Home—Blog—There are fewer homes for sale in Britain than you think
Jul 15, 2011, 09:24
Posted byMerryn Somerset Webb
Comments (50)
Let's say you've just found the house of your dreams. You've put in an offer and you've had it accepted. What are the chances of the deal collapsing before you get to exchange?
The answer, according to figures from property conveyancers 1st Property Lawyers, is 29%. That's up dramatically from even 2009, when the equivalent number from the same source was 21%.
Most of the reasons for this are relatively obvious. 15% of the time, the buyers end up dropping out because they can't get the finance they wanted; 7% of the time, the collapse is about a problem in a different part of the home-buying chain. 23% of the time the buyer simply changes his mind. 8% of the time it is about bad surveys (buyers aren't confident enough to both buy houses and to commit to works at the same time). And 1% of the time the buyer is gazumped.
But the really interesting number in this survey is the top reason for sales falling through: the seller withdraws his property from the market. This is up by four percentage points since 2009 and comes down to the fact that (thanks in part to the demise of expensive 'home information packs') would-be sellers are now able to test the market for free.
They market their properties to see what kind of an inflated price they can get, and drop out at the last minute if they don't get it. This isn't particularly generous behaviour (to buyers or to estate agents) but what it tells us is that many of the sellers out there are only sellers at bubble prices. As long as they can afford not to sell and as long as they think waiting will make them richer they won't actually enter the market. They'll only tease it. Does this matter? I think so. Why? Because it makes for a dysfunctional market. It tells us that the stand off between buyer and seller is nowhere near over. Buyers still won't (can't) pay the fantasy land prices sellers want. And sellers won't sell if their fantasies aren't fulfilled.
That's a situation that will continue until interest rates rise or mortgage lender forbearance falters (forcing sellers to sell) or the mortgage market returns to its easy lending heyday at the same time as consumer confidence soars.
Back in the 1990s when house prices last crashed, the number of houses for sale rose very fast – you could see the excess of supply over demand and know that prices would keep falling. That isn't the case this time. It might look like there are thousands of houses for sale – 5,115 houses came on to the market every day last month, says property expert Henry Pryor.
But the numbers from 1st Property Lawyers make it clear that a great many of them aren't really for sale at prevailing market prices. That's why – so far – it has been inflation rather than large nominal price falls that has begun the hard work of bringing UK house prices back from today's historically nutty levels to something more normal.
But there is still a long way down to go (UK property as a whole remains a good 20% overvalued on historical measures) and if one side ends up having to give, odds are it will be the sellers.
Why? Do you think it more likely over the next five years that the credit market will return to 2007 conditions or that interest rates will rise? Quite.
Published in Blog More articles by Merryn Somerset Webb
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By Merryn Somerset Webb, May 10, 2012
By John Stepek, May 03, 2012
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(15 July 2011, 10:11AM) Complain about this comment
There will always be people needing to move. But those who are putting their houses on the market at bubble prices, hoping to hook a sucker, are distorting pricing, as a genuine seller will check to see what others have their houses on the market for and will at least partly base their own pricing on this. Maybe the HIP wasn't such a bad thing to test the commitment of a seller although a survey would be much more useful to any potential buyer.I see there has been a big return of the 'accidental landlord'. The last time this happened was two or three years ago. And I am guessing these are people who would like to sell but are not getting the prices they want. And despite future predictions on house prices being generally pessimistic, they all remain hopeful we will return to boom time soon!
(15 July 2011, 10:20AM) Complain about this comment
Very good article Merryn. It reminded me of old style martet stall holders who would have a few stooges in the crowd who would pay a higher price convincing everyone else in the crowd that the deal on offer was good value. These properties put on at higher prices, in a speculative manner are convincing genuine sellers that prices are still high. Therefore the geunine sellers they are not realising that they are not actually competing for the same buyers who are there and waiting at a (realistic) lower price.Lots of news and commentary yesterday and today about rising rental costs at 4.1%. Well thats pretty close to current infaltion, so wheres the rise? and why all the 'stories'? Its not actually news. People are never going to understand that property prices are falling in real terms by the rate of inflation, if they're told on the other hand, rents are 'rising'.
