“Collapse in Bovis sales shocks City,” said a headline in The Independent this week. The first bit of the headline makes sense. Bovis (BVS) customers have reserved 30% fewer houses so far this year than last and since early March they’ve reserved 70% fewer. I think that counts as a collapse.
But the second part of the headline is bemusing. How could these numbers have been remotely surprising, let alone “shocking”? It’s been clear for months now that the housing market, particularly the newbuild and first time buyer dependent parts of it, has been in meltdown.
Given the state of the mortgage market, very few people are able to borrow the money they might need to buy a house and just as few are remotely interested in doing so: why buy now when you know you can buy more cheaply in a year’s time? The only surprise in the Bovis numbers is that they aren’t worse: who on earth are the 1,382 people who have reserved houses this year? And how did they all get mortgages?
Still, the Bovis news isn’t the only thing that will have shocked Britain’s few remaining property bulls this week. Next is the fact that falling prices in central London are finally turning up in the numbers. This week, Savills announced that prices of prime London property (by this it means houses in supposedly bullet-proof Kensington, Chelsea, Knightsbridge, Belgravia and Notting Hill) fell by 1.5% in the first three months of the year.
But, you might say, “1.5% is nothing”. Not so. If prices keep falling at that rate, they’ll be down by 6% by the end of the year, leaving anyone who bought a nice £2m flat at Christmas nursing losses of around £120,000 (plus his £80,000 worth of stamp duty and transaction costs, of course).
So what will the next ‘shock’ be? I suspect it will be falling prices in Scotland. For months we have had to put up with smug mutterings from north of the border about how prices there are ‘resilient’ and how the market is somehow ‘different’ to the English market. But it is all nonsense. Sure, there are legal differences between the Scottish and the English markets, but the drivers – the supply and the price of credit – are exactly the same, so the credit drought will, in the end, have precisely the same effect.
And the writing is already on the wall for Scotland. Last year prices rose nicely (13% on average), but by the last quarter volumes had started to fall off – 16% fewer houses were sold in 2007 than in 2006 – something that no doubt contributed to one of Scotland’s leading estate agents, Stewart Saunders, closing down last month.
Falling sales volumes tend to precede price falls – they represent the stand-off stage of a cycle where sellers won’t cut their asking prices, but buyers won’t or can’t pay those prices. Eventually, in the absence of the offers they once thought they were entitled to, sellers blink and prices fall across the board. Not long now and the Scots are going to find out that their market is no more immune to the crunch than London’s.