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House Sales At 30 Year Low

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I can't see that this has been discussed here but page 2 of today's Financial Times quotes a report from Savills (the "upmarket" estate agent) that predicts house sales in the UK will be at their lowest levels in 2005 since 1974.

Obviously the LR figures say Q3 2005 sales were 15% down on Q3 2004 numbers (which I think were low anyway).

Savills predicts 930,000 sales in 2005 compared with an average 1.25m (so 25% below average). I believe the BOE has said it feels 96,000 house sales per month (1.15m per year) is consistent with flat prices.

Savills apparently predicts 5% falls in house prices in Northern England and Wales with flat prices nationwide and only 1% growth in 2007 (all provided consumer spending and employment holds up). Prices will rise 3% in 2008 as the stagnation works its way out... boosted by Sipps etc.

They think London will grow by 5% next year!

They suggest you can get a 20% discount from housebuilders in regional cities.

Apparently Knight Frank will put out a slightly more optimistic (but still downbeat) view later today - saying 2005 will see the lowest number of mortgages taken out since 1996.

Is Savills officially the most bearish estate agent now?

Now where is The Little Guy to tell us 2005 has just gone back to a "normal market"?

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1974 was the year after the 70-73 boom ended at record price/earnings multiples (for the time) of around 4.95 I think - and the oil crisis and middle east conflicts delivered some knockout punches.

Putting it into context, that was a post housing boom year with all sorts of acknowledged trouble abounding economically and financially, which along with the big price rises might have understandably led to a fall off in house sales - and yet we now have interest rates at a record low and "Gordon all is stable and prudent Brown" leading us all into debt and house price volumes are predicted (by a VI) to hit 1974 levels...

As I say elsewhere, when someone does not want to buy an asset it is usually because they do not want (or cannot afford) to pay the current price. That MUST mean prices have to move to allow the market to readjust to the mean volume.

Some people (LESS of them) are still prepared to pay and they are buying houses skewing prices on low volumes.

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Correct, low volumes always have the ability to skew prices one way or another, it's the same in the stock market. How long this stand-of will continue is anyone's guess. However, it will probably continue longer than any of us think.

Given that housing transactions are at this 30 year low, I'm surprised that more EAs haven't gone under, though I've noticed two have gone in Streatham recently. They must live on bread and water!

Perhaps they've retained a skelaton staff, and just praying for increased activity one way or another.

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As I say elsewhere, when someone does not want to buy an asset it is usually because they do not want (or cannot afford) to pay the current price. That MUST mean prices have to move to allow the market to readjust to the mean volume.

Absolutely. This is a key point that housing bulls appear to miss. It therefore matters less that house price surveys say prices are rising. If volumes are lower, it means that fewer and fewer people are prepared to pay that price. Gradually the ship begins to turn.

It is a dynamic that is played out in any asset market: shares, bonds, commodities, property or whatever.

However, transactions in the property market take much longer to complete, and because the story appears to take forever to unfold, some people mistakenly assume that "it is different this time". It isn't.

It is similar to trying to sell £500k of an illiquid small cap stock. The market is quoting me a bid price, but try getting it! Ok - I might find some sucker prepared to pay (just as there are similar mugs prepared to pay current property prices) but it wouldn't be the norm.

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Indeed. It seems to me a fairly clear sign that the market is not healthy.

So far, it seems sellers have decided not to sell their properties rather than sell them for "insulting" prices.

At some point (I WISH I could say when) something will give. Either:

a) Buyers will offer more... perhaps on the back of higher incomes? Perhaps... after a LOOOOOONG period of stagnation. I find this argument pretty weak.

B) Sellers realise to actually sell (rather than merely leave their property in the estate agent's window) they need to match their price to what buyers can and will pay. My bet.

c) The property market dries up and what is currently a 30-year low in terms of volumes becomes the norm. The "housing ladder" as we know it is no more. Possible but pretty unlikely I'd say.

So far it seems the bulls can claim a victory in that the main indices do not show house price falls. However, this seems like something of a Pyrrhic victory given the fundamental imbalances that made me decide not to buy a property remain in place and the pressure is increasing against a weakening economic backdrop.

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This is an excellent counter-point to the LR increase. Can anyone seriously believe the housing market is stable when volume hits a 30 year low?

When the VI's are reporting 20% reductions as achievable it can't be long til downward momentum accelerates.

Spot on. Volumes are crucial for a healthy market and there's only one thing that can happen in order for volumes to be restored, and that's lower prices. This house of cards has those at the top looking down hoping for new money to prop them up. And it ain't there... ;)

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