(15 July 2011, 10:36AM) Complain about this comment
QUOTE:'it has been inflation rather than large nominal price falls that has begun the hard work of bringing UK house prices ... to something more normal'I must comment that IMO and generally speaking:1) the only type of inflation which is working to ease HP:Wage ratio is Wage Inflation2) all other types of inflation, everything else remaining equal, are working to harden HP:Wage ratioSo, if you have X% Inflation and (X/2)% Wage Inflation, the net effect of that Inflation upon the rationality of a particular HP:Wage ratio is zero. Therefore, in the current situation where for *most* prospective purchasers requiring a mortgage Wage Inflation is a good deal less than half realistic overall Inflation, overall Inflation is making 2007 HP levels even more unaffordable pro rata.
(15 July 2011, 10:38AM) Complain about this comment
"Back in the 1990s when house prices last crashed..." BOE base rates were over 10% for three years. This time it looks like they'll spend three years below 1%. "Real" falls maybe, nominal... lol
(15 July 2011, 10:50AM) Complain about this comment
The reluctance to sell may not be just dog in the manger attitudes from sellers. In many areas, outside London, values today are lower than 8/9 years ago.Sellers cannot afford to sell, they are in negative equity. The best thing for them to do is simply wait it out.
(15 July 2011, 10:55AM) Complain about this comment
Hi Merryn, Is it true that the data from the Land Registry doesn't include repossessions and that's why they're not found on sites like http://www.houseprices.co.uk/ ? This seems unfair. I understand the reason is it may skew the figures. That's true, but isn't excluding them doing the same? Shouldn't the monthly statistics be released with sufficient detail so that users can pick and choose what they need?
(15 July 2011, 11:20AM) Complain about this comment
QUOTE:'Do you think it more likely that ... or that interest rates will rise?'IMO the economy is out of control.There's no doubt that a modest rise in mortgage interest rates would force many to default significantly on mortgage repayments; a large enough rise would trigger a HP Crash. On the other hand, because interest rates are not rising inflation is. The inexorable effects of 'Net' Inflation (Overall less Wage), will cause wave upon wave of defaults; the greater the 'Net' inflation and the longer it ensues, the more likely a HP Crash.Further QE would delay the inevitable and worsen the inevitable, just as previous QE has.Yes, unless Wage Inflation can take-off, if IR rises don't trigger mahem, 'Net' Inflation will.What's the likelihood of Wage Inflation taking-off?
(15 July 2011, 11:32AM) Complain about this comment
"That's a situation that will continue until interest rates rise or mortgage lender forbearance falters (forcing sellers to sell) or the mortgage market returns to its easy lending heyday at the same time as consumer confidence soars."1) unlikely the £ remains at comfortable levels both against the $ and Euro.2)unlikely as the lenders would be slitting their own throats, they have learnt at least that lesson from the past.3) You'll hate to hear this Merryn, but IMO after another 3-5 years of stagnation, this is the most likely outcome. Of course you're okay as you've bought, but the MW house price crash devotees will remain out in the cold forever.
(15 July 2011, 12:24PM) Complain about this comment
Alex - Do you seriously think the banks are going to make that mistake again?
(15 July 2011, 01:29PM) Complain about this comment
When interest rates go up and they will have to in the end, there will be a lot of panic from these sellers.
(15 July 2011, 01:30PM) Complain about this comment
#8.It's usually the case that before currencies are at uncomfortable levels against the majority they are at comfortable levels. Remember, interest rates are generally set as the result of events, and who knows what they will be.
(15 July 2011, 02:16PM) Complain about this comment
Tim I see your point, given that what's up generally goes down, and that you don't seem to know whether we are presently up or down it's impossible to say whether we'll go down, or up. Have you considered working as a speech writer for Ed Milliband?
(15 July 2011, 02:19PM) Complain about this comment
In those halcyon days when I was young (and I am not even retired) rental houses were valued at around 12 times the net rent, with an addition of about 30% for "hope" of vacant possession value. I often saw entire streets of terraced houses sell at auction for little more than £1000 each ( mostly to British Land, that was their foundation)Using that method, a house renting for £1200 a month is worth about £200,000 (normal rent for a London suburb) and £600 a month about £100,000 ( normal rent for a provincial city)If we are returning to an economy where a large proportion of the housing stock is rented, we need some kind of security of tenure legislation and then... those could be the kind of values we are looking at.Just saying. Could happen.
