New sellers coming to market this month mimicked those of February last year, raising their asking prices by 3.1% in the month to an average of £230,030, leaving year-on-year prices virtually the same too (+0.3%). With lenders stating that they expect mortgage lending to remain static at around 2010 levels throughout 2011, and new seller numbers practically unchanged year-on-year what might have been seen as a passing phase of low transaction levels in the housing market now looks set to be the norm for the foreseeable future.
Miles Shipside, director of Rightmove, comments:
“Any hopes that transaction volumes may be on the springboard preparing to return to historic norms will have been dashed by lenders’ predictions that 2011 lending volumes will match 2010’s dire levels. ‘Mr Average’ will be left out in the cold in the buying and selling game unless the beneficiary of a hereditary hand-out. The current subdued market volumes are set to be the new norm unless the seemingly never ending discussions between Government and mortgage lenders find some way of increasing ‘Mr Average’s’ access to lower deposit mortgages without pricing them out of the market ”.
There appears to be a three tier market, with the more ‘elitist’ tier being courted by lenders attracted by low loan-to-values that help them build a more profitable and lower risk mortgage book. This supports an active but low volume market in the country’s desirable locations, with a natural bias towards topend buyers and the more affluent south.
“Movers closer to the capital have the capital to move”, says Shipside. The middle tier, traditionally the mass-market that includes ‘Mr Average’, is suffering from paralysis due to a lack of mortgage finance and insufficient equity to trade up. 530,000 mortgages were taken out in 2010, while Rightmove recorded circa 1.3 million properties coming to market over the same period.
While not every property coming to market sells and not every buyer requires a mortgage, these figures how the clear imbalance between property supply and lenders’ willingness or ability to fund the traditional volume market. Those baby-boomers who benefitted from the buoyant mass market periods in the eighties, nineties and noughties are often able to release equity from their own property profits to help the next generation onto, or up, the rungs of the housing ladder.
While now a permanent feature of the market, these inter-generational transfers of funds are currently small fry compared to the mortgage securitisation model that helped support 1.2 million housing transactions in 2007. Sellers in this former mass market group are forced to play a waiting game for the more scarce ready, willing and able buyers that have the cash or necessary creditworthiness to proceed. Unwilling or unable to drop their asking prices to bargain basement levels, this helps explain why new sellers’ average asking prices remain broadly static year-on-year and are still following traditional seasonal ups and downs.
Rises in interest rates, unemployment and more forced sales in the second half of the year could alter the landscape.
Shipside adds: “Most sellers can afford to hold out for a buyer who will hopefully pay a fair price as the house ideally suits their needs and represents comparative value. In areas of more plentiful supply that can mean a long wait with no guarantee of success. New sellers see comparable properties to theirs on the market so they and their agents try a similar asking price. Without a really pressing need to sell you can see why price re-adjustments seem painfully slow in many local markets and they will not fall by enough to really assist the return of mass market affordability. While many sellers are refusing to drop, Rightmove’s traffic statistics show home-hunters are setting new search activity records, but are likely
to discard the less attractively priced and presented stock in favour of keenly priced bargains”.
In the more economically depressed areas of the country where forced sales are becoming more prevalent, some sellers are falling prey to the ‘bargain hunting bottom-feeder’ investors. These cash-rich buyers seek out distressed sales and represent the third tier of the current market. When interest rates rise, increasing the likelihood of more forced sellers coming to market, they will benefit from greater opportunities. This may well happen in the second half of the year and will push prices down in the areas worst affected.
There is evidence of growing competition to lend in this traditional first-time buyer market segment. However, lenders are not looking to support the greater volume of deposit light first-time buyers, but are reportedly gearing up to chase the minority market of equity-heavy buy-to-let investors. If substantial lending returns to help buy-to-let investors snap up lower priced properties rather than helping to support the mass market of potential first-time buyers, it shows that mortgage funds are available in this price bracket but are being denied to those who need them most. Agents report that cherry-picking lending practices are leading to some dysfunctional and desperate behaviour to solve housing needs.
Shipside comments: “Some ‘average’ sellers of yesteryear are now trading up by letting out their own home and renting the next rung up the ladder as they cannot get a suitable mortgage to sell-up and buy a more spacious house. The ‘accidental landlord’ is now being joined by the deliberate ‘limbo-landlord’, who is indefinitely entering the rental market by letting out their existing home and purposefully moving up the ladder by becoming a tenant in a larger property. Meanwhile, professional investors are being funded by lenders to buy starter homes, condemning many of those who would have been firsttime buyers in the past to be permanent residents of the rented sector”.
The number of new properties coming to market remains subdued as a substantial element of the mass market is ‘locked in’ to their existing homes. Average unsold stock levels per agency branch have now declined for five consecutive months, falling from a peak of 78 properties to the current level of 69. The main exception to muted new seller numbers is London, which is up 21% on the same period last year. This is further evidence that the more elite and southern based markets have some immunity from the effects of stunted equity growth and problems accessing mortgage finance. The remainder of the country has seen new listing numbers remain more stable, being marginally up by just 6% year-on-year on the same period last year.
Shipside adds: “If consumer price inflation continues to marginally outstrip house price inflation, then in a slow process over several years buyer affordability will improve. Mortgage debt will be eroded and any average wage rises will further assist. There will come a time when the improvements in buyer affordability along with growth in household numbers and pent up demand from frustrated movers will lead to another surge in property prices in popular areas. The mass market is unlikely to recover to former volumes without the return of healthier access to credit, so continuing falls in the percentage of
owner-occupiers and a consequent growth of the rented sector is the realistic prospect”.
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