Friday, April 25, 2008

Sales down 50%, mortgage approvals down 50%, anyone see a pattern developing?

NAEA admit depressingly low sales as house sales crash by 50% over Easter holiday period

Property sales decreased further in March with on average 7 sales reported per agent, down from 8 in February 2008. In comparison to the same time last year when 14 sales per agent were reported, this figure is depressingly low for the beginning of the Summer period and are similar to figures expected during the Easter period. The good news is that within the last few days there are some reports of an increase in activity which may be as a result of the Government and Bank of England's clear desire to find ways around the credit crunch.

Posted by converted lurker @ 08:39 AM (1086 views)
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14 thoughts on “Sales down 50%, mortgage approvals down 50%, anyone see a pattern developing?

  • tyrellcorporation says:

    Quid pro quo, EAs cut in half and prices cut in half?

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  • “This is because there is growing evidence that potential buyers are postponing purchases in anticipation of further price falls. ”

    – As I have long predicted would happen.

    But, spare a thought for the honest British construction worker, most of whom have to work on short term contracts. The Polish alternative has stopped them from reaping quite the same rewards as they did in the last boom, and they now have to face a period without work, while their mortgages still have to be paid…

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  • Not in the land of my valleys/fathers/leeks/sheep (perm any) boyo. Greenbay says not. Actually what he said was quite amusing…the government wont let the property market fall. Oh i see – like the Fed wont let the property market fall? Like Lamont could stop the currency boys from moving the pound to where THEY wanted it? Like GB sold Gold at the perfect time? The fact that the government have tried to intervene shouldnt “scare” the bears – at best they can only postpone the inevitable. IF the G7 all intervene in the currencies WHEN the market is at an extreme, then yes that can work, but when they try to intervene unilaterally or when the market is not ready to turn they are nornally the losers. These BTLrs crack me up. The trend has turned get over it! Its actually not that i am particularly bothered but i am shocked by their continual denial of the situation. As i have said before some of the people i know are BTLrs and Prop developers (some in a very big way) but they either liquidated and / or reduced their leverage.

    Sorry if thats a bit off topic.

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  • “Sorry if thats a bit off topic”

    Not entirely techie, but did your English teacher ever accuse you of waffling??

    – Paragraphs are wonderful things BTW…

    ‘The govt. won’t let the property market fall’ – now there’s a quote we used to hear – but not any more…

    Aside from the fact that the property market is now too big for the govt. to control it’s destiny, there is also the growing realisation that a govt. that clearly isn’t capable of staging an egg and spoon race, hasn’t got a hope in hell of managing the property market.

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  • UT – thanks – yea was trying to finish it before i liquidated and added to a couple of positions, ‘spose its a question of priorities?!? Not being defensive will try to improve my grammar next time ;-).

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  • The market might be shrinking rapidly, maybe by 50%, but this I am afraid does not necessarily mean the prices will fall 50%. Fall they will but not by as much as you hope I suspect. The market is being shrunk by mortgage availability not loss of earnings, unemployment, etc etc.

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  • Maddison thats one view, which i think has some credibility, IMO the make up of this correction / crash will be a fall (now) then either stabilisation or a shallow rise then the real falls. I’m a bit bored with saying that and its fair enough if peoples view is divergent. Really you pays your money and takes your choice.

    The question I have is this. At what point do falls become such that even long term investors start to feel the pain and some bailout? At that time its probably the end of the bear. Interestingly this question (when to take a loss or a reduced profit) is something i get exposed to often ( too often for my liking). So i realise the physological issues involved, although my decisions are on a shorter timespan. As such i just wonder how the landlords / BTL boyz will react.

    For your education (sorry thats really not meant to sound patronising and i am assuming you are a landlord) the way you handle money management (or at least i do) is to open a position with a target and a stop, when the position goes in your favour move the stop. Easy in some commodities / financials although depends on the market.

    For property my analogy is this. The property market is like any other tradable market with one crucial exception and thats liquidity. The analogy i can think of is a commodity market thats prone to limit moves.