(15 July 2011, 02:39PM) Complain about this comment
Nev, I agree, average rent in the city I live in is about £900pcm, and the rental market is very buoyant, the average price is about £180k. People earn a little more than the average and houses are infact very affordable. But this is planet reality, not one inhabited by most posters on this thread who seem to think that shortly they will be able to pick up houses for £90,000 like they were priced almost 15 years ago now in 1996....or approx £60,000 in real terms. Dream on.
(15 July 2011, 02:58PM) Complain about this comment
Very good article. The whole situation is a bit depressing though if, like me, you are waiting for house prices to fall in order to be able to buy.Inflation may be going up but that is of no comfort if your wages aren't. House prices in that case remain just as unaffordable. Instead your smug buy-to-let spiv landlord just puts your rent up.Interest rates are being held at almost zero to allow the banks to make enormous profits to re-capitalise. Meanwhile current homeowners, many of which borrowed more than they should have during the bubble period, are getting a free ride through abonormally low interest rates. Then to cap it all the financially prudent people who did not buy during the bubble are now subisidising the borrowers by getting no return on their savings.When will prudent people get their reward? Probably never. It amazes me that those who can't afford to buy, and who knows if they ever will be able to, don't riot in the streets.
(15 July 2011, 03:09PM) Complain about this comment
Sounds like falling HP values, by whatever scale (realistic or biassed), don't suit one or two posters' agendas.Like they say, previous performance is no guarantee of future performance; investors beware, these are exceptional times.
(15 July 2011, 03:53PM) Complain about this comment
I am more optimistic about the future. I believe the Falkland Islanders will repay our kindess by sending us some wool to make our own clothes and councils will be supplying Council Tents for those in need. Of course, things need to be tightened up because we don't want these tents to passed on to further generations of the same family and also, if one tentholder buys a brand new BMW, they have to give back their tent to the council for others more needy.Rent a Tent city will be the next Hemel Hempstead\Milton Keynes.
(15 July 2011, 06:21PM) Complain about this comment
@ Richard. I would say you just need to bide your time. I live in outer London and asking prices here have never been higher - but then, very little is being sold. Like this article suggests, there are a lot of people who are trying to cash in on the economic conditions of the moment because ZIRP wont be back when central bank figure a way out of all this debt. And low interest rates translate into high capital costs. Like you say, inflation is rocketing and wages are going down in real terms, even nominal terms. Eroding debt, personal and government, is what these central bank manipulations are all about. And if you get caught in the crossfire, that wont be a problem for them. If you are able to tread water and put your deposit in a place where it can grow the best it can, I don't think you will be sorry you have waited an extra year, even two.
(15 July 2011, 09:41PM) Complain about this comment
The article is ruined by your failure to say what level the seller removing property from the market is at. You just say it is up 4%. if it is up 4% from 1% then it is trivial.By the way Interest rates couold go either way. You experts have not got the hang of Black Swans have you?
(15 July 2011, 09:42PM) Complain about this comment
(16 July 2011, 11:01AM) Complain about this comment
While I agree that a house price correction is being held back by low interest rates. But what is to say that these low interest rates might be the new 'norm' and prices never correct themselves.What are the negatives of low IR and will the BoE and government ever raise IR, seeing they know it will sign their own death warrent when so much of the property obsessed public are in negative equity.
(16 July 2011, 11:38AM) Complain about this comment
Boris McDonut : 4%? I calculate that about 14% of sellers withdraw the property from the market (46% of 29%). We know that people have been paying back their mortgages at record levels. That may be part of the reason for sellers not being under pressure to sell.
(16 July 2011, 12:57PM) Complain about this comment
The 1st Property Lawyers report says that "39 per cent of failed deals collapsed because sellers took their homes off the market".If this is up 4% from 2009 then that's an increase from 35%.I note that the 39% buyer withdrawal contributing to sales not proceeding apparently almost exactly matches the 15% (loan falls through) + 23% (buyer changes mind) = 38% buyer withdrawal.But this is not a new phenomenon, and I suspect it is rampant mainly in London. I recall estate agents in the central London area telling me in 2006 that they were noticing 'an awful lot' of sales falling through.
