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Hometrack survey


hawkeye
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:D:D:D:D:D:D:o

http://www.hometrack.co.uk/index.cfm?fusea...sitem&newsid=88

Woops they released it a bit early - should be 25th October - maybe it will be gone in a minute so here is a summary

Prices down in every london borough :ph34r:

wrigglesworth forecasts more drops in Nov/Dec, and minus 5% houseprice inflation in 2005!!!. What is the definition of a crash.

soundbites;

London bears the brunt of house price falls

% of asking price - asking prices down - buyers down

number of sellers up - time to sell and viewings up

house price inflation Year to date 1.89%

month minus 1.1%

forecast for 2005 minus 5%

FANTASTIC, I love the fact that the report is formated for price rises i.e Rise for month!!!, now looks a bit silly.

Rejoice, Crash in progress

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Now the front Man (Wriggleworm - Elvis on Moon) of all the vested interests (EA's, lenders etc) is predicting falls. -5% is a good start however I expect he'll be re-adjusting this downward during the course of '05 just as he has done during '04.

"With current supply exceeding demand"

But for the past few years we've been told that "demand has been outstripping supply" albeit missing out the essential word "current".

What's happened? all the immigrants, population explosion, record employment blah blah.....disappeared?

Nope....just the vested interests failed to mention that although supply/demand/price are all interrelated they can also be very transitory and one of the biggest drivers on them is sentiment would can turn in a moment.....

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Its amazing that this guy John Wriggleworth can call himself an economist. A first year student of economics knows that supply always equals demand.

Total supply = number of properties sold in a given period

Total demand = number of properties bought in a given period

Believe it or not these numbers are the same, its had to sell a house that nobody has bought.

The demand curve can shift so that for a given level of demand the market prices is higher but you cannot increase demand without increasing supply

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From the hometrack report:

'Sales price as a percentage of asking price dropped to 92.8%, compared with last month’s 93.3%.

This is the lowest recorded since September 2003 (92.7%).'

It seems that people are already achieving an 8% discount during neogiations.

I think this discount will get much much higher, if it not already is.

The crash has indeed started, cant wait until it ripples out to the Midlands.

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first year student of economics knows that supply always equals demand.

Total supply = number of properties sold in a given period

Total demand = number of properties bought in a given period

Believe it or not these numbers are the same, its had to sell a house that nobody has bought.

The demand curve can shift so that for a given level of demand the market prices is higher but you cannot increase demand without increasing supply

Erm, no. Bad newbie.

Ok, example:

If I run a fruit stall (in an Eastenders kind of way) and I have 10 apples on my stall, the Supply of apples = 10.

If only 5 people wish to buy an apple then the current Demand for apples = 5.

Supply = 10

Demand = 5

(Supply > Demand).

In this instance it would be likely that I would need to reduce my price to sell more apples.

Now lets assume I have 10 apples (Supply = 10), but now 20 people want to buy an apple.

Now, Supply = 10, but demand = 20. (Demand > Supply). In this situation not everyone can have an apple, I don't have enough. This means I can increase my price until only the ten wealthiest customers (out of the 20) can afford to buy an apple, allowing me to increase my prices.

Note in this sort of scenario, the rise in price is not likely to be propertional to the ratio of supply to demand. I.e. demand is DOUBLE supply, but this does not mean I can DOUBLE prices. The actual price difference depends on the proportional spread of wealth between the prospective buyers. If the average person in the top 50% of prospective buyers have 500% more wealth than an average person in the bottom 50% of prospective buyer then it is likely that prices would significantly more than double.

If you extend this to more severe Supply/Demand descrepencies.... If I only have ONE apply, but still have TWENTY people wishing to buy an apple, then I can increase my price to a point where where the wealthiest person out of the twenty can afford it, but the second richest person out of the twenty cannot. This would mean the price of an apple could potentially be '000s of % higher than it would be is Supply = Demand.

(see next post for example with real numbers)

So what's all this rubbish about Supply always = Demand????

