House Prices – catch a falling dagger
News in the UK press this weekend has been full of insightful articles about how the housing market is in trouble and that even financially solvent people have no hope of getting a loan for houses.
Halifax announced that it would require future borrowers to first set up an account with them and save for a few months before they’ll even be considered for a loan – good reason is that Halifax currently offers the best deals on the market. This is a return to the old days before the roaring eighties when you’d have to show your ability to maintain payments and build up a little cash reserve to contribute into your house. Cynics will say that this was because most lenders were mutuals, so they could only get the money from savings and not the market. But thinking back to the dim distant past it is clear that the main reason was that one had to prove ones-self to the local branch manager first.
At the same time the papers where full of various forecasts about how far the housing market has to fall, and how quickly – ranging from 15 percent through to an unlikely 50 percent, the same papers then went on to present proud buyers who’d managed to get 10 percent reductions in the asking price – 10 percent – now let’s think about this. If I borrowed $1m off you and said I’d give you back $850,000 at the end of the year what would your reaction be? Of course .. so it got us wondering, was this person proud of being foolish enough to probably lose money? Why would the papers present this as a success? In our title we given the analogy of catching a falling dagger, perhaps that’s more representative of the reality.
We’ve decided to launch an interesting experiment – instead of advising people to hold off buying a house (there are many reasons one may really need to move or buy a house) we’ve suggested that they act with courage and sense. If the prices are going to drop say 20 percent then offer 20 percent off the average price. Doing this is easy – in the UK go to upmystreet.com enter the post code and offer 20 percent less.
The idea has been catching on at the dinner party scene in London recently with people proudly boasting that the estate agents (realtors) have gone pale faced at the offers. A year or two ago they wouldn’t have ignored such an offer, but today they are desperate to move housing stock (150 realtors a month going bust in the UK), so begrudgingly they pass the offers on.
Whilst this is anecdotal it led us to wondering if the so called ‘soft landing’ was in the process of bursting a tyre and going horribly wrong.
The government is doing its best to talk down any suggestion that there is a problem, that perhaps the bubble has burst – which in our cynical mindset means that things may be worse than we imagined.