Home—Blog—'Prime' house prices may crash harder than the rest
Sep 07, 2010, 01:21
Posted byMerryn Somerset Webb
Comments (24)
I've written several times about the idiocy of thinking that prime London house prices can somehow avoid the slowdown hitting the rest of the market, most recently in last weeks editor's letter, which subscribers can read here: Even London's property market can crumble. (If you're not already a subscriber, get your first three copies free here.)
It seems perfectly obvious to me that with bonuses and mortgages thin on the ground, taxes on the up, and a double-dip recession very close indeed, not even the richest of foreign buyers can single-handedly keep the market up for long. The numbers out over the last few months have backed this up, showing prime London prices moving in tandem with the rest of the market.
However, I have just also been sent some even more interesting numbers from estate agent John D Wood. These track not completion but exchange prices of London houses, and so are much more up-to-date than most. They also prove that prime prices are not remotely resilient.
In the last quarter the price of a house in Kensington or Holland Park has fallen by around 18%, while that of a flat is down just under 8%. Houses haven't fared so badly in Notting Hill, but they are still down by 9% or so. Also of interest is the price of so-called large houses (3,500 square feet plus) across the capital: for these "the second quarter has witnessed values falling back by 8.5%."
This is all something poor Kylie Minogue has recently discovered to her cost. According to the Daily Mail she has just cut the price of her Kensington pad by a massive £500,000 in an attempt to get it away. And that's despite the fact that she is a mega celeb and the fact that the place was "refurbished to Miss Minogue's exact specifications by renowned interior designers and developers Candy & Candy five years ago."
It seems that whatever London's estate agents might like us to think, their patches are just as vulnerable as everyone else's. Looking at these figures, they are perhaps even more vulnerable.
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(07 September 2010, 04:09PM) Complain about this comment
London had/has the biggest bubble, so it doesn't take a wild flight of fancy to expect it to have the biggest crash. Yes, people in London earn more than those in other parts of the country, but the price of housing massively exaggerates the pay differential.For example, 4-bed terraced houses in Battersea and Wandsworth are commonly on the market for £850,000+. These are very ordinary houses, but even buying with a 20% deposit (£170,000) would require an income of £170,000 on a 4x salary multiple to get the outstanding £670,000 required. At an interest rate of only 5%, monthly mortgage repayments would be £4,000 (£48,000 a year!).Only a tiny minority of people in London can afford that, and as time passes there will be increasing numbers of people without the benefit of equity accrued during the bubble, so either prices have to crash, wage inflation has to run rampant for a few years, or the market grinds to a halt.
(07 September 2010, 07:33PM) Complain about this comment
Interesting times lie ahead that's for certain. No one can predict what will happen for sure but it would seem from all the evidence that a massive correction must soon be on the cards. Many people are saying that London and the SE are different. That rich foreign investors will always want to invest in this area and that overcrowding and desire for property will keep prices strong. Well if foreign investors are silly enough to buy into an overpriced London bubble then that's their problem - however I suspect that many will be looking to the US or Ireland for much better investment potential in a market that has already corrected to a certain degree. Personally I wouldn't touch London property at the moment with a long barge pole. I mean 850K for a 4 bedroom house? How does that represent good value in anyone's book?
(07 September 2010, 08:51PM) Complain about this comment
Merryn searches round for a different target every couple of weeks. The most consistently wrong house price predictions periodical in the UK. Merryn has been calling the crash since 2004; why would you believe her now?
(07 September 2010, 08:54PM) Complain about this comment
I totally agree with both of the above comments. The only thing that has kept the London market going over the last 18 months has been cash buyers. These buyers only have so much cash and once their cash funds run low that can't buy any more, that is what we're seeing now. London has needed a correction for a sometime and it's long over due. Not all of us are bankers that can look forward to ££££ bonuses. I can't afford to buy the house I've owned for 8 years so what chance does a first time buyer have. Sit back and enjoy the ride.For those that think the London market can't crash, what goes up must come down and this market needs to come down fast.
