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The Masked Tulip

The Long, Slow Housing Market Decline Continues

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And speaking of long, slow declines – retirement home builder McCarthy & Stone warned that its sales have been below normal in the past three months, while profit margins have also been squeezed. It expects a “testing year” ahead.

Many commentators have singled out McCarthy & Stone as a decent buy in the housing sector, and there are intelligent reasons behind this. It caters for a growing demographic – the elderly – who tend to have more money than younger people.

But there is one key problem – if you want to buy a retirement flat, you generally have to offload your old house. And if there’s no one beneath you on the ladder to buy your old house, that means you’re stuck with it, which means no sale for McCarthy & Stone.

And this is yet another reason why now is not the time to be buying housebuilders. The Council of Mortgage Lenders expects there will be fewer property sales in 2006 and 2007 than in 2005. Now don’t ask us why, but for some reason the CML also thinks that prices can keep going up (albeit by just 4%) despite the number of sales falling.

But if prices only rise a little, and sales fall, that means less profit for housebuilders. And if they’re left with a lot of stock to offload, it’s only a matter of time before they start some serious price-cutting. Most companies are already throwing in furniture, as well as paying for stamp duty and deposits – in fact, prices on new-builds are down more than 5% on last year.

If housebuilders keep pushing the prices of new homes down, it’s only a matter of time before resellers are forced to do the same. Suffice to say, our property market prediction for 2006 is for house prices to keep falling.

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One of the links in the Money Morning email adds more to this.

predictions, 2006, property, Japan

What does 2006 hold for investors?

I predicted falling house prices in 2004 and in 2005 and I think I’m going to continue to do so. According to Hometrack (which to my mind produces some of the more honest house price statistics) prices have fallen 2.5% so far this year. Add inflation into that and prices are down 5% in real terms. This may not count as a crash in everyone’s book but its still pretty nasty for anyone who bought at the top (if they put down a 10% deposit they’ve lost 25% of their capital in nominal terms already) and also for the buy to let investors who, no longer making much in income after costs on a monthly basis, keep hoping to see all their returns in capital gains. And I think it is going to get much nastier. Houses are still impossibly expensive and it looks as though this year will end up having seen the lowest level of residential property transactions for over 2 decades. That doesn’t bode well. So here’s one prediction for 2006: house prices will keep falling.

Author: Somerset Webb, Merryn

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  • 341 Brexit, House prices and Summer 2020

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      • down 5% +
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