Seven years of drought and other plagues on the market
People of the West Country beware: we are heading for a drought. We are, come to think of it, already in the midst of the biggest drought for seven years, and it seems to be hitting the south-west even harder than other parts of the country.
It is a property drought of almost Saharan proportions, and it is sending shockwaves through the market.
According to figures from Hamptons, there are eight buyers for every available property. There is a massive shortfall of new properties coming on to estate agents’ books, and it is becoming increasingly clear that this has been largely responsible for pushing up prices in recent months.
You will probably already be well aware of this. Maybe the adverts in your local agents’ windows don’t seem to be changing with quite the same frequency. Perhaps you’ve heard tales of houses selling for well above their asking price.
So, what’s up with the market? Despite all the warnings that house prices will not keep rising forever, and that the gains of past decades were exceptional, homeowners are reluctant to sell up. This means that we