(07 September 2010, 09:33PM) Complain about this comment
If the housing market had crashed (20-30%) in 2004 when it should have, we wouldn't all be in the mess we're in now. Many say, 'but no one could see it coming' - rubbish, there were people all over the country saying the same as Merryn, but it was too late, the lunatics had taken over the asylum, the bubble had gathered momentum, people (McBroon!) started believing their own hype, it was different this time. Come on, you know who you are, fall on your swords, for the sake of the country.
(07 September 2010, 09:41PM) Complain about this comment
Even Dave Allen understood the causes of the crash in 1993!http://www.youtube.com/watch?v=c5y_gE1Rb1Y&feature=related
(08 September 2010, 10:24AM) Complain about this comment
Celebrities don't sell homes - you don't get a slice of Kylie when you buy her apartment. And the reason it might not have sold is partly due to its interiors - which indeed are her very own, unique taste if you look at the ad.
(08 September 2010, 10:30AM) Complain about this comment
It's incorrect when people link house prices to earnings. A better link would be between house prices and net worth. Most prime properties will be bought without a mortgage
(08 September 2010, 09:46PM) Complain about this comment
Pimperne1, you are living in a dream world. I heard the same dilutions her in the San Francisco area for years before the crash. "The Bay Ares is just So Special, prices will never decline here". Houses in most areas are off by 50% from the high. When prices return to what a buyer can afford to pay, and not based upon comparable sales, we and you will have returned to a sustainable market. There is a big difference between demand and qualified demand. And the banks are back to dealing only with qualified customers.You live in a wonderful city.Lee in Sant Rosa, CA, USA
(09 September 2010, 08:36PM) Complain about this comment
Wow! it's nice. I agree to the statements that are posted. thank you keep postings.************CharlesRollsRoycePhantom
(11 September 2010, 11:38AM) Complain about this comment
I raised the problem of local hot spots with regard house prices and rents with Merryn in an email 15 months ago and was promised an answer but none came. All over the country there are areas of housing stock that defy the markets, I live in an area of Mid sussex where prices have been raising since March 09 to unbeliverable levels. We have just witnessed an area outstanding natural beauty with 5 lakes that was open as a county garden and was not up for sale, they received an offer that over priced the property so much that the owner could not refuse. The buyer was Russian and it was all done in a month. The buy up of british land continues. Large areas of woodland and now been put up for sale and buyers are agreeing prices within days.
(11 September 2010, 11:47AM) Complain about this comment
I think we're in the denial stage of a UK property crash. We keep getting stories about how London will be immune, detached property will be immune, prime property will be immune etc. This is classic denial. I've been Merrynly forecasting a UK property crash since 2003 while all my friends & colleagues have been merrily buying and selling their way up the ladder. When I finally get my way, I am sure I will merely be told "of course if you wait long enough you will be right in the end." (Just hope I am bloody right in the end).
(11 September 2010, 02:17PM) Complain about this comment
Prices may drift a bit lower over the next couple of years but the real crash will not happen until interest rates get back to normal. My worry is that we are heading the same way as Japan and will have near zero interest rates in 10 years time. This will artificially prop the Market and prevent a whole new generation from getting on the market. I've sold and am now renting, waiting for the correction but fear that I will be waiting a very long time
(12 September 2010, 03:42AM) Complain about this comment
Property prices will crash in January 2011. After xmas 2010 people will realise now much money they have left (not a lot) and will start panic selling. Mark these words, I am 78 years old and lived through 4 crashes of which this looks the biggest yet.