(16 July 2011, 01:20PM) Complain about this comment
Niru - I don't mind sellers not selling: but it does distort the market when they pretend to sell but don't intend to. Their asking prices become an index based on nothing. And they generally demotivate buyers from spending money on searches, surveys etc, after an offer has been accepted, even if it's a cash offer, because the buyer knows that there's a good chance the seller doesn't actually want to sell, just to test the market.
(16 July 2011, 01:23PM) Complain about this comment
I regret the passing of the HIP: for buyers it had some excellent features - insight into the length and terms of the lease, major works done, planning permission sought, the exact ground rent and service charge, any restrictions or charges on the property.Very, very few estate agents or vendors would ever disclose these matters truthfully or accurately. I'd suggest these essential parts of the HIP should be mandatory: the HIP fee, small in comparison with the £15,000 costs of an average London buy - could be shared or entirely transferred to the buyer, but only at the point of sale.
(16 July 2011, 01:57PM) Complain about this comment
I agree with 7. Critic Al Rick. Whilst house prices in sterling may not fall too much over the next few years the effect of net inflation will affect the house market for years! Household budgets will be distorted by the inflation of the 'must buy' commodities, which will leave less money for any surge to buy property, and act like a dragnet for years to come.
(16 July 2011, 03:49PM) Complain about this comment
Anybody out there think HP will fall below rebuild costs ? Low IR stokes inflation ie raw material prices go up. ie rebuild costs go up. High IR probably means crashing raw material prices and HP but also more people out of job. ie no buyer for cheap houses.
(16 July 2011, 04:22PM) Complain about this comment
@ 26. AndyAnd in all probability net inflation will not be the only factor to reduce the affordability of houses.IMO we're slipping into a Depression, not Part 2 of a Double Dip Recession; they're out of control, only Worldwide Wage Inflation could help regain any semblance of their control.For we can't afford to have Wage Inflation any higher than that of our Competitors; without rampant Wage Inflation they can't hyperinflate away relative debt (by effectively robbing enough 'wealth' off those of us with 'wealth'). I don't know how it will happen but I expect real austerity will be forced upon us without mercy; after all, it's not going to be received voluntarily. We think unemployment is high now; 'we ain't seen nothin' yet'. And when that happens there will genuinely be a lot of homes for sale in Britain. It may also be the point we actually see huge discontent with the 'powers that be' .
(16 July 2011, 10:28PM) Complain about this comment
The Pound Stirling has already been devalued by 30% against both the Euro and the US Dollar courtesy of the failed academic running the BoE. House prices have already crashed by 30% outside the London area from their peak in 2006/7 . Include the exchange rate and the fall so far is 60% with more falls to come. This is the result of cheap money and a 12 year binge with people living way beyond their means. The housing market might return to the levels of the peak in 2020/25.
(16 July 2011, 11:44PM) Complain about this comment
Alec is right, house prices have fallen by at least 30% in real terms. Waiting for a Ferguson type prediction of a 70% fall is fine, if you are optimistic and have the time to spend, and dont mind paying rent.My point was that property values are not far astray from the level of values that occur every 10 years or so at the bottom of a house price crash in the UK. Outside the capital, it is startling just how affordable houses are.Dont forget property's traditional role as a hedge against inflation may cause the opposite effect on prices than that expected. What after all is there left to invest in?
(17 July 2011, 11:20AM) Complain about this comment
Alec is right in the circumstance of certain foreigners buying property in the UK; e.g. those contributing towards the ever increasing property bubble (as seen by most UK nationals) in certain parts of London. One could even argue he is right for the circumstance of, for example, the UK rich parasites, where stationary or even rising (for most UK nationals) asking HPs have gone down relative to their over-bloated incomes. But for most UK nationals remuneration is in GBP and annual remuneration is increasing little, if at all. For houses to become affordable to them, HPs must come down in terms of GBP, not USD, Euro, etc. There may have been a HP crash in the UK as far as the first 2 categories are concerned and even for UK nationals at the bottom end of the market in some areas, but for all others the real crash won't arrive before 'the day of reckoning'.
