Home—Blog—Why estate agents need house prices to fall
Apr 12, 2010, 02:34
Posted byMerryn Somerset Webb
Comments (24)
Early on Easter Monday, I joined in a BBC Radio Scotland discussion about the Scottish property market. I was on as the bear (obviously) and the other participant, representing ESPC (the Edinburgh Solicitors Property Centre), was to be on as the bull.
But it didn't quite work out as the BBC had planned. I was participating in the discussion from my car (I couldn't get to the studio and there were too many chocolate-sick children moping around inside for me to use a land line). It was also raining pretty heavily.
So when my supposed opponent announced that the best we could hope for for the rest of the year was that house prices would stay stable before they fell again, I thought I must have misheard.
But I hadn't. Further discussion showed that he really meant it. Unlike most property market professionals, he not only thought the market was unsustainably fragile, but was prepared to say so. Amazing.
But the weird thing is not that he suddenly came over all honest, but that for so long most other estate agents have not been prepared to do so.
The collapse in the number of houses for sale (the main factor behind the mini-boom in prices over the last 10-12 months) has not been driven by a sudden shortage of housing in the UK. It's been driven by a belief among would-be sellers (pushed in part by over-optimistic agents) that the longer they wait to sell, the more likely things are to return to 'normal' – i.e. the more likely they are to get the price they think they would have got in 2007.
But this is not in the interests of estate agents. As we've written here before, agents need high sales volumes more than they need high prices if their businesses are to succeed. So it makes sense for them to try to persuade reluctant sellers to come to the market by telling the truth. The truth being that with house prices still massively overpriced by historical standards; with interest rates only able to rise from here; with unemployment and taxes set to soar; and with mortgages still relatively hard to come by, it is almost impossible to make a case for house prices across the nation to keep on going up.
In the process of looking for a house for my own family I have seen a huge number of overpriced houses. Many are still on the market thanks to the fact they have been too highly valued by the agents. Once a seller has a price in their head it is really hard for them to take less, and that's one of the main reasons why the current market (outside prime London) is so very illiquid. It is also why I was so pleased to hear the man from ESPC being so honest: if he can persuade his fellow property professionals to do the same, we might suddenly find some liquidity returning to the market.
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(12 April 2010, 06:01PM) Complain about this comment
Do you think that, over the course of time, if the number of transactions remains low, Estate Agents will *need* prices to fall to stay solvent? Given this EA's unusual frankness, it would appear so. Wonder how that figures around the rest of the country.
(12 April 2010, 06:53PM) Complain about this comment
Yes, it takes a long time to change public opinion that house prices are not going to keep on rising /return to unsustainable levels. Unfortunately, the reverse will also apply when house prices resume their fall, everyone will start to believe that houses prices will never, ever rise again.
(12 April 2010, 07:15PM) Complain about this comment
HI Merryn, I wish y0u luck finding a decent sized traditional Edinburgh house under 500k in Edinburgh! You may have noticed however that rental yields there are surprisingly low which suggests how prices valuations are in fantasy land. A £350,000 flat in the New Town might only fetch 900pcm in rent. Its a similar story in many other good areas. Plus there's virtually no unfurnished places on the market which limits choice for long term renters.I'm surprised that ESPC said what they did. They, the "Hootsman" and Mr Leslie Deans apparantly see an ever upward trend for house prices in the capital. With the severe rise in unemployment being felt across the city you would imagine that prices have to correct considerably and pent-up supply begin to have an effect in bringing the market into line with average yeilds.Hope to see you on the housepricecrash scotland forum sometime soon.
(12 April 2010, 07:22PM) Complain about this comment
Estate agents operate by peddling fear and greed at the same time. When house prices are going up, they say 'you will never be able to buy...this house will be worth a gazillion pounds in three years time...we can get you into a debt trap of 45 x salary by getting you a mortgage (also known as a death grip. Mort = mortuary Gage = grip). THEN on the way down... they say, If you dont sell now, you will never be able to sell. Take another 15% off the price on top of the 20% they are down. You have to beat the market on the way down. If you sell now, you can avoid repossession. This isnt worth £250k any more mate, its only worth 150K now.' .... .... .... we get the idea now.
