Saturday 8 August 2009

Undervalued houses in the UK?

One of Mervyn King's best phrases was:

"House prices are a matter of opinion,; debt is real."

Today is not April Fool's but this story sure is. Apparently poor estate agents are complaining that valuers are being mean and undervaluing houses; and this is dampening the market.

You would have thought that, just perhaps, having a realistic valuation would give a buyer and a bank confidence. Nor should it wreck the market, but encourage sensible buying and selling.

Perhaps commission hungry estate agents would want prices to be higher? This just shows their business illiteracy. More sales as cheaper prices would make them more than fewer sales at bigger prices.

Ho Hum. UK house prices have another 20% to fall at least, subject to the potential sudden effects of Quantitative Easing. I think we will be back heading downwards long before the election.


Roy S said...

Estate agents may well be talking their own book, but I would suggest you are also talking the house market in the other direction....the 20pc drop you are forecasting doesnt strike me as realistic either....there's a shortage of good property at certain levels, which should, in an ideal market, cause prices to rise gently. You may well see a large drop however if all the accidental landlords currently letting decide to put their properties up for sale again - and some agents tell me they expect that to happen Sept/Oct time....(by the by, Im a seller....still asking an "unrealistic" price....)

Budgie said...

I also would expect prices of houses to drop, simply because we are still above the long term average. However, if inflation takes off, there will be a flight to assets, which will underpin house prices. So I tend to think that house prices will rumble on around their current numerical level as inflation reduces the value of sterling.

CityUnslicker said...

Roy S - 'twas always so, house prices are a local issue after all. however, the general level is still well into bubble levels. I write as someone who has recently sold and then bought again.

Bidgie - Yes, that could well happen. I don't expect the inflation until the whole QE issue has unwound and that will be after the next election. So in the meantime prices will still start to drop.

Anonymous said...

I would never, ever get another mortgage. Its just giving money so bankers can profit.

Electro-Kevin said...

What effect will news that State pensions will not be available to those under 70 ? (Combined with the closure of final salary schemes)

Might this not cause more property speculation ?

CityUnslicker said...

Mutley - Mortgages certainly make the banks a lot of profits.

EK - You are right, that may encourage more speculation - but only if people think houses will keep rising in value....maybe the next decade will change opinions.

Sackerson said...

Think you're right about the 20% down, CU, but it's going to happen more slowly now.

Ivan said...

Yes, the price has to drop at least another 20% to 25% - the only problem is that those that bought a stupid prices and now want to sell will be burnt, but then they should have realised that they were paying stupid prices in the first place.

Here in France I've seen the local estate agents double the price of a property for English buyers because they think that price is low compared to England. I did a structural survey on a property valued at 350K euro that the English couple were prepared to pay just over a million euros for.

As long as that mentality persists in England then house prices will remain a problem.

Paul said...

Surely this is a case of misplaced apostrophes?

Instead of:

Undervaluing 'hitting home sales'

Shouldn't it be the following?

'Undervaluing' hitting home sales

The BBC has recently been going all-out to restart the housing boom. If you talk to local estate agents in the Shepherds Bush and White City areas of London you'll know why - many of the buy to let landlords are employed in state media!

Mitch said...

My plan is to be mortgage free in a couple of years then the banks can kiss my ass.
Credit cards got binned last time I got made redundant(thanks gordon) now its cash only and I have never been better off.
If i cannot pay cash I save till I do easy if you have some self control.

Old BE said...

A friend of mine got into a bidding war with another house-buyer very recently.

Anonymous said...

"What effect will news that State pensions will not be available to those under 70 [have]?"
Eh... in the short term its more likely that old(ish) farts in big houses will need to sell, surely?
The idea of a pension is to have cash to spend, not a property to maintain.

The one thing that everyone seems to overlook is the 'domino' effect in the property market. Most amateur landlords have their rental property secured on their primary residence or other rental properties. Seen in this light (the correct one) when people get into trouble on one property, they are in trouble on them all.
'When the levee breaks... aint no place to go...'

"...if inflation takes off, there will be a flight to assets". Maybe, if youre an Arabian bank.
If you are a nurse, or a retail manager, or a carpenter with 3 rental properties and inflation rises youre just.... fucked.
End of.

cosmic said...

I think house prices are related to the size of mortgage people can get. If they are apparently,not spending their own money, they tend not to worry about the price. There was a time when maximum mortgages were 2 and a half to three times annual salary and the average house price was around four times annual salary, with ups and downs.

Mortgages are not so easy to come by these days and the "write your own terms and rest happy that house price inflation will be the safety net" days are over. People are also less certain of their jobs and more likely to consider the risks.

A 20% further fall? Predictions are always difficult, particularly those about the future, but I wouldn't be surprised.

The job of a valuer is to put an accurate price on the property, which he'll do with reference to the prices similar properties are selling for. Mortgagors are interested in this because it represents their security. They are not going to dig inflated valuations when the state of the market is uncertain and they've had a battering.

Estate agents seem to try collectively to talk up property values from time to time.

As for Brits in France gleefully paying well over the odds because the prices are dirt cheap to them, I've come across it. How utterly stupid some people are.

Old BE said...

If you see a house you like and can afford to buy it what is stupid about that?

Actually last time I was in France I glanced into some estate agent's windows and workaday flats which Brits would never even consider were not that much cheaper than their UK equivalents. Where are all these cheap French properties that you doom-mongers are talking about?

Demetrius said...

In my blog on Saturday, an Open Letter to Mervyn King, I comment on what is going on in the flats market, notably how the sharp increases in service charges are impacting. When looking at Wikileaks I came across documents that name persons deeply involved in this in relation to the Icelandic Kaupthing disaster, in for very large sums indeed.