As
property professionals across the UK debate the latest property
prices, the likely increase in the numbers of mortgages, the
increase in investors both UK and from overseas in January 2009, the
temporary low base rate, the potential numbers of first time buyers
having enough confidence in the potential versus the possibility of
continued falls in prices; one thing above all others appears
indefinable - the effect of job losses and the weakening economy on
the willingness of the current owner occupiers to take on the task
of marketing their property amid the uncertainty. It seems that they will require confidence in achieving the best price
attainable before putting the for sale board in the garden.
Elizabeth
Colman from the Times reports on the discussions of a group of
Property professionals including Senior Estate Agent figures, RICs,
Mortgage advisors and Economists with Kathryn
Cooper, Money editor......
................................................................................................
So
when will house prices hit the bottom?
................................................................................................
Money
invited a panel of property experts to give their opinions on the
state of the housing market. Most see at least some green shoots
From
The
Sunday Times
February
22, 2009
Elizabeth
Colman
House
prices still have further to fall but the recovery, when it comes,
could be sharper and swifter than people expect, according to
property experts.
The
Money section invited a panel of economists and estate agents to our
offices to discuss the outlook for house prices at a crossroads:
while mortgage lending and house prices continue to fall, cash-rich
investors are tentatively returning to the market in the hope that
the trough is in sight.
The
Council of Mortgage Lenders said last week that gross mortgage
lending dropped 8% in January to just £12.4 billion - less than
half last year's levels.
However,
investors who do not need mortgages are looking for bargains, with
inquiries from new buyers rising for the third successive month,
said the Royal Institution for Chartered Surveyors (Rics).
Our
panel agreed that it may be smart to get in before the bottom,
because house prices could eventually rebound sharply.
Nationwide
building society's chief economist Fionnuala Earley said
affordability is improving more rapidly than in the 1990s, which
could precipitate an earlier than forecast recovery.
Mortgage
payments as a proportion of take-home pay have fallen 9.4% in the
past year, compared with 7.4% over the same period in the 1990s,
according to Nationwide.
The
bad news, however, is that buyers who bought at the peak in November
2007 may have to wait several more years for property values to get
back to where they were - even with a sharp rebound.
Lucian
Cook of Savills, the estate agent, was the most bullish of our panel
- claiming we have seen the "beginning of the end of house price
falls" - but even he said it would take until at least 2013 for
prices to return to their peak.
Ed
Stansfield of Capital Economics, the consultancy, was the most
bearish, pointing out that it could take as long as 20 years to
regain 2007 highs.
Here
we present their views.
Kathryn
Cooper, Money editor:
Do you agree with the Rics report that the bottom for house prices
is in sight?
Fionnuala
Earley, Nationwide: It is too early to say prices have stopped
falling. There may be some slowing in the overall rate of decline,
but I don't think it's turning round too quickly. Having said
that, as affordability improves, and undoubtedly it is improving,
there will be people who can move back into the market in 2009 and
2010.
Lucian
Cook, Savills: Our agents are seeing interest from cash
buyers. There is undoubtedly more of a buzz this year because there
is this expectation that bargains are out there. People are saying
we are close enough to the bottom, if we take a 10-year view on
house prices.
Ray Boulger, John Charcol:
I think there is every indication that the rate of decline in house
prices will start to ease. We have seen a big increase in the number
of buyer inquiries over the last few weeks. And because of the
depreciation of sterling, on top of the 25% or so drop in prices,
overseas buyers are getting a further 25% discount compared with a
year ago.
Ed
Stansfield, Capital Economics: I'm not completely convinced we're
going to see a slowdown in the rate of price falls. Capital
Economics has a rather more pessimistic view on the duration of the
recession and the amount of time it will take to work off our
indebtedness. We think the economy is still going to be contracting
and unemployment rising quite sharply even in 2010.
BARGAIN
HUNTING
Cooper:
Where are investors finding bargains?
Cook:
We are seeing cash-rich UK investors and overseas buyers beginning to look at some of the
traditional investment markets. They are looking at prime central
London such as Kensington and Notting Hill and then in Richmond. They are looking for a market which has traditionally bounced a
bit quicker and a bit further.
Cooper:
Isn't that premature? It is only six to nine months ago that we
were talking about the prime central market just having started to
turn down.
Cook:
Yes, but the market has fallen much more rapidly than we
have ever seen in the past. Prime central London is down 20% compared with 13% annually in previous recessions. You
could argue that house prices falls are probably running a little
bit ahead of the economy, because the lack of mortgage supply has
constrained the mainstream property market so much.
Simon
Rubinsohn, Rics: The southwest London area is where a lot of agents who responded to our surveys were
saying they saw the investor and the overseas interest.
Cook:
This area saw some of the highest growth, probably fuelled by City
bonuses, and some of the quickest falls. It's banker territory.
There is a lack of bonus money - and that could worsen - but it
has already opened the market up to people who haven't been able
to get in previously, and we expect that to continue, especially as
people are displaced from prime London.
Stansfield:
What you may have is this investment market gaining ground
over the next year or two as people decide they would rather earn 5%
on property rather than 0% in the bank.
Cook:
I think that the yields of around 5% you are currently getting could
set the bottom of the market.