(17 July 2011, 01:58PM) Complain about this comment
Well, Richard, as your 'smug buy-to-let spiv landlord I have to ask, why are you waiting for house prices to fall?Myself and my 'smug buy-to-let spiv' cronies are able to get potential buyers onto the housing snake without a nod in the direction of a bank, totally transparently and totally legally.We 'smug buy-to-let spiv landlords' have helped many people out of self-dug holes, stopping repossessions, clearing credit card and loan debts and putting them back on their feet. How many of the banks do that for their customers?Hey, Richard, why not make contact with me? Got to go. Got to increase the rents of a bunch of mugs who are waiting for prices to fall :-)
(17 July 2011, 02:21PM) Complain about this comment
@38 -- I didn't know that landlords were anthropologists? I thought that we(yes, i'm currently looking for a BTL property) were in in to make some money from our existing capital. Good to know that you go the extra mile to 'get people back on their feet'! Make some money in buy-to-let, by all means, but please don't spout any crap about doing good for society, you're in in for the money and for purely selfish reasons!!
(19 July 2011, 08:58AM) Complain about this comment
With historically low levels of interest rates, a government that simply can not risk raising them, an enormous pile of government debt that needs to be paid off, a general lack of provision in the for paying off mortgage debt, a huge lack of provision and understanding of what provision is required (in the private sector) for pensions and the now high price inflation over wage inflation I can not see anything but a fall in house prices. When this will happen and by how much prices will fall is the big question for me.
(19 July 2011, 10:13PM) Complain about this comment
#30, Nev.You are missing one major factor from your equation and that is wage inflation, which hasn't been going up at the same rate as inflation. This is why your statement is incorrect and property is still way overvalued. Just because you think prices are cheap, doesn't mean FTBers and buyers on a low wage, find them cheap. They only appear to be cheap compared to 2007 prices. Over fifty years ago, before this big ponzi scheme was in fall motion, the percentage of your wage paying a mortgage was very low and therefore had plenty of money to spend on other things.Wouldn't it be good if that was still the case.
(20 July 2011, 09:09AM) Complain about this comment
Steve, 2011 average male wage £30,000, average female wage £24,000, average house price £162,000. At a shade under 3 times average joint incomes houses aren't particularly expensive. Yes 2.5 times joint used to be the rule of thumb, but the fact is that the world has changed women now work for life just as men do, they don't automatically stop working as soon as they have children anymore.
(20 July 2011, 09:22AM) Complain about this comment
It's instructive to consider this, in order to regain there 2007 peak of nearly £200k houses would need to rise by an average of almost 25% from here. Factor in 4 years of RPI infation at 4% and the average house price would need to rise 40% to £233k to regain the 2007 peak in real terms. House prices have already had there correction.
(20 July 2011, 07:47PM) Complain about this comment
#36, Alex.The fact that houses are around 3x joint wages has got nothing to do with it and is like comparing apples to oranges. Historically houses have kept to 3x the single average wage regardless of any external forces. So with this in mind, property is overvalued.
(21 July 2011, 09:35AM) Complain about this comment
Er so Steve, the fact that the average couple, on the average wage, can walk into a bank or mortgage broker and obtain with ease a mortgage sufficient to buy the average house has nothing to do with the housing market?Right. You might as well base your argument on "houses are overpriced because I say so".....actually that's pretty much what you've just done.
(21 July 2011, 05:09PM) Complain about this comment
Alex.20 years ago a couple on an average wage could go and get a mortgage to buy an average house, exactly the same as they can now, nothing has changed. This is why it has no influence on the market. In the past many other factors effected the housing market and people said back then that this will permently change the market, but everytime they fell back to 3x the SINGLE average wage. This is no different.
(21 July 2011, 05:24PM) Complain about this comment
@ 39. AlexAssuming the average couple to be prudent, I would have thought the average couple on average wages would have already been on the property ladder pre 1996, say, and have relatively substantial equity with which to mostly use as a down-payment on a replacement property.In all probability this average couple would not need a mortgage as great as 3X the larger income.
(22 July 2011, 09:18AM) Complain about this comment
@Steve, if you genuinely wish to return to the 1970s when married women with children didn't work your best hope is to watch 'Life on Mars' and drive a classic Ford Cortina. Because the average couple with a mortgage now both work they don't rely on the working mans 'single' income, which renders your cherished 3* single income multiple utterly useless/irrelevant in todays world.
