Monday, April 5, 2010

Plummeting transactions spun as good news for house prices

Lack of houses for sale triggers mounting demand

Housing transactions over the last two years have struck a record low, building pent-up demand from 1.5m potential buyers that is waiting to explode on to the market, according to new research from Savills. Savills says the buyers who stayed out of the market could drive "several years of relatively high house price growth" if mortgage lending eases and they return. "The extent to which transaction levels have been suppressed, means that significant pent-up demand for home ownership is building."

Posted by little professor @ 01:46 AM (2337 views)
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23 thoughts on “Plummeting transactions spun as good news for house prices

  • gone-to-colombia says:

    Bull$hit

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  • greenshootsandleaves says:

    From rightmove (Hampshire) + Property Bee:

    (04 April 2010) * Title changed: from:

    SALE AGREED! – Similar homes wanted!

    to

    Available

    Says it all, really.

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  • “if mortgage lending eases”

    Yes, and by the same token, if interest rates rise there will be a flood of pent-up supply hitting the market, driving prices down for several years.

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  • This fear mongering will only work on the same
    dummies who think an interest only mortgage is “canny”.

    I just see it as someone who can do a bit of
    essential DIY before it will be sent to auction
    in a years time.

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  • a talking head from Bloomburg was repeating the same myth on the BBC this morning: “shortage of supply has maintained property values” phew thats a relief….

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  • britishblue says:

    Are we the only country that thinks interest only morgages are the way to go? I have a property abroad (rent in the UK) and interest only mortages werent an option there as the banks there expect the customers to pay of their debts. Arguably if you have less than 10% equity in a property and you are on an interest only mortgage you are efffectcively renting a property rather than owning it as you arent paying of any equity. I wonder if the stats were re-run on this basis what true home ownership would be in this country as 43% of mortgages are interest only. Everybody goes on about how bad 100% mortgages are, but for me the real elelephant in the room is interest only mortgages. If these were banned you would see a house price correction like never before. If you combine this with many students leaving university with 30-40k loan debts (I live close to a univesity and give many part time work and this seems a normal sort of level), then the next generation are only ever going to pay interest rather than capital repayment.

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  • fallingbuzzard says:

    The roasted demand chickens are ready to fly into the mouth of Savills’ priced for perfection houses. Must seem crazy to anyone that remembers the days of real pent-up demand

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  • Dutch_renter says:

    In the Netherlands 43% of all mortgages is interest only. Usually combined with some kind of financial product, which theoretically should be used to pay back the borrowed money after 30 years. However, in practice the borrowers will never be able to pay back the full amount. 30 years is important in NL, because you are allowed to fully deduct all interest paid on mortgages from your income taxes (up to 52% here) for your own home for 30 years.

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  • Ever noticed that articles like these in the Telegraph usually have comments disabled?

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  • No surprise that the Telegraph isn’t allowing comments on this article, as it is just a recycled press release from a vested interest. If there is a “lack of houses bought and sold” then surely there is a pent-up supply of people who can’t get the price they would like, as well as a pent-up demand?

    It is a very sound observation from British Blue that people like my brother on interest-only mortgages are renting the capital from the bank rather than renting the house directly. If their house fails to go up in value over the period of their ownership (and that’s anyone since September 2005 according to last month’s Halifax index) then they are worse off than having rented it, as well as being much more financially exposed for repairs.

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  • stillthinking says:

    A low transaction level always seems to cause pent up buyers, but no pent up sellers.

    When whichever government cuts after the election, there will be unemployed without jobs to go to, and many will hold mortgages. I think part of the reason why people are holding off at the moment must be because they want to wait and see what happens after the election, but what is going to happen after the election is massive cuts in government spending, and secondary spending. The private sector is going to get hit as well.

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  • stillthinking says:

    A low transaction level always seems to cause pent up buyers, but no pent up sellers.

    When whichever government cuts after the election, there will be unemployed without jobs to go to, and many will hold mortgages. I think part of the reason why people are holding off at the moment must be because they want to wait and see what happens after the election, but what is going to happen after the election is massive cuts in government spending, and secondary spending. The private sector is going to get hit as well.