(12 April 2010, 07:30PM) Complain about this comment
Basically, they dont know any better than anyone else. They are just dumb salesmen at the mercy of the 18 year cycle and a looming depression which will last 15 years. We will never recover from this economic crisis. Basically, the generation we should have prepared to face down a global marketplace were too busy trying to secure a roof over their heads, buy some dignity. While the rest of the world was focusing on the economic power. There is absolutely no way we can competer against billiob chinese who spend as many calories in a day working as the whole west spends eating and sitting in front of the TV. No jobs...just houses. WOW...is this the economic miracle which Gordon was talking about. I AM SO IMPRESSED!!!!!!!!!!!!!!
(12 April 2010, 07:34PM) Complain about this comment
All of you readers need to come to the International land tax conference on April 26th to april 30th. Perhaps we can find an answer to this mess which is destroying our lives in this country. Especially estate agents....
(12 April 2010, 09:22PM) Complain about this comment
Good article Merryn, comment #4 also hit the nail on the head, I currently have 2 friends who were made redundant over a year ago and have had their mortgages subsidised, they both feel like they've had a lottery win! I've been told this is common practice now... It's remarkable this hasn't featured in the press considering we are running further into the red to the tune of half a billion £p/week (citation needed). It would appear this is being swept under the rug until after the GE despite being brandished across foreign front pages on par with Greece. And breathe. Sorry
(12 April 2010, 09:32PM) Complain about this comment
I have bought and sold about 14 properties in my life to date and have detected a similarity in the way estate agents behave. When selling I always seek at least 3 estate agents valuations before setting the asking price. An agent arrives, looks around, then invariably asks me what price I wish to market the property at. They never give their own valuation first, and this is because at this stage they have only one aim... to get the business and not to suggest a valuation lower than the clients in case of offending. I always decline to give my own valuation first and explain that I want the agents valuation unbiased by my own. They looked shocked but swiftly state their own value which is always slightly higher than the true market value. One of the 3 agents will give a value much higher than the others.... the reason is they all want the business.
(12 April 2010, 09:35PM) Complain about this comment
I once met an honest estate agent who told me that he was shocked that the property market was almost entirely motivated by greed. Naked greed by many owners suggesting excessive asking prices to their agent, who would have to go along demurely simply to get the business. When buying, after expressing an interest to buy, I always ask the agent what is the lowest price the seller will accept. Instantly, without any thought, the agent will suggest about 10% discount, commonly varying from 5 to 15%. There is absolutely no loyalty to the client, no desire to get the maximum price. All the agent wants at this stage is to achieve a sale. So.. the principle is the agent is not truly your agent, he is in the greed business entirely to make money for himself. A sale at any price is better for him than no sale and no commission. Merryn is uncannily insightful in her article.
(12 April 2010, 10:26PM) Complain about this comment
In 1987 the average house price was £40kBy 1997 the average house price was £55k. A 33.3% increase in ten years.In 2007 average house price was £190k +So £55k to £190k is a:A staggering 245% increase in ten years!!!! Now look at how little the average wage has increased in that same ten year period.In my area. Houses are still priced at their 2007 peak by Estate Agents.The same Estate Agents who swore blind, from 1997 to 2007 that house prices will NEVER drop. There is no hole big enough for estate agents.........I will not be buying my first house, until the average house price returns to circa 1999/2000 price.
