Tuesday, 9 September 2008

UK Housing market collapse continues

Here was my prediction for 2008:

"The UK Housing Market will slow much faster than most economists are predicting and the overall rate might touch 20% by the year end. Those viewing the market are not factoring in the role of psychology enough into the falling market. My friends who are estate agents reckon they will all have closed within 3 months - so things are looking pretty bleak."

Well, good as my predictive capacities are, this seems like good foresight to me. If only
I had been able to persuade the missus to sell last year...

In any event the news today is that estate agents are selling one house a week. If we assume this is an average house of £175k with an average 1.5% commission, then agents have a weekly income of £2650. This has to cover staff wages, advertising, bills, taxes, transport etc. Not may businesses are going to make it on £10.5k a month turnover - what profit could be taken out of that annually for the owner?

This demonstrates two things, firstly, there needs to be more retrenchment in this sector as it is over-supplied for the current environment. Secondly, that with such low volume prices may well be hit by a sudden adjustment downwards that will be catalyst for demand. Similar to the 'capitulation' in stock markets.

A key knock-on for this is to the retail property market, already flooded and struggling. Perhaps even a chance for more aggressive retailers to expand and lock-in low rents?

For what its worth, the 20% ish fall we have this year I can see being followed by a 10-15% fall next year until prices flatten out. The market really needs the repossesions to be brought to market to cause the capitulation event. That or Alistair Darling can wave his magic wand this week and make more trouble for us all in the long-term.....

8 comments:

Ed said...

I think I shall sell my flat back to the council at its original 1990 price......

Anonymous said...

"an average 1.5% commission"; am I right in thinking that in the US realtors expect to be paid 6%?

Bill Quango MP said...

CU... There needs to be more retrenchment in this sector as it is over-supplied for the current environment.

GB's much touted housebuilding program [still on track according to hit the target says Caroline Flint]of 3 million homes by 2020, seems a little pointless? Or is it actually very wise getting houses built by desperate contractors while times are tough?

CityUnslicker said...

Dearime - I had no idea...really must have been a drvier behind the boom..wow!

BQ - Expect Darling will encourage state to buy houses in the next few days and build more. They always get it wrong...

Richard Elliot said...

I know an estate agent in my area. Two agencies have recently closed, there are rumours rife about more going under and he is struggling, but thinks he can ride it out.

Not a pretty time to be in the sector.

Recruitment consultants have recently had a big change in attitude too!

Mark Wadsworth said...

CU, may I smugly remind you that I did manage to persuade the missus to sell up at end of last year?

OK, the fact that I had been mugged at the end of the road and told her in no uncertain terms as soon as I got home that we were selling up and doing the white flight whether she bloody well liked it or not may have helped.

Unknown said...

The UK housing market is one of Britain's favourite topics of conversation. There is eith much (barely disguised) gloating over how much your house is worth; or there is also a large section of new first time buyers who despair at the cost of trying to buy a house. There also seems to be endless speculation about the future direction of house prices.
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