancy Capital Economics, which has been another long-term predictor of falling prices, looks at the differing economic backgrounds.

"One-third of all jobs created since the end of 2009 have been in London and three-quarters of all jobs created have been in London, the South East, South West and in East Anglia," he says.

"So the north-south divide is real in the labour market."

Chuck in the effect of ultra-rich international buyers, who think nothing of paying more than a million pounds for a central London pad, and the bubble in the London property market persists.

Going down

Elsewhere things are very different indeed, with sales very much in the doldrums and prices falling.

Estate agent's window Outside London, prices have in fact been falling

According to the Land Registry, they have dropped in the past year by 11% in Blackpool, 7% in Hull, 10% in Peterborough, 12% in Hartlepool, 12% in Port Talbot, and 9% in the county of Northumberland.

Just to make the point that it is not a localised effect in a few blackspots, prices are down 10% in Manchester, 10% in Sunderland, and 10% in Walsall.

Robert Gardner, the chief economist at the Nationwide, has analysed the issue and says the key factor determining the trend in house prices is the character of the local economy.

"It reflects how much manufacturing you have in your area," he says.

"Those regions with most manufacturing are currently those where prices are the lowest, compared to their peak."

The Mexican standoff

One great curiosity is the current gap between the prices people demand, and the prices their homes actually sell for, assuming they sell at all.

Rightmove, the estate agency website that claims to advertise 90% of all homes for sale in the UK, says current asking prices across the country average £236,597.

Selling prices, however, are much lower. The average house price is currently £203,528 (DCLG), £168,205 (Nationwide) or £163,049 (Halifax).

Depending on which survey you favour, this gap could be as much as a whopping 45%.

This has all the appearance of a Mexican standoff, where both sides are lined up facing each other but neither wants to shoot first for fear of being shot in return.

Rightmove explains that the price falls of the past few years mean that many people, who would like to sell, cannot afford to drop their prices.

That would push them into negative equity, scuppering their plans to trade up or move on.

Henry Pryor, the property market commentator, says this now affects a lot of people.

"More than a million former first-time buyers are prisoners in their own homes - prices are 18% below their 2007 peak when most people were buying with a 95% mortgage," he says.

"Even if they intended to sell they don't have the 20% deposit they now need to put down on the next house."

What about other facts, such as greed and stupidity?

"There is a considerable lack of realism; most vendors have their heads in the sand," Mr Pryor says.

What next?

So, will prices in London turn down, dragging the national average with it?

Jonathan Davis certainly thinks this is likely, and Ed Stansfield reckons the national momentum is clearly downwards.

"There is still a huge extended over-valuation in the market - any change in the employment situation and consumer sentiment due to income changes will tend to push prices down," Mr Stansfield says.

But several other factors may help push prices the other way, or at least stop them falling much.

Low interest rates, which some think will persist into 2013 or even beyond, may help keep tens of thousands of people in their homes when they might otherwise have been repossessed.

Banks and building societies have been making swifter-than-predicted progress in repaying the emergency lending they had to take from the Bank of England and the Treasury in 2008 during the height of the banking crisis.

As a result, says Bernard Clarke of the Council of Mortgage Lenders (CML), some people may find it a bit easier to get a home loan.

"There has been a little bit of softening of lending criteria, but it is a gentle process," he says.

And Ray Boulger, of mortgage brokers John Charcol, points to an even more fundamental trend - just not enough houses are being built.

There were only about 200,000 new housing starts and completions last year, but 240,000 new households were being created by a growing population, boosted by continued immigration.

"New household formation is currently out-stripping new house building - it has been for some time but is doing so to a greater extent now," Mr Boulger says.

"Most vendors have their heads in the sand". We've known this for a long time, and it's good to see the BBC actually putting this in an article on their website.

Sadly though, the article doesn't allow comments.

Edited by hpc-craig

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"Most vendors have their heads in the sand". We've known this for a long time, and it's good to see the BBC actually putting this in an article on their website.

More of drowning in debt....they can't lower the price because moving is so expensive and they have to live somewhere, they are testing the water to only find out there is no greater fool. ;)

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London is different - and looks like it will continue to be different. I bought in 1995, so all of the prices look silly, but a friend has just completed on a piss pot of a house in South London, having just lost about 7 houses to other buyers with deeper pockets. He's 35, solvent, got his existing flat as a deposit, earning about £120K a year. Recently married, he's fed up with flats, and wants a house as he's planning a family. So he's just dropped something like 550K on a 3 bed, and is spending another 200 rebuilding it, as it was barely fit for human habitation. He knows its bonkers, but he wants somewhere with a bit of space within a reasonable distance of work.