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Supply and Demand example (apples still :) )

Twenty people wanting to buy apples. The amount they can afford (or are willing to) to spend on an apple is as follows:

Person 1 - £1

Person 2 - £1

Person 3 - £1

Person 4 - £1

Person 5 - £1

Person 6 - £1

Person 7 - £2

Person 8 - £2

Person 9 - £2

Person 10 - £2

Person 11 - £3

Person 12 - £3

Person 13 - £5

Person 14 - £5

Person 15 - £7

Person 16 - £10

Person 17 - £15

Person 18 - £20

Person 19 - £40

Person 20 - £80

This represents are fairly "real world" example of the spread of wealth distribution.

If I have 20 apples, an I obviously want to sell them all, then each person who wants to buy an apple needs to be able to afford to buy one. In this case then I must price my apples at £1 per apple, in order for each person to afford one, and I can sell them all.

If however, I only had 10 apples, then I could afford to raise my price point to a point that meant only the 10 wealthiest people could afford to buy one, but was outside of the reach of the 11th wealthiest person. Looking at the numbers above, this would mean I should price my apples at £3per apple, and I would sell them all. (note this is now 3x the price that I could command if demand had equalled supply, yet supply has only halfed relative to supply).

Now lets assume I have only ONE apple. This would mean that I could set a price that meant only the wealthiest person could afford to buy, but the 2nd wealthist person couldn't. Looking at this data I could set my price at £80 per apple, and still sell all my apples. Note this is a full 80x higher than the price I could command for apples if Supply=Demand.

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I had the misfortune to be at a conference yesterday in London with about 40 surveyors from the south east. Actually they were OK but the lunch and coffee discussions were about falling instructions, falling prices and repos. The national survey company to which we're all associated also spent some time discussing the falling market.

One of my colleagues who deals with SE postcodes in London said he'd done about 30 repos in the past 3 months 'all BTLs'. At the risk of repetition, these negative reports are old news. That is, they do not reflect the market now. I seem to be doing a repo a week, plus a definite increase in bankruptcy valuations. That's why I know what's really happening in my manor, and the press have no idea. It's really very clear.

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Yep, fantastic insider news Surveyor.

Got another question though, how many of these repo'd BTLs are tenanted and how many empty?

Also what was the general feeling of your colleagues? Were they all as bearish as you?

Thanks

Topher Bear

<{POST_SNAPBACK}>

I think about 4 still tenanted, the rest empty. But look at the property pages for flats - 'vacant possession', 'no chain'. We can make our own guesses. As for the general feeling, kind of resigned to a bumpy ride. Remember, most of us have been here before, so we're just going round the block again! Some real concern about business levels, but most of us have more than one string to our bow, thank goodness.

My problem is getting my head round why so many still can't get their heads round the fact of falling prices now. Arguments about next year are another thing.

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surveyor, what invaluable inside info. You really are one of HPC's diamonds. :rolleyes:

I know a lot of people are more overstretched than they will admit, but if there are significant number of repo's already, then this suggests to me that there will be lots of forced sellers, which will drive the market down very quickly indeed.

Last time around unemployment forced the hand of many sellers. This time around it looks like BTL voids and negative cashflow will be contribute to forced selling, even before rising unemployment (which I think will happen a little further down the line as the economy really starts to turn south).

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Yes, very interesting Charlie. Any thoughts behind the big up swing in 1999?

Also looking more closely at the regional figures, it seems that according to the Q1 04 figures, the area suffering the biggest increase in posession orders is the East, in particular, Essex, Cambridgshire and Bedfordshire. Hmm.

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Great - an economics debate

I'm afraid I can not agree with you RPG. In your apples example you have elequently shown that demand is dynamic and price dependant but you have made the mistake of assuming that supply is static, which does not apply to the housing market.

For example, you might be living in an ordinary house and have no intention to sell but then a rich sheik offers you 1,000,000 pounds, suddenly your house is for sale so has supply just incresaed? - no its just that the shiek has fuond a price point to make you sell

Virtually every property is for sale, its simply a matter of price, the number of properties being marketed by estate agents are not a good measure of supply. The point is that neither demand or supply are static quantities but price/quantity functions.

In a real market you cannot say supply is X or demand is Y. The only way to measure supply and demand is at a given market price - the market price is were supply equals demand.

