Tuesday, May 20, 2008

The housing market slump: visible from estate agents' sales boards

For those who use estate agents’ boards as an informal indicator of what is going on in the market, the downturn is visible on the streets. There are plenty of “For sale” signs on show, though not yet on the scale of previous housing downturns I have known. Potential vendors who do not have to sell are holding back. Properties for sale are joined by “To let” signs, something we did not see too much of in past cycles. The increased supply of rental properties has, of course, been a feature of recent years.

These days, it is something of a surprise to see a “Sold” sign outside a house, though it is not as rare as you might expect. Even in these straitened times, good houses are selling, as some buyers look beyond the current period of weak prices. Less desirable properties are sticking, but then they often do even in boom times. “Let by” signs are quite common, reflecting the strong rental demand out there, some of it from frustrated first-time buyers.

These visible signs of what’s happening came to mind when I looked at some of the recent data on the market, notably the Bank of England’s figures for approvals for new mortgages (as distinct from remortgages). These dropped to 64,000 in March, from 72,000 in February – 44% down on the 115,000 figure recorded in March 2007.

Nobody will have been too surprised by that figure, a new low, given that March was the month when mortgage lenders were falling over themselves to discourage business. The surprise, perhaps, as with my “Sold” signs, is that, amid the gloomiest reporting I can remember, and intense mortgage rationing, 64,000 people took the plunge, though March is unlikely to mark the low point. Some people have to buy – for reasons of divorce, a change of job and so on – when there is not an easy renting alternative, just as some people have to sell.

So, what does this slump in activity mean for prices? Low activity, if characterised by weak supply as well as weak demand, is consistent with falling, though not collapsing, prices. It is only when weak demand, constrained by the availability of credit, runs into a big increase in the supply of houses on the market that prices would be expected to take a real dive.

Nationwide attracted headlines with its report that prices fell by 1.1% in April and were down 1% on a year earlier, though Halifax, had it chosen to do so, could have trumpeted the fact that its index was in annual negative territory in March. Other measures are showing falling prices, though not always annual falls. Hometrack recorded a seventh successive monthly drop in April, 0.6%, and its index, like Nationwide’s, was down 0.9% on a year earlier. The Land Registry suggests that prices fell by 0.4% in March, but were 3.6% up year on year. Since August, when the credit crisis broke, it has recorded five monthly rises and three monthly falls, with more probably on the way.

When will the activity numbers pick up? Spring is now a write-off for many in the market, and it would be unwise to pin too many hopes on the autumn. Things could bump along the bottom for quite some time.

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