Jump to content
House Price Crash Forum
Sign in to follow this  
anonlymouse

Telegraph: Transactions are falling fast, so what will happen to house prices?

Recommended Posts

Lot's of lovely bear food over in the Telegraph this afternoon:

Quote

The number of housing transactions is falling sharply with purchases for the first three months this year down 20pc from the same period in 2016, according to data published this morning by Acadata.

This comparison is skewed by the introduction in April 2016 of the stamp duty surcharge for additional property buyers, but transactions this year remain are nationally 2pc down on 2015's figures - before the surcharge applied.

In some regions, notably greater London, the collapse in the number of deals is far more significant. Figures for the first three months of 2017 are 32pc down on 2016, and 17pc down on 2015.

Transaction volumes are not directly linked to price trends, analysts say - although there is a relationship.

Most analysts believe that while a fall in properties coming to market can maintain prices at high or rising levels - as appears to have happened in Britain in recent years - this effect cannot run indefinitely.

Falling transaction numbers can often indicate a lack of confidence or increasing uncertainty - which most commentators would expect in the run-up to an election and with backdrop of Brexit.

Britain is among  a handful of wealthy countries where house prices are "dangerously high", according to analysis from the Organisation for Economic Cooperation and Development.

The think tank cited the UK's housing market along with that of Canada and Sweden, warning that prices were now dangerously out of alignment with earnings and at levels which were unsustainable.

Nationwide Building Society, provider of one of the longest-standing measures of house prices, said that growth has fallen to its weakest in four years.

Prices grew by 2.6pc during the year to the end of April, it said, compared to 3.5pc during the year to March.

Samuel Tombs, economist at forecaster Pantheon Macroeconomics, expects the trend to intensify.

He said dwindling consumer confidence and declining wages "are starting to depress the housing market".

What do the following key measures tell us about where prices are heading?

The ratio between house prices and earnings: signalling danger

One of the biggest indicators of house price sustainability is affordability based on a measure of borrowers' earnings relative to prices. 

First-time buyers' house prices are now 5.3 times average earnings for a full-time worker, according to Nationwide. 

In 1983, when the data was first collected, the average first-time house price was around half this, at 2.7. In London, the ratio climbs to 10.1 times - a multiple that is now three times higher than in the Eighties. 

[CHART]

Mortgage lenders typically lend a maximum 4.5 times income. They are heavily restricted on lending above this, and can only make 15pc of their loans at higher income multiples.

This means that workers require either well above-average earnings or significant deposits in order to be able to buy.

What's different this time, however, is that plunging mortgage rates (see below) have meant monthly mortgage outgoings are generally lower than at any point in the past. This increases affordability - while racking up the risk to the wider market posed by any future increase in rates.

What rental yields tell us about prices: signalling danger

Rental yield is the return that investors can expect from letting a property relative to price. 

Data from consultancy BDRC Continental's Landlords Panel suggests that average yields across the country have stayed relatively stable over time.

A dramatic drop would suggest that prices are unsupported or have moved outside their long-term trajectory.

In the years since the 2009 banking crisis, yields peaked in 2011 and dropped to their lowest level in six years in 2015. 

[CHART]

How rental yields have changed over time

According to property investment company Landbay, yields tightened from 5.94pc to 5.43pc over the five years to December 2016, suggesting that prices are rising faster than rents. 

Regionally the picture is different.

Rental yields are very low in London and the South East, with rapidly rising prices driving down rental returns.

Yield calculations do not take into account landlord borrowings. Where landlords have large mortgages yields will be lower. They will also be subject to further falls if, as now, landlord mortgage rates start to rise.

Transaction numbers are falling: mixed signal

Government data suggests sales volumes are falling at 7pc per year (November 2015 to November 2016). This broadly echoes the Acadata figures published today.

Falling sale volumes suggest that fewer buyers are willing or able to buy properties at the price they're being sold for, and can be an indicator of impending price cuts.

But other factors are muddling the statistics.

Sales spiked at 173,750 in March last year as buyers rushed to complete their purchases ahead of a new 3pc stamp duty surcharge, introduced in April 2016. Some analysts think this caused sales volumes to drift lower in the second half of the year.

 

The London effect: price falls are well underway

Falling sales and prices are already well documented.

London Central Portfolio, an institutional investor in high-end London flats, says based on HM Land Registry data the number of house sales in Greater London was 21pc lower in 2016 than 2015. The first quarter of this year is expected to show this decline continuing.

Land Registry data also suggests that just 3,330 property transactions took place in 2016 in the capital's key, central postcodes - the lowest figure ever recorded, including during the depths of the financial crisis.

The crash in sales is partly attributed to the change to the stamp duty rules introduced in December 2014, which made the tax higher for anyone buying a property worth more than £937,000.

But other factors are involved, including uncertainty following the vote to leave the EU in June.

Data from estate agent Knight Frank suggests that on average central London flats have fallen in value by 7.1pc and houses by 6pc in the year to April 2017. 

The greatest overall fall was in properties worth between £1m and £2m, which fell by 7.4pc on average. 

The effect is starting to be felt in other areas of London, too. Land Registry data from February 2017 suggests that across the whole of London, prices fell by 0.9pc compared to the previous month. 

What the major house price indices show: mixed signal

The majority of authoritative house price indices show that prices continued to rise, albeit at a much reduced pace. 

