“Economist/Wealth Manager tells it as it is rather than what you want to hear. Advice built on hard economic facts, tailored to your needs”

Roy Duncan FCCA - Chartered Accountant and Recruiter (C London) 2012

What's happening in housing?

Posted by jdavis on March 31, 2015

What's happening as opposed what is hyped by the media, banks and estate / letting agents?

The number of sales has been falling since the late 1980s.  The number, today, with all the incentives and subsidies in the World, is a half of the peak.  A strong market?  Definitely not.  Sustainably high house prices?  We would suggest not in the next Recession. 

"Why?" you ask.  "They recovered after the last Recession, didn't they?"  Yes, by the slashing of interest rates.

They can never slash interest rates again.  Thus the next Recession will turn Depressionary.

We are told this is an incredible idea.  We say, no, it is entirely credible and, indeed, likely.

What will happen to house prices in a 1930s-style Depression?

 

It would appear the reason for the smaller numbers of house building is because that is what the market desires.  Shortage?

The above shows clearly that, for some 40 years, developers build at a steady relative proportion of all sales.  There is no shortage.

Also, the number of sales has plummeted since the late 1980s and particularly since the 2008 Recession.  Rising again, but, as far as we can tell, to again a lower peak. 

 

Over the last 10 years we have seen the rise of the cash only buyer/investor, especially since the Recession when interest and deposit rates were slashed.  So, all those hundreds of thousands have ploughed their savings into individual assets.  To us, this is a hugely risky strategy.  The Russians and Chinese have been particularly prevalent in this area.  They've been buying investment properties hand over fist, till early last year, WITHOUT EVER SEEING THE PROPERTIES!  Due diligence? 

Buy To Let has been growing fast since the Recession.  Same risk issue above applies.

There's been a sharp drop off of owner-occupiers recently.  It is self-evident this is a market run now by investors.  When did an investment story like that EVER end well for the mass investors in a frenzy? 

But this sort of ending just doesn't happen overnight.

 

The above shows house prices, outside of Greater London, continued to rise until 2007 then fell sharply.  However, as of late 2014 prices had risen, since the launch of Help To Buy. They are now back to 2004/05 levels.  

So, prices have been net flat for a decade.  A market powering ahead it certainly is not.

The next major fall will come with the next global economic shock.  And the next fall will probably be the inevitable crash that started in 2008 (correcting the bubble) but was stopped by the slashing of rates in 2009.  They can't do that again...

Why on Earth would you want to invest in property outside of London now or stay invested?

 

As for London, you should know this simple fact:

There are 41,000 homes being built in London to be marketed at over £1m.  However, in 2014 only 3,000 homes were sold for more than a million pounds.

We know that house prices are falling in London - Central and Outer.  The ONS informs us London prices fell c £6,000, on average, since last Summer (yet every vested interest tells us London is storming ahead).  Anecdotally, Central London has fallen far more.

When nearly 14 years of supply comes on stream this year what do you think will happen to London asking prices and then sale prices and then the effect on the national picture?  And this is before the next Recession.

Yet, still people are buying property as an "investment".  You couldn't make it up!

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