Estate agents must be feeling pretty gloomy right now.
House prices are mixed across the country. But a far bigger problem is that no one wants to buy. According to the latest survey from the Royal Institution of Chartered Surveyors (RICS), new buyer enquiries have fallen to their lowest level since the tail-end of the 2008 crash.
The stock of houses on estate agents’ books meanwhile, is at a ten-year high. Conditions in London are particularly bad, but the malaise appears to be spreading.
Rising supply plus low demand would normally spell falling prices.
But the UK housing market is anything but normal…
The housing market is freezing over
The latest survey from RICS indicates that there’s not much action in the housing market right now. Transactions appear to be near-frozen. And I’m not surprised.
It’s entirely understandable that people are nervous about making the biggest purchasing decision of their lives at the best of times, and this is far from being the best of times. I’m not usually one to argue that worries about the political picture might be deterring people from making certain consumption decisions. Those usually boil down to the specifics of an individual’s financial situation.
But there are elements of today’s politics that could be dissuading people from doing anything until the outlook is clearer. I’m not talking about the current display of abject muppetry we’re witnessing in the government. That’s not unprecedented by any means (look to the waning years of any long-serving administration and you’ll see the same sort of stuff).
But other political issues are a bigger deal. Some people are nervous about Brexit, there’s no doubt about it. I can’t say that I am one of them, but there is clearly a contingent of people out there who really do feel that leaving the European Union is akin to the world ending.
The other issue – and one that I suspect looms larger in most people’s minds – is the notion of Jeremy Corbyn getting into power. If you’re thinking of buying a house, at what are undeniably elevated prices, then it’s got to be unsettling to think that an anti-capitalist party might be on the verge of taking the reins. Your taxes might go up (so your salary go down); your mortgage payments might go up too (if all that “wargaming” for a crash in the pound isn’t just bluster); and as a result you could end up with a house that’s worth a lot less than you paid for it, all being funded by a monthly bill that’s a lot higher than you can really afford.
All that said however, even Corbyn isn’t the biggest issue here. The economic environment is steadily turning into one in which owning a house is a little less appealing than it was. Interest rates are twitching higher. Taxation on property as an investment is being made less favourable. Prospects for tenants are very, very slowly beginning to improve (rents aren’t soaring; letting agency fees are on the verge of being banned).
In short, looking at the residential housing market right now, there are at least as many arguments to get out as to get in.
On the other hand, for most people, there’s no need to sell. Interest rate rises could stop here. That could be it for a very long time. That means mortgage payments are still very affordable. Employment is strong, which means that most people feel relatively secure in their jobs. There is no “push” factor forcing people to sell.
And as a result, as always happens when a market starts to turn, there’s a lot of resistance from potential sellers. Most have “anchored” their price expectations to the highest possible value – the price their neighbour got six months ago, or their own mental calculation of whatever double-digit gain the Nationwide house-price index says that they’ve made since they bought, plus a bit extra for all the work they’ve done on the property. If they don’t get that price, then they will not sell.
The stalemate will continue until one side or another gives up
So where do we end up? We’ve seen these tug-of-war scenarios in the housing market several times before. This one reminds me a bit of 2005. Back then, house price inflation – which had spent all of 2004 in double-digit territory – flattened out and it looked as though the market was finally going to turn.
Instead, in August 2005, the Bank of England suffered a fit of nerves, and cut interest rates (which had been on a rising path) by a quarter of a percentage point from 4.75% to 4.5%. It sounds ludicrous (and there were other factors at play), but it helped significantly to reignite confidence. The following month, the rate of house price inflation bottomed out at 1.8% and then steadily re-accelerated, right up until the credit crunch hit in mid-2007.
What will happen this time? The Bank of England can’t do a lot (imagine the look on Mark Carney’s face if they had to cut interest rates again); if anything, it’s been trying to make it a tiny bit harder to get mortgages.
The political calculus has shifted somewhat too. Politicians are still tone deaf enough to back housebuilder subsidy schemes like Help-to-Buy, but they are also getting to grips with the idea that there’s a growing contingent of voters who would rather see house prices fall than continue to rise exponentially.
In all, it depends on how long the stalemate lasts. Give it long enough and sellers will accept that markets have peaked, and they’ll recalibrate their expectations. They’ll get over the pain of missing the top of the market and focus on getting the best price possible, rather than the best price ever. Equally, if something happens to inject more fuel, then sellers will get their hope back, buyers will panic, and the market will pick up again.
That’s not terribly helpful, I realise. But the point is, you can’t predict these things. You just have to carefully consider your own financial situation, how important it is to you to own rather than rent, and the risks involved in each path, and then make a decision from there, trying to screen out the political turmoil and the headlines.
However, one thing I would say is that I don’t see the environment for buy-to-let landlords getting any easier. So if you’re thinking of investing specifically to rent out a property, then I have to tell you, that looks like a bad idea and has done for quite some time.
Politicians may bottle out of actively pursuing policies that drive house prices down, but amateur landlords are rapidly becoming one of the now-myriad unacceptable faces of capitalism. Expect no quarter to be given, and don’t make any assumptions over what they will or will not do.