(see next post for example of what I mean)

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Lets take your market for 20 apples, as the seller I own 20 apples what price should I sell at? Well this is the profit for each price point

Price Sales revenues

1 20 20

2 14 28

3 10 30

4 8 32

5 8 40

6 6 36

7 5 35

8 5 40

9 5 45

10 5 50

40 2 80

80 1 80

So selling at a price of 40 or 80 is way to maximise my revenue so thats what I will do. According to your theory supply is 20 demand is 2 and there are now 18 apples excess supply.

But what if I have 1000 apples does that mean there are now 998 excess supply, surely according to you the market would crash under this massive over supply?

I would argue that all those excess apples are not important all that matters is apples that are actually bought and sold and at the price of 40:

demand = supply = 2

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TenPinTom,

So selling at a price of 40 or 80 is way to maximise my revenue so thats what I will do. According to your theory supply is 20 demand is 2 and there are now 18 apples excess supply.

But what if I have 1000 apples does that mean there are now 998 excess supply, surely according to you the market would crash under this massive over supply?

I would argue that all those excess apples are not important all that matters is apples that are actually bought and sold and at the price of 40:

You describe a monopoly situation where the is only one supplier. In this case, yes, they have pricing power. However, in virtually all markets, there is competition amongst suppliers just as there is competition amongst buyers, which will ensure that the price naturally attains the market clearing equilibrium level.

So in your example, if I try to flog my apples at £80 each, someone else will step in and flog them for £40 each. I'll in turn have to cut my price to meet his. Yet another apple seller might then step in and only charge £20/apple... down to the price where everyone who wants an apple gets one. Suppliers will eventually drive the price down to where it costs more to grow an apple than the marginal revenue they can get from selling it. At this point, no more apple sellers enter the market and we arrive at the equilibrium price.

Demand AND supply.

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Van

The original poster set up the market as a monopoly market so I was just following that. I agree with most of what you say although I don't necessarily agree that the market price will fall to a point where everbody who wants an apple gets one. Consumers who's propensity to pay is below the marginal cost of production for the lowest cost producer will end up appless!

TPT

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Guest Charlie The Tramp
Topher Bear,Oct 23 2004, 11:57 PM]

Yes, very interesting Charlie. Any thoughts behind the big up swing in 1999?

I was still running my business then mainly covering east Greater London and Essex. Strange but during 97 and 98 in the commercial sector many new businesses were starting up and existing ones expanding. ( confidence in the new government perhaps )

The same thing applied in the domestic sector, customers were moving up to bigger properties. Many of them had high paid jobs in the city.

In 1999 although new customers were around in the commercial and residential sections for us, the previous gains were lost, businesses closed down and domestics moved on. A form of stagnation I would say for my business.

Business started to pick up again in 2001 ( after the general election ) and by the end of 2002 the warning signs appeared once more. Time to go I thought and sold up April 2003.

Also looking more closely at the regional figures, it seems that according to the Q1 04 figures, the area suffering the biggest increase in posession orders is the East, in particular, Essex, Cambridgshire and Bedfordshire. Hmm.

From 2001 to 2003 I started to notice all the new people carriers twinned with the BMWs and top of the range Mondeos appearing on the driveways in the area where I live ( borders of London and Essex ). Luxury conservatories on the houses, children with the latest designer clothes and gizmos ( is that the correct word ) and this was before IRs started to climb.

Waiting to see the stats for Q3 and Q4. I believe they will be quite worrying. :(

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Van

The original poster set up the market as a monopoly market so I was just following that. I agree with most of what you say although I don't necessarily agree that the market price will fall to a point where everbody who wants an apple gets one. Consumers who's propensity to pay is below the marginal cost of production for the lowest cost producer will end up appless!

TPT

Quite right, TPT. There are hardly any monopolies left, at least on a macro level, so there is always the element of competition. Quite often the competiton is ferocious.. typical profit margins for different industries varies enourmously, and many scrape by on 1-2% margins

Yes, there are consumers who would like something but not be prepared to pay above the cost of production - I'd like a new Mercedes but am only willing to pay up to £5k...

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