(13 September 2010, 11:41AM) Complain about this comment
Whether or not we are contrarians will colour our views. However artificial means have and are being used to put off the evil day. This ignores the fact that many billions has been spent that we do not have. This situation makes for a sensitive financial background prone to collapse at any time.If the effect of tightening our belts is a double dip recession that is probably not bad because the long term effect of extending an unrealistic financial mechanism may be far worse than tackling it now head-on.Either way bank rate will stay low for some years. It is unemployment that will be the trigger. Word trade levels and our export successes/failures will also effect UK employment.Unemployment however will increase and that this will lead to a lowering of house prices. 40% reductions is feasible; such drops occurred in 1973-5 and in the early 90s. 'When' is the crunch. It will take some time with one or two biggish drops; perhaps 2-3 years,.
(13 September 2010, 11:52AM) Complain about this comment
Interesting, but a couple of points.There are prime and there are prime. A one bed flat in Kensington? A large property by the sea in the South-West?In the last crash (I remember it at least) there was less effect on 'prime' than on the rubbish at the bottom (because couples would prefer 2 beds to 1, and can jump the very lowest layer.
(13 September 2010, 10:13PM) Complain about this comment
It's all madness...we live in SW19 and stopped to look at a small small 1970's house on a small plot of land, squeezed between two other houses. Though completely run down and looking could easily be mistaken for ex council, it's in a nice enough road behind the village and we thought that maybe it would be thought we could get that and do it up in the future, even rebuild.Anyway I knew it would be at a premium and looked up the agent's site but couldn't find it. I started at £600k and kept going up until I eventually found it at a shade under £1.9m....just potty!!
(15 September 2010, 01:32PM) Complain about this comment
@ TDThe big difference between Japan and the UK is that the Japanese save and we don't.To fund its borrowing the government will have to put up interest rates at some point
(16 September 2010, 11:58AM) Complain about this comment
A question, if house prices do fall 40% or more, who in their right mind would sell if they didnt have to (unless they wanted to upgrade) - it comes down to the death, divorce or debt scenario.So all the poeple who are waiting for a crash, isnt it going to be a sellers market as there will be minimal houses for sale and many buyers who have waited for the drops in pricing.Also with the reduced number of properties for sale, doesnt that mean the desireable proerties are reduced leaving you with something you may not want to buy even though you have the money?im a FTB with not enough deposit BUT if the crash comes will it be a bit of a anti-climax?cheersHenry
(18 September 2010, 05:51PM) Complain about this comment
This is a good discussion thread. I am not got the steal this guy's thunder but it is fast becoming my favourite blog post on the topic of UK housing:http://posthumousblog.blogspot.com
(23 September 2010, 08:31PM) Complain about this comment
Forex
(26 September 2010, 09:41AM) Complain about this comment
After meeting a number of wealthy foreign buyers, the consensus seems to be that London is seriously expensive. That’s not good to hear from the outside looking in. the old supply and demand, with companies moving operations outside the green belt, removing the need for further accommodation. Okay, so London is growing in size, which really doesn’t help at this point, as you have different type of buyers, also the census for the population figures includes, the to young to purchase. Still property has rise in price when the demand increases, which in the distant future, seems a certainty
(29 September 2010, 10:08AM) Complain about this comment
Why are you basing an article on a tiny sample size of sale prices from just one agent? How many properties did they sell in Holland Park or Notting Hill in the last quarter? Less than ten in total I'd suggest. This is not statistically significant - the variations mentioned are due to variations in property size and location from the previous quarter.If you are actually interested in what prices in Prime Central London are actually doing why don't you base an article on the much larger sample size of Knight Frank, Savills or Primelocation. Ah yes, all agree that PCL prices are strong and rising (Savills: 2.1% up on the quarter in Holland Park and Notting Hill).
(02 November 2010, 11:18AM) Complain about this comment
Numbers just out from Knight Frank show the trend continuing. Prime London prices fell 0.2% in October. That’s the 4th monthly fall in a row and means price are now down 1% since June. It isn’t much of course but it marks a massive change from the sudden rises we saw on low volumes in the first half of the year.
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