Wow! Aren’t you just about fed up with hearing people talk about house prices?!!!
And I don’t mean people sitting round the dinner table going on about how they bought this nice little Victorian villa for £275,000 – and now it is worth £400,000!
I mean the professional commentators. Every time you switch on the TV or turn on the radio or pick up the newspaper there is some talking head giving his two pennyworth.
I am sure this did not used to happen. I am sure that about twenty or thirty years ago we just took a passing interest in the price at which the house next door was sold, got a little whim of satisfaction and then pressed on with the important things in life. But now you would think that the whole world depended on it.
An unhealthy obsession
Is this unhealthy? You bet it is! It reflects several things. A society that is obsessed with material values, of which by far the greatest is their pile of bricks and glass and pipes and tiles and hideous plastic window frames.
A society that has pinned its whole financial future on the assumption that just at that moment when we choose to downsize to Rose Cottage, South Devon, some goon is going to come along and offer us half a million for our wretched little two up and two down.
A society that complacently tots up the increased value of property while conveniently ignoring the massive costs of actually buying it and maintaining it.
A society that happily ignores the fact that the rise in the value of its homes may have had something to do with the extensions that have been added or the conservatories that have been paid for.
A society that has been so comprehensively stripped of its faith in stocks and shares and investment funds and building society accounts and life assurance and pensions that it reckons that if it cannot touch it, it ain’t worth having.
And now we are led to believe that a quarter point reduction in interest rate is going to make all the difference. Those of us with long memories can recall a certain day in 1979 when the Bank of England put its base rate up from 14% to 17% in one go.
Now that is what I call an interest rate rise! And what happened to house prices then? Well, frankly I cannot remember because I did not own one. But I’ll bet that house prices did not attract half as much commentary then as there was after last week’s puny 0.25% cut.
When they go down, they keep going down
To me, one thing stands out about house prices. When they go up, they keep going up. And when they go down, they keep going down. In other words it is a long cycle.
My neighbour is American. His house in Charleston has been on the market for a year. But hardly anyone will even look it over. He has slashed the price. It has made no difference. He asked me if I though the position would quickly change. I am afraid not.
It’s all a matter of psychology. If people think that prices will fall they hold off and hold off and hold off. Transaction prices are determined by whoever is most desperate to sell. In a rising market, buyers cannot make their offers quick enough or high enough, and transaction prices are determined by whoever is most determined to buy.
And then you get all the other sharks, who try to ride the wave. To the fore is the buy-to-let brigade. Forget what they say about rents covering their borrowing costs, and how they are in it for the long haul.
You might make a one per cent return by netting off your rental income against your borrowing costs, but what really counts is the 10% or 20% or 30% you might make – or lose – in capital terms. That is why when the cycle turns these wide boys find that they are not so clever after all, and become desperate sellers.
All this has to be played out and if the process is well under way in the United States over here it has hardly started. The housing market is a super tanker. Once it has turned it takes a mighty effort and a long time for it to turn again.
Now UK house prices are on the way down. Face it! If Mervyn King thinks that 0.25% here or there is going to make a scrap of difference, then forget it. So please, housing market commentators, shut up, go back to your miserable little City office, to your stack of statistics and your feeble forecasts. We don’t need you. We don’t want to hear from you. We can work out for ourselves what is happening in the real world.
But much more important – we don’t really care!
This article is taken from Tom Bulford’s free daily email ‘Penny Sleuth’.