    Interest only mortgages are a scam because you are indeed renting the capital from the bank, but who does the bank rent the capital from? Nobody, because they offer negligible rates on the offsetting deposit holder. When that deposit holder decides to spend the money, lets say to run as far away from sterling as possible, then interest only mortgages come to an end because the interest alone can’t satisfy the banks funding requirements. Which is why they are in such a bad place, because the UK banks currently give interest only probably unwilling because they know their debtors are at breaking point, but also have a huge rollover funding gap which would be lessened if they actually got some of the capital back.

    Which just comes back to the difference between a long decline in real prices of housing, the desired solution, and the sudden break of a housing price level collapse as banks become desperate for capital and the government can no longer believably step in because the banks problems dwarf the governments available funds. This is why letting the banks go bust was so necessary because if they can’t contain the crisis, then instead of the banks going bust, the government -and- the banks go bust. Not really better.

    Really, if people truly have bought assets that they cannot afford in real terms, then either the savers must compensate them, or those assets must be seized and sold, and the losses later made good by the speculator i.e. repossessions. At the moment the savers are stepping up, or being forced to (pension funds).

    House prices don’t look good after the election.

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  • it_is_going_with_a_bang says:

    Housing prices set increase for several years …. Now there’s a shocking headline from an estate agent.

    Maybe they would like to suggest who is going to actually pay off the debt – not just service it with interest only loans.
    There are a lot of ifs and buts being thrown around at the moment.

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  • Funny how low volume of high street sales is never seen as a trigger for pent up demand

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  • Interest mortgage is ok if the holder of the mortgage knows what he/she is doing, e.g. mortgage cost maybe 2.5%, some of the 2 years fixed rate bond pays 4% etc. Of course there are issues about maturity mismatches etc.

    The problem with housing in areas with jobs is that it doesn’t follow the normal rational economic theory of supply and demand. It is a cartelised sector of economy where supply is constained. At the end of the day, it relies on the 3D (Death, Debt, Divorce) to move the market down.

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  • Andrew Barry says:

    Funny how a 30yr long term average is called upon to show how low transaction levels are but using a 30 year average of house price to income level is ignored! I have cash waiting having sold at the peak, forced by divorce, but will continue to wait until prices drop the 30% they should. I’m in no hurry to rent off the bank again. My son’s lucky enough to attend a private school full of bankers and diplomats kids. Half of the families are renting, “because who wants to buy into a falling market?” And they are the people that are in the know! take heed!

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  • monty032,

    The Telegraph only has comments on opinion pieces, not normal news stories. It is basically just a recycled press release – the opinion writers who might have picked it up are probably all on holiday.

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  • markj69 str05 says:

    I still don’t get it. Surely it would be better for everyone to have multiple transactions at lower prices, generating activity and some income, rather than very few high price transactions. I guess someone must have done the maths, but a stagnant market certainly is not building a better future market.

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  • I thought we had “pent up demand” last year. Why are transaction levels at a historical low?

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  • there are loads of houses for sale, it seems to even a 5 year old the underlying problem is they all cost too much for people, whilst there is pent up demand, there is also pent up supply, many people are paying nothing each month for an interest only mortgage, this cannot go on much longer, interest rates will go up with a vengeance this will in turn release a lot of property onto the market as people struggle to make payments on overpriced interest only mortgages taken out with little or no deposit.

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  • mark wadsworth says:

    @ Easybetman comment 12, there are far more D’s than that. How about:

    Debt, divorce, death. disability, dole, drink, drugs, depression, downsizing, disenchantment,

    just to get the ball rolling?

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  • Mark W

    you forgot one big D head gordon brown

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  • Intrest only morgages do work if the market is hot and you want to flip. Had three properties 2000-2007 sold them off 2005 to 2007. Lived in 1 and rented out 2 paid intrest only and made 80 000, 65 000, and 70 000 on third. paid the intrest only loan off with a couple of early charges around 1500. And the banked the rest looking to jump back in when and if the dip happens, Was lucky with timing and have to say advice from my broker at the time was to pay intrest only. Not sure i would recommend the same in this climate.

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