(12 April 2010, 11:46PM) Complain about this comment
Hello FTBWhat's changed is that the difficulty to get A grades at the "loan exams" has been downgraded from 1997. Up to 2007/8, anyone would get the "A" grade - some by cheating. Sound familiar? ;-)Given the multiplier effect, bod A getting more cash to pay bod B means bod B can pay more cash for bod C's house... and so on.We now have the goalposts forcibly put back (pity about the exam grades) meaning the same people on the same wages back in 2007 would NOT get the same mortgage now. Thus, if Bod A/B can't get the cash any more then (1) if they're in a house, they can't move without a downsize (2) if they're not in a house, they can't pay Bod C's asking price. Bod C can only rely on cash buyers - which is slowly fizzling out to reveal the issue we see here.There is an affordability gap opening that either wage inflation or price deflation can fill. Since we're in for cuts, unemployment and loss of disposable income, it's pretty obvious what happens next.
(13 April 2010, 09:40AM) Complain about this comment
Like Merryn I've been looking for a house for a while, but cannot face paying a stupid price. Looking on right move over the YEARS, there are a lot of houses that have become like navigation stars - always there, same price year after year! Is something really for sale when it is in a market and no one is buying it, but the seller refusues to reduce the price?
(13 April 2010, 11:48AM) Complain about this comment
It is a strange relief to know there are others out there, going through the same thing as myself and husband and thinking along simimlar line. We have often been thinking the same thing about EAs. We have come to the realistation that we are better off renting (although we try very hard not to think about how much money we are giving away to our multi milionaire landlord).
(13 April 2010, 12:47PM) Complain about this comment
It will take years to shift the property thought pattern of the UK public from property being a great investment.I have been trying to buy a property for 6 months going to within 10% of the asking price - no chance, even here in Birmingham where prices never really recovered. Owners are delusional about prices even if the property has been on the market for 18 months! House prices have almost regressed to the mean so are actually reasonably priced, as always though it will also fall through this level but it might take some years because owners just will not sell unless its close to their asking price. So a 50% fall within 12 months as predicted in the MW property report just will not happen.
(13 April 2010, 01:23PM) Complain about this comment
The housing market cannot survive without FTB's Average wage around my area is £18k. Average house is £200k. [Same house would have sold for £55k in 1998]Banks have returned to lending 3-4x salary. REFUSE to BUY AT THESE RIDICULOS PRICES. THEY SHOULD NEVER HAVE BEEN ALLOWED TO RISE SO HIGH. TOXIC MORGATE DEBT. HIGH HOUSE PRICES ARE THE DIRECT CAUSE OF THE WORST ECONOMIC DISASTER THIS COUNTRY HAS EVER FACED.THE RISE IN HOUSE PRICES SHOULD NEVER HAVE BEEN ALLOWED TO HAPPEN.TELL ESTATE AGENTS, YOU ARE ONLY INTERESTED IN BUYING AT 1998 PRICES. WE CAN CONTINUE TO RENT INDEFINITLY.HOW LONG CAN AN ESTATE AGENTS SURVIVE POST GENERAL ELECTION, WHEN WE START TO COME OUT OF THE FALSE ECONOMY WE HAVE BEEN IN?DO NOT BUY UNTIL THEY RETURN TO 1998 PRICES.YOU CAN LOOK UP THE SOLD PRICE OF A HOUSE HERE: www.houseprices.co.ukDont believe the Estate Agents. They LIE for a living.WE ARE AT WAR WITH THEM. AND WE WILL WIN.
(13 April 2010, 06:51PM) Complain about this comment
I can undertstand why people want to try and get as much as they can for their houses but I have seen houses on the market in several places I keep check on for absolutely months. I think some have been on since 2008. But I don't often see the prices budging. We sold ours in 2008 ...luckily...but we had to play the game a bit to sell so it went from being advertised at 199,995 and we accepted 165,000 eventually. They (buyers) then fell short of 5,000 before exchange and we were over a barrel about that one. Had we been able to sell at the 199,000 mark we would have had a really great deposit. We feel incapable of moving on now as the cost of buying for us has just gone beyond what we could feasibly and comfortably manage. Having said that, I do count myself lucky. We weren't in the realms of a reposession. I think we would be risking that if we bought now though.
