Your mission, should you choose to accept it, is this. You have got to try and talk the gloom out of house prices. The data says they are falling, you must strike a positive note, discourage people from panic-selling.
Even before the tape has self-destructed, RICS knew it would accept the task. But, is it a mission impossible?
“Still no signs of distressed selling said the headline from the latest RICS report.” “Confidence in the outlook for sales and prices improves,” recorded the body text. The RICS index, which is produced by taking the number of estate agents who say prices are down from the number who say they are up, is hovering around the lowest level ever recorded, but, “This is, crucially, a measure of breadth rather than depth and thus says little about the extent of the actual decline in house prices,” said RICS.
Warming to its theme, it added, “Significantly, this weakness is not being driven by new supply coming onto the market. Indeed, new instructions to sell property declined for the fifth consecutive month and at the fastest pace since last June, which reflects the continued absence of distressed sales. This is consistent with both the low level of mortgage arrears and the high level of employment at the present time.”
“In terms of the outlook, the May survey provides a few encouraging signals. Confidence in the sales outlook improved fractionally, with the net balance of surveyors expecting a drop in sales over the next three months improving to -15 from -16 in the previous month. Furthermore, confidence in prices rebounded back from last month’s low, although there is a still widespread perception that prices will fall further in the near term. Looking at the data from a regional perspective, the improvement in the headline price balance was more or less evenly spread throughout England and Wales.”
Then, on his monthly tour of radio and TV stations, RICS’s answer to Tom Cruise (that’s a reference to Mission Impossible, not his height or taste in women) tried his best to dampen the natural tendency of the press to go for the bad news.
Now, queue that music – think of a squirrel walking the tight rope if you will: has the mission been a success?
The Telegraph headlines this morning: “House sales fall worst in 30 years, says RICS;” “Housing market hit by further setbacks,” said the Independent and “Recession fears grow as house buyers vanish,” said the Guardian.
Maybe this mission really is impossible.
Then again, you can’t prove 2 plus 2 equals 5 – and alas that’s how impossible RICS’s mission is.
Sure, the RICS headline index was slightly better than last month, then again it still hit minus 92.9. Remember, the index is defined by taking one percentage score from another, so minus 100 is the lowest reading you can possibly have. In April, the index hit minus 94.7, easily the worst reading ever recorded – and while May was slightly better, it was still way below any other score ever seen, and records go all the way back to 1978.
Completed property sales for the quarter to May fell to 17.4 per surveyor, from 18.5 in April. On year ago levels, they are down by 31.5 per cent compared to 31.7 per cent in April.
Perhaps more to the point, the stock of unsold property on surveyors’ books increased by 4.4 per cent on the month, and is up by 45.4 per cent on the year. Average stocks on surveyors’ books were 90.1 in May compared with 86.4 in April. So that’s falling sales and rising stocks. This means the ratio of sales to stock is falling.
This ratio is important, because it gives a real feeling of inventory, and is the closest measure we have in the UK to the closely watched US inventory to sales figures.
In fact, the ratio of sales over the last quarter to stock is now 19.3 per cent. That is the lowest since 1995, but, as RICS went to pains to point out, in the early 1990s this ratio dropped to 11.
The point though is this. The ratio is getting worse all the time. The fall in house prices is only being held back by the low level of supply. But, if the economic climate worsens, which as you know it certainly seems to be doing, more people will sell.
Some investors will sell, some property owners will be forced to sell. As the current level of activity is so low, it will only need a small increase in these properties coming on the market, and prices will fall like a rock, tumbling down from the north. Stopping that fall is fast looking like the real mission impossible.
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