This is nothing to do with "insufficient houses being built" - all of the houses within 6 miles of his work have been built, there is no more space (unless someone concretes over The Thames). There are simply a shed load of people like him, desperate for space, and willing to pay. The only thing that will stop it is the elimination of decently paying jobs in London - and at that point the reason for being in London vanishes.

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Basically it's the beginning of the big housing crash. What you have is 000's of people all refusing to sell at low prices.

Meanwhile you have unemployment rates rising.

Wages going down.

People losing their jobs.

It's quite interesting :) the whole housing markets frozen.

Only an idiot will be buying a house right now just as the bubbles popping.

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London is different - and looks like it will continue to be different. I bought in 1995, so all of the prices look silly, but a friend has just completed on a piss pot of a house in South London, having just lost about 7 houses to other buyers with deeper pockets. He's 35, solvent, got his existing flat as a deposit, earning about £120K a year. Recently married, he's fed up with flats, and wants a house as he's planning a family. So he's just dropped something like 550K on a 3 bed, and is spending another 200 rebuilding it, as it was barely fit for human habitation. He knows its bonkers, but he wants somewhere with a bit of space within a reasonable distance of work.

This is nothing to do with "insufficient houses being built" - all of the houses within 6 miles of his work have been built, there is no more space (unless someone concretes over The Thames). There are simply a shed load of people like him, desperate for space, and willing to pay. The only thing that will stop it is the elimination of decently paying jobs in London - and at that point the reason for being in London vanishes.

When you say South London I assume you mean Putney or Kingston etc? (For that price!)

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Basically it's the beginning of the big housing crash. What you have is 000's of people all refusing to sell at low prices.

Meanwhile you have unemployment rates rising.

Wages going down.

People losing their jobs.

It's quite interesting :) the whole housing markets frozen.

Only an idiot will be buying a house right now just as the bubbles popping.

The bubble should have popped 2 years ago... it's still not popped and by the look of it they'll borrow 200bln a year for the next 2 years to stop it from popping.

FFS Merv - just get it over with!

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The BBC only allows comments on stupid articles about Jordan's Boob Job and David Beckham.

Any article regarding the Economy or housing is very sensitive so they Ban or moderate comments.

Remember the Bankers control the Media and the Politicians.

If you teach you son anything in life teach him that...

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Economist and financial adviser Jonathan Davis, a long-term believer that prices can only go down in the medium to long term, casts a jaundiced eye over these figures."The big picture remains the same - for most of the country we have not just a state of collapse in transactions, but prices," Mr Davis says.

"The volume of transactions is very low and is not going to get any better, especially when asking prices are 35-40% above actual selling prices."

Looking forward to continued drops. All the way all the way back to 1996-1998 prices.

Edited by Milton

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When you say South London I assume you mean Putney or Kingston etc? (For that price!)

Yup - Clapham area. Not the **** end of Brixton. Nice enough place, but still daft money.

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The only thing that will stop it is the elimination of decently paying jobs in London - and at that point the reason for being in London vanishes.

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London is different - and looks like it will continue to be different. I bought in 1995, so all of the prices look silly, but a friend has just completed on a piss pot of a house in South London, having just lost about 7 houses to other buyers with deeper pockets. He's 35, solvent, got his existing flat as a deposit, earning about £120K a year. Recently married, he's fed up with flats, and wants a house as he's planning a family. So he's just dropped something like 550K on a 3 bed, and is spending another 200 rebuilding it, as it was barely fit for human habitation. He knows its bonkers, but he wants somewhere with a bit of space within a reasonable distance of work.

This is nothing to do with "insufficient houses being built" - all of the houses within 6 miles of his work have been built, there is no more space (unless someone concretes over The Thames). There are simply a shed load of people like him, desperate for space, and willing to pay. The only thing that will stop it is the elimination of decently paying jobs in London - and at that point the reason for being in London vanishes.

You'd think someone being paid 120k would be more intelligent than that but there you go, wasn't true with the bankers either i guess.

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You will be surprised how many people have mortgaged not just 1 house but 2 and even 3 houses.

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Yup - Clapham area. Not the **** end of Brixton. Nice enough place, but still daft money.