The latest Land Registry data, from February, shows that prices rose by an average of 5.8pc in the preceding 12 months.

Data from high street lender Nationwide, which covers only purchases made with mortgages, found that prices rose by 2.6pc on average during the year to April. 
 

The role of buy-to-let: signalling danger

One aspect of the market flashing danger signs of a crash is buy-to-let. 

Buy-to-let landlords have been affected by tougher regulation making it more difficult for them to secure a mortgage, more expensive to buy, and harder to keep making a profit. 

The Bank of England has now said that banks must impose tougher restrictions on landlords who are seeking a mortgage. 

There are concerns that a mass sell-off could cause a correction in prices as a flood of new properties comes on to the market, particularly where landlords have built large portfolios within limited areas.

Some surveys have found that up to one in four landlords plan to sell as a result of the tax changes.

Mortgage availability and rates: mixed signal

House prices are historically sensitive to how readily borrowers can obtain mortgages and to the rates charged.

Mortgage availability increased rapidly in the run-up to the financial crisis.

But a "mortgage drought" followed, with lending down by approximately 60pc and only borrowers with excellent credit records - and large deposits or equity - being granted loans.

Successive initiatives, however, including Funding for Lending and the flagship Help to Buy mortgage guarantee scheme, boosted lending, and rates fell sharply for all segments of borrowers.

The average two-year rate halved between 2012 and late 2016, according to the Bank of England. These initiatives were blamed for inflating house prices.

Use regions/landmarks to skip ahead to chart and navigate between data series.

Going down: average two- and five-year fixed mortgage rates. (based on having a 25% deposit)

But where next for rates? The best deals appeared to reach rock-bottom in 2016, including HSBC's 0.99pc two-year deal which was withdrawn in December.

However, new best buys have continued to emerge since then, although many do not last long.

Atom Bank, for instance, offered a five-year fixed-rate mortgage at just 1.29pc, but pulled the deal after nine days. 

While the majority of new mortgages are taken out on a fixed-rate basis, millions of borrowers have variable-rate loans which would be likely to rise following any increase in the Bank Rate.

Share this post


Link to post
Share on other sites
13 minutes ago, rantnrave said:

Land Reg March 2017 data out tomorrow at 09:30

Good spot.

The Land Reg data are for actual completed sales and are therefore slightly behind the Halifax and Nationwide indices: we may not see a fall yet but I'll be pleased to be proved wrong.

Share this post


Link to post
Share on other sites
25 minutes ago, rantnrave said:

Land Reg March 2017 data out tomorrow at 09:30

How much did they revise last months down by ?

 

( Getting my question in there early ).

 

 

Share this post


Link to post
Share on other sites
13 minutes ago, TheCountOfNowhere said:

How much did they revise last months down by ?

 

( Getting my question in there early ).

 

 

Remember the old prediction threads we used to have before an index update?

Share this post


Link to post
Share on other sites
36 minutes ago, rantnrave said:

Remember the old prediction threads we used to have before an index update?

That was only fun when they were going down 2% a month :lol: 

Share this post


Link to post
Share on other sites

Surely the decrease in transactions is only following the decrease in stock levels?  People can't buy what isn't for sale.

Share this post


Link to post
Share on other sites
1 hour ago, nome said:

Surely the decrease in transactions is only following the decrease in stock levels?  People can't buy what isn't for sale.

Clearly not the case in the most overheated part of the country where Stock to monthly sales ratio are rising fast. 

It's just that sky is not the limit, at some point people/investors do the math and it stops adding up. BTL go the kick in the teeth last.

Share this post


Link to post
Share on other sites

2% = values dropping per day by £22 pounds.. x 134 days = £2948....

A crash would require the base rate to be the same as on the 10th July 2003 - 3.5000%

The Halifax 2 year mortgage discount rate was 4.25%... 

on an approx mortgage in London of 350,000

Residental - £1916.67p

interest Only - £1239.58p

slighly more than the London average salary can manage B)

 

Share this post


Link to post
Share on other sites

I correlated transaction levels with lagged change in house prices over the last 22 years using Land Registry data. Where I live, this correlation maxes at r ~ .5 with a 5-6 month lag. Now, crashes are rare, but this does provide hope that we will now get stagnation (at best). Worse in London.

Share this post


Link to post
Share on other sites
15 hours ago, nome said:

Surely the decrease in transactions is only following the decrease in stock levels?  People can't buy what isn't for sale.

Quoting Henry Pryor - the average EA has 43 houses on their books and is currently selling eight a month.

So, that's nearly six months' worth of stock. Perhaps they should focus on selling those rather than bleating for more overpriced cr*p to fail to sell.

Edited by rantnrave

Share this post


Link to post
Share on other sites
17 minutes ago, rantnrave said:

Quoting Henry Pryor - the average EA has 43 houses on their books and is currently selling eight a month.

So, that's nearly six months' worth of stock. Perhaps they should focus on selling those rather than bleating for more overpriced cr*p to fail to sell.

i.e. there is no demand....supply is massive.

 

the problem is, as we all know it, the insane untenable criminally high prices.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Next General Election   91 members have voted

    1. 1. When do you predict the next general election will be held?


      • 2019
      • 2020
      • 2021
      • 2022

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.