The housing crisis may be coming to an end, infers the Royal Institution of Chartered Surveyors (RICS) this morning. “Would-be-buyers are again showing interest in the market,” said RICS. “Demand is weak,” it went on, “with the balance of surveyors reporting new buyer enquiries still well into negative territory. However, there has been a noticeable improvement in the trend with 35 per cent more Chartered Surveyors reporting a fall in buyer enquires compared to 50 per cent in May and 69 percent in April. Surveyors report that some buy-to-let investors are entering the market to take advantage of rising rents and equally that ‘predatory buyers’ are looking to bargain for reductions in a falling market.”
RICS spokesperson Jeremy Leaf said: “With demand so low, would-be-buyers are negotiating from a position of strength. Even in a weak market there are always opportunities for investors and buyers to profit and some are starting to circle for bargains. However, transaction levels remain incredibly low with many buyers cut out of the process by tight lending conditions.”
And yet, sometimes it is a good idea to apply common sense. Why would a buy-to-let investor buy right now, when so many are predicting much further prices falls to follow? Sure, yield may make investing profitable, but hang on another year or so and yield to price should be even higher.
The RICS headline index, this is the one that asks estate agents if prices are up or down and subtracts the percentage number who say down from the percentage number who say up, hit minus 88 in June. Okay, it was minus 92 in May and minus 94.7 in April, but don’t forget as this is a percentage score minus 100 is the lowest score you can possibly have. When in March the index fell to minus 79.4, it was hailed as the lowest reading ever.
And don’t forget this. The index is based on what estate agents are saying, and right now they have an incentive to try and talk the market up.
Completed property sales for the quarter to June fell to 15.3 per surveyor, from 17.4 in May. On year ago levels, they are down by 38.6 per cent compared to 31.6 per cent in the previous month.
However, stock levels are falling The stock of unsold property on surveyors’ books fell by 6.1 per cent on the month, but it is still up by 34.1 per cent on the year. Average stocks on surveyors’ books were 84.1 in June compared with 89.6 in May. So that should help.
Falling inventory levels will help the seller, but it is just that sales are falling even faster. The ratio of completed sales (over the last three months) compared to stock of unsold property on the market fell to 18.2 per cent in June, from 19.4 per cent in May. “Market conditions are the loosest since October 1995,” said RICS.
This ratio of sales to stock seems to be the key. And as long as the ratio is falling, there are good reasons to believe the underlying trend in house prices will be down. Even when the ratio stops falling, there will be a time lag of several months before the stock to sales ratio rises to a level that is compatible with increasing prices.
New buyer enquiries continued to fall, “but the pace of decline slowed for the second consecutive month” said RICS, busily clutching at straws.
But for some home owners this is a waiting game. Wait for the market to settle down. But not all can afford to wait. Some people have to move. They have changed jobs, got a bigger family, can’t afford the mortgage, or even have their home possessed. The longer this downturn lasts, the more people will be forced to sell. And this could lead to even sharper house price falls.
Leaf is a cheer-leader for his industry. He is paid to be positive.
However, it’s not the PRICE drop that’s killing his industry.
Surveyors get paid per job, so it’s the VOLUME drop that’s doing the damage.
They don’t necessarily care what price people buy or sell at: so long as they buy or sell, surveyors get paid to do surveys.
It’s not corrupt however - it’s just exactly what an industry cheer-leader is meant to be doing, drumming up business for his members.
re “but the pace of decline slowed for the second consecutive month” said RICS, busily clutching at straws
This is the modern pattern. People now talk about the derivative of the derivative (the rate of change of the rate of change) rather than the thing itself, and they try and migrate this information to the thing itself.
So the implication that “the rate of decline is slowing” is loaded to mean “oh, prices are about to stop going down and start going up”.
Nonsense. The pace of decline can slow a lot - but if it’s negative, it’s negative.
Just ask the Germans and Japanese, who have witnessed multi-decade slow deflations of house prices.
If my house was possessed I think that I would certainly move as well.
Confidence is down, but not out. We have the smartest brains pulling in all directions and until there is some specific piece of magic, no one know where this will end up.
How can we trust the funny money snake oil salesmen, fire a few thousand, but do we know if the right ones are fired.
Time will tell as they say in the classics