I've no idea why Clapham took off like that, I was thinking he'd bought in Putney or Surbiton at that price. I'd rather be in Surbiton on my way to Esher than Clapham, any day of the week. Still, if he lives near and is sure work will not evaporate

If I had £600K for a 3-bedder I'd be viewing places like this in SW15

(although I'd probably look for discounts) http://www.rightmove.co.uk/property-for-sale/property-28059661.html

or for £460K in Surbiton http://www.rightmove.co.uk/property-for-sale/property-19050159.html?premiumA=true

As and when I buy I won't ever be paying close to asking price unless it's a steal. Not going to "fall in love" with anything, it's just bricks

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You'd think someone being paid 120k would be more intelligent than that but there you go, wasn't true with the bankers either i guess.

Someone said something similar to my Dad when he paid £3,750 for a 3 bed semi 50 years ago. He was told to wait untill they drop as they had been £2k a few years earlier.

But he was like the guy above who could afford to pay it , needed somewhere close to work and wanted a roof over his kids heads .

Lucky he did not wait.

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You will be surprised how many people have mortgaged not just 1 house but 2 and even 3 houses.

Paying off one mortgage with a low interest rate is bad enough....but to have three mortgages on io and two sets of tenants to manage..is only asking for trouble. ;)

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Looking forward to continued drops. All the way all the way back to 1996-1998 prices.

In London, I fear you'll have a long wait.

In 1995 I bought a 4 bedroom house with a bloody massive garden, parking for 4 cars and a garage for £195K - in N1, walking distance of Bank tube station. If prices dropped to that sort of level, heck, I'd buy another one.

But he was like the guy above who could afford to pay it , needed somewhere close to work and wanted a roof over his kids heads .

That's the problem with London. You can run all of the UK average wage calculations you want, but in London there are a shed load of people on £100K+ who want to live close to work. With limited supply, this supports prices pretty comprehensively. You can bash my mate all you want (heck I did), but his logic is actually hard to fault: he can afford it (easily), why the hell would he carry on living in a flat with noisy neighbours upstairs?

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You'd think someone being paid 120k would be more intelligent than that but there you go, wasn't true with the bankers either i guess.

And what's his alternative? As far as I can see his choices would be:

- earn half that, if not less, by working outside of London leaving him with the same wage/price multiple issue

- rent a house and put up with having to move at short notice

- stay in his flat

- buy a house out in the middle of nowhere and spend his life commuting

If you've got kids then all of those look like even worse options than becoming a mortgage slave. The fact is, people buy houses for the most part because they don't have any obvious alternative.

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Houses are still high for us because our pound is so low.... we have been exporting our housing stock to other people who are gaining the benefit of low prices that are high for us.....it is a trickle down, the sellers of central London property will buy in greater London, the greater London sellers will buy in the home counties who will then move to nicer other parts of the UK......so the high prices in parts of the UK are in effect being supported by foreign money and to a lesser degree healthy pension pots, not by the local jobs as it should be. ;)

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Any one else noticing a much more balanced perspective on the Beeb these days? Certainly the website, if not yet the news channel.

IMO (not popular here, I know), the BBC just reflects mainstream public opinion, slightly skewed in favour of whatever government is in power at the time. It's public sentiment that's changing, not the BBC.

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In London, I fear you'll have a long wait.

In 1995 I bought a 4 bedroom house with a bloody massive garden, parking for 4 cars and a garage for £195K - in N1, walking distance of Bank tube station. If prices dropped to that sort of level, heck, I'd buy another one.

That's the problem with London. You can run all of the UK average wage calculations you want, but in London there are a shed load of people on £100K+ who want to live close to work. With limited supply, this supports prices pretty comprehensively. You can bash my mate all you want (heck I did), but his logic is actually hard to fault: he can afford it (easily), why the hell would he carry on living in a flat with noisy neighbours upstairs?

rxe, you come up with the most spectacularly assumptive posts, filled with rationalisations and financial wheezes

fact is, there is not sufficient wealth production in London to sustain these house prices, you and nobody else has ever come up with a convincing source to show otherwise, and every trustworthy source available confirms that the available money is insufficient

you load up with non-truths and spin, and yet there is no basis to the points that you make

ergo, it is still a bubble

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The bubble should have popped 2 years ago... it's still not popped and by the look of it they'll borrow 200bln a year for the next 2 years to stop it from popping.

FFS Merv - just get it over with!

I so so so so agree! The continued borrrowing to support a dead duck is sickening and helps no one. Even Housing Benefit is more because rents are high on account of rediculous home prices. We would actually be much beeter of to return IR's to 5% right now and stop the theft from borrowers. Who has ever heard of Ir's at 0.5%? NOt for 300 years! It is the ultimate indication of failure to leave them there. Well despite it all the hpc is on and continuing to gently gather strength.

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  • 312 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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