(13 April 2010, 07:02PM) Complain about this comment
Dazo, I don't agree that it will take years for opinion to change. It has taken years already to get to this point. When we get another slide, confidence in high house prices will finally slip away rapidly. The underlying cause of this will be driven by investors panic selling and there are a huge number of investors out there because they are the ones that have helped to drive up prices in the first place. I don't blame them though, many have resorted to property in absence after seeing their pension funds decimated in the fall of equities over the last 10 years. The tide has turned. Now it's the the turn for property to fall.
(14 April 2010, 09:17AM) Complain about this comment
Generalisations about estate agents are naive and wrong. Most are good, a few are great and some are rubbish just like tradesmen and professionals in other fields. The majority of the "dodgy dealing" is instigated by buyers and sellers but the agents always take the blame. They are pawns in the market. Why are house prices so high? Blame the house-owning culture of the UK, stupidly low interest rates, restrictive planning policies that limit new housing development, a growing population and smaller households. By the way, I am a chartered surveyor.
(15 April 2010, 03:43AM) Complain about this comment
Everyone wants and expects prices to fall it is just a matter of time that people will have to accept that they may lose some money or not achieve the price thay had initially in mind. Honesty is the best policy as some agents have been accused of over pricing property just to win instructions and then gradually lowering the price. This of course is in their interest as if they are realistically priced then they are more likely to receive offers thus increased sales for their business.Director www.EstateAgents123.com
(15 April 2010, 09:12AM) Complain about this comment
On the whole the estate agents in the area where I live are ok...pleasant to deal with. But I have had one of them critiscising me for being on the books for ages and not having bought anything yet....I didn't appreciate that. I can't help it if we can't afford to buy AND do up the properties he has shown us. We could probably buy but we just can't figure out a way of paying for work on these houses without getting further into debt. I think this particular guy must be living in la la land.
(16 April 2010, 10:22AM) Complain about this comment
I find it interesting that MW often advises buy and hold as the best way to make money long term on your investment. EXCEPT when it comes to property. If I buy BP shares for my pension at £6.50 yielding 6%....but next month they fall to £5.00 will I sell them? No of course I won't. Nor would I sell a house I bought 2 years ago for £200k yielding 6% just beause a national index tells me all houses are now worth 20% less. Over the long term house prices will rise with inflation, the market being what it is it'll probably do nothing for 4 years now which with inflation running at 4% will lop almost another 20% of prices after which doubtless they'll be another surge and they'll catch up again. It's all happened several times before. But if your waiting for actual as opposed to inflation adjusted price falls from here you may be waiting forever.
(16 April 2010, 11:55AM) Complain about this comment
Sure Alex, and thats one of the points already made: we need either wage inflation or property price deflation. If we have cpi inflation but no wage inflation then property won't recover. If we have wage inflation we'll get higher interest rates to curb it which would hit property (and other) asset valuations. But either way property will become more affordable and right now its still quite above its long-term affordability ratio and the shorter-term risks suggest it will undershoot its long-term average.MW, I'd like to see more analysis on the government props preventing forced selling, and on bank property inventories if you can! I'm another potential FTB although to be honest, as I'm currently unemployed, and given the UK's longer-term prospects which seem grim, I am looking at jobs in Geneva, Singapore etc.
(07 May 2010, 07:55AM) Complain about this comment
I have a different perspective on this. Where I live there are so many estate agents in a reletively small area that the market leader is,I believe keeping prices low to increase his turnover and thus most of the other agents and potential buyers are using his sales as comparisons. I can't think of a way around this other than to sell privately.Any ideas?
(11 May 2010, 09:23AM) Complain about this comment
It would be interesting to know how many posters here actually own a house or how many members of housepricecrash own a house? Do you want a crash for the good of the country or because right now you can't afford what you want.The real issue is that the current generation is obsessed with the idea of owning, why bother saying 'there must be a crash'. Simply, if you can't afford a house, don't buy one, just rent. look at other European countries % of ownership. I
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