Rubinsohn:
In our report the interest came from existing
owner-occupiers. The first-time buyers aren't there in numbers
RECOVERY
Cooper:
So if first-time buyers still aren't coming back, how long will it
take the market to recover?
Stansfield:
If you take the mortgage approval numbers, even if they go up by 50%
or 60% from where they have been in the past three to four months,
they are still at levels that prevailed the 1990s downturn. You've
got to see a 50% or 60% rise just to get back there, let alone to
get back to anything you might say is normal.
If
in theory house prices rise in line with average earnings, and you
think the bottom is going to come sometime next year, then it could
be 20-odd years before you get back to 2007 levels.
Cook:
We would argue it's going to be a shorter period to
recovery. We are on record as saying house price falls would be
capped at 25%. Then we'd see very low growth and we'd see the
market bounce back and recover to its levels by 2013.
Rubinsohn:
We are doing our latest construction survey and there
wasn't an awful lot built in the final three months of the year.
While that in itself isn't necessarily a great source of immediate
comfort, we have got a shortfall that is not being addressed.
Stansfield:
The second you get signs of an economic recovery, you can
be pretty sure the Bank of England is going to normalise interest
rates.
And
I think the government would be terrified of being accused of
encouraging people in at a time when interest rates are about to go
up by four percentage points to 5%, that kind of level.
Cook:
Yes I can see a period where turnover numbers remain low, and having
reached the bottom, we have relatively static house prices for
certainly a couple of years.
Stansfield:
I think we could see another 20% fall. That's conditional on the
mortgage market remaining difficult and closed. It's also
conditional on our view that the economy is still contracting next
year.
Earley
(Nationwide) : The sharpness of the fall in prices and how that has
improved affordability arguably will mean that people will move back
in more quickly. But it does depend on the economy.
Cook:
Affordability wasn't nearly as constrained at the start of this
downturn as it was in the 1990s. It puts us in a much stronger
position for a more rapid bounce back than in the 1990s.
Cooper: So what do we really need to see before
we get recovery?
Easley
(Nationwide) : One of the things to look for will be when people feel
more secure in their jobs. Our consumer-confidence survey suggests
this is still some way off - the index is at the lowest since the
survey began in 2004.
Boulger
(Mortgage advisors):
I think what the government should do is to instruct the banks in
which it has a large stake to allocate a reasonable percentage,
perhaps 15% of their lending, to people who have a deposit of less
than 15%.
FIRST-TIME
BUYERS
Cooper:
What
is going to bring first-time buyers back?
Cook:
First-time buyers are going to be some of the last to enter the
market purely because you've got these issues of accessibility to
finance that we talked about.
Boulger:
I have no doubt we'll see a return of high loan-to-value (LTV)
mortgages. The question is how long is it going to take? Banks have
got such a limited amount of money to lend, they are focusing on the
lowest risk. There is big competition for people with 40% deposits,
and reasonable competition at 75%, but until banks have more money
to lend, they're not going to go into the higher LTV market. So
the key is to get more money in the system.
Earley:
The mortgage market has a part to play, but as house
prices fall and affordability improves, deposits become less of a
hurdle making it easier for first-time buyers to buy.
First-time
buyers need to save 15% of the average house price, or about
£18,000.
When prices peaked, they were raising half that - but the
arithmetic will continue to get better as mortgage rates, as well as
criteria come down. Also, the cost of keeping a mortgage has fallen
sharply owing to lower interest rates - this could help to lessen
the effect of the slump.
Boulger:
For those who are keen to buy, we should be careful not to put them
off. If you buy before the property market bottoms, you are in a
much stronger negotiating position. The right time to buy is going
to be several months before the indexes show that the market has
bottomed out.
BUY
TO LET
Cooper:
There
doesn't seem to have been the shake-out in the buy-to-let market a
lot of people expected. Is that still to come?
Boulger: Well
many of those buy-to-let investors, once they come to the end of
their deals, have reverted to a very low interest rate, in many
cases a lower rate than their residential compatriots. Mortgage
Express reverted to bank rate plus 1.75%, and Halifax to bank rate plus about 2%. So, for affordability, buy-to-let is
looking more attractive than a year ago.
Stansfield:
I think the problem is the anecdotal evidence, particularly in
London , about nasty falls in rent. I'm not pessimistic about buy to let.
I don't think it's going to be the catalyst for the whole boom
and bust. Rents will come under pressure, but I expect most
landlords will just ride it out.
NOEL BRANSDON, a London solicitor,
is one of the cash-rich investors finding bargains amid the
downturn. Just before Christmas he bought three two-bedroom flats in
Islington, northLondon , from a big developer who was desperate to sell.
The
properties were selling last year for as much as £ 430,000. Bransdon
paid £ 250,000 apiece - in cash for one and borrowing for the
other two with a deposit of about 50%.
Bransdon,
37, said: "I might have bought at the bottom - I went back to
see if I could buy any more and the prices on the apartments had
reverted to £ 350,000. I'm letting one at £ 360 a week, and the
others at £ 370, a return of over 7% compared with the 2% my savings
were earning in the bank."
He
has also put his London Bridge flat up for sale - asking £ 2.3m.
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