(22 July 2011, 01:53PM) Complain about this comment
Alex,I don't know where you get the 1970s from, but with my maths I get 20 years ago as around the 1990s and back then an average couple with a mortgage were both working and as I remember the housing market still corrected to 3x a single wage.I know you are clutching at straws because you don't want your property to go down in value, but I'm afraid to say that at some stage the market will correct itself.
(23 July 2011, 08:32PM) Complain about this comment
Steve . In comment 35 you refer to people paying a lower perentage of pay to a mortgage 50 years ago. This was from necessity. We were typically only one third as well off as today and paid a disproportionate amount to buy (relatively expensive) food. I think nearly 40% of pay. That is now down to nearer 10% and the money freed up is able to chase other goods....especially better places to live.I'm afraid your comments regarding 3 times average pay are wide of the mark. House prices stay in a range from 3.5 to 5.5 times pay. Anyway what is important is not the headline price, but the actual cost over say 25 years. That is at 7.5 times pay and not out of kilter with the past. In 2007 it was out of kilter , reaching 9 times pay. It has moderated by 16% since then.
(23 July 2011, 09:46PM) Complain about this comment
@ 44. BorisI don't relish the prospect and I hope I'm wrong, but the way things look to be going to me, unless incomes keep pace with inflation (how likely is that?), the proportion of incomes spent on essentials other than mortgages/rents is going to rise significantly.Therefore, should that be the case, the proportion of income left available for mortgages/rents will decrease significantly.Furthermore, whereas two F/T incomes per household have been commonplace in recent decades, the way things look to be going to me, two P/T incomes or one F/T income per household may well be the future norm.I don't know for how much further 'the can can be kicked down the road' but the further it is, the more massive the HP correction will be; I doubt London will be immune.Please convince me these scenarios can't possibly happen.
(24 July 2011, 01:44PM) Complain about this comment
#44, BorisCritic Al Rick has put it about right. With the current inflation and the lack of pay rises, that 10% of pay that you talk about is going to go back up nearer to the 40% that it was 50 years ago. Therefore house prices have got to come down because the amount families can afford to pay on a mortgage is considerably less.With the above in mind and with the lack of being able to get credit, the 16% that has been moderated is way off the mark.Prices will have to come down alot more than that.
(24 July 2011, 10:07PM) Complain about this comment
#46 Steve. So you think food prices will quadruple. Are you a doom-monger?#45 Al. Of course your scenarios can possibley happen. It's just they are extremely unlikely. I expect house prices to be about 36% higher in ten years time....but they could be lower or they could even be higher still. Who really knows,we can only make educated guesses.
(25 July 2011, 11:16PM) Complain about this comment
@ 47. BorisThese are spectacularly unusual times. In the absence of a suitable miracle, I'm not guessing:A) we're witnessing the accelerating rate of decline of the Fall of the West.B) the UK economy will be in decline for decades.C) that during a not inconsiderable part of that period of decline more and more homeowners/inheritors will be forced to sell houses onto a Buyer's Market.I would stick my neck out and say a HP increase of 36% in the next 10 years, in the absence of a suitable miracle, could only be accompanied by hyperinflation.Whether or not we experience hyperinflation, HPs in real terms can only trend downwards for, probably, decades.The powers-that-be during this century (at least) have, for the majority (at least), messed-up Big Time this time.
(26 July 2011, 08:30PM) Complain about this comment
#48 Al. No. Your summary is just too gloomy. Mankind is far to ingenious to allow us to wallow for decades. I don't see a "decline of the West",only a catching up by some of the East and bits of Latin America. We in Europe will be fine,it's just slower progress than the last 15 years.
(27 July 2011, 12:28AM) Complain about this comment
@ 49. BorisI wish I could share your optimism.There are many parasitic species on this planet, but the most destructive of all is mankind.Mankind is so ingenious it is 'blinkedly' pioneering its own extinction; you may call it progress. I call it insanity, and it feeds off greed.The so-called progress we have witnessed during the first 11 of the last 15 years, say, has been an acceleration of the rate at which the West is being brought to the brink of bankruptcy; how very ingenious.We are now teetering on the edge whilst the greedy oligarchs are slowly 'killing the goose that lays their golden eggs'; the slower 'progress' to which you refer.Too gloomy? In the shorter term one of the biggest sources of gloom (to the sane in the UK) is the doom-mongering conveyed by those predicting increasing HPs!
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