    Apologies for waffling but i have used some paragraphs and a bit of punkuation [sic]. Last comment on my admitted lack of English skills UT.

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  • maddison,

    The 50% shrink reflects the lack of agreement on price between those seeking to buy and those seeking to sell.

    In theory, sales volumes could be high in a falling market if both vendors and buyers were reconciled to prices sliding.

    In practice, human nature thwarts that scenario.

    The market behaves like a cat that has run up a tree. The cat tears up the tree, full of mad excitement, then pauses and looks down anxiously. It can’t easily climb down so it climbs higher instead. Finally it stops, and meows for help, but the cat is out of reach. Eventually it grows tired and hungry and attempts to descend, but loses it’s grip and crashes to the ground. Bruised and hungry, it goes indoors for food, trying to pretend that nothing untoward has happened..

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  • tyrellcorporation says:

    Unfortunately, in this case, (like in any good Hammer Horror film) there is some large sharp farming machinery carelessly left below the boughs of the tree! Also, Madisson, kick away cheap credit and what is the ‘real’ income growth of the last decade? I reckon a 50% fall is actually perfectly achievable in these circumstances.

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  • “At what point do falls become such that even long term investors start to feel the pain and some bailout?”

    A lot of recent investors who claim to be ‘in it for the long haul’ are probably nothing of the sort. They saw an opportunity to make easy money and will try to take their profits now, except that the illiquidity of the asset will mostly catch them out. The really smart money watched the genesis of the US sub-prime crisis at the beginning of last year, realised that contagion was likely, and sold up a year ago.

    Ths issue now is the fundamentally flawed arithmetic of the BTL portfolio brigade, whose nett income from rents falls well below their interest payments, and with no more opportunities to liberate cash from re-mortgaging, are now running out of money.

    These people will have little option but to start selling, or start defaulting on mortgage payments. Many, I suspect, will kid themselves that the market will recover, and either delay sellling or hold out for too high a price. With frightening speed they will suddenly discover that their equity in their portfolio has completely evaporated, leaving them insolvent.

    How does a landlord who knows he’s going to go bankrupt react?

    My guess is that a typical landlord will stop paying the mortgages, but keep on collecting the rents for as long as he can, turning the money into cash and hiding it – a nest egg to help him through the crunch of bankruptcy. The mortgage lenders will probably wise to this, and get brutally quick with their repo’s.

    Having done that they would be under an obligation to liquidate the assets, so we are likely to see vast numbers of properties, many of them tenanted, put on the market.

    This scale of distressed sales has never been seen before, and there will be a temptation on the part of government to intervene in some way. However, I suspect there will be no public sympathy for either the lenders or the landlords, so the most likely outcome is a grand fire sale.

    – I can’t wait!

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  • UT just to clarify when i said “At what point do falls become such that even long term investors start to feel the pain and some bailout?” bail out should have been 2 words and by “long term investors ” i meant those that have alreaady bought at much lower levels and are protected somewhat by larger yields. The scenario you describe makes sense for the johhny come latelys.

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  • techie,

    A lot of the early players who borrwed money to get into BTL re-mortgaged, and got carried away, but those who own properties outright are probably more resilient.

    While I’m sure that some who own outright will want to sell, it’s very hard to make any estimates. Historically, there is little evidence of an exodus during past downturns.

    Of the one million mortgaged BTL’s currently out there, I’m reckoning that a quarter will be sold by their landlords over the next five years, and another quarter will be retained, but that half of them will end up being repo’d.

    While that seems like a huge number, I simply don’t believe there are anything like enough players in the market who are willing to pay prices that will redeem the outstanding mortgages, or that the portfolio players have sufficient assets to bail themselves out.

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  • crash bandicoot says:

    For how many months do you have to add money to your “investment”, while seeing its value shrink in front of your eyes, before you call it a day and sell.

    I have not S2R but you guys who have all have some idea how this feels every month. Backing your instincts can be a tough thing to do.

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  • Crash you are absolutely right- its not a hard thing to do its THE hardest. Thats why i have lots of time for the guys on here that have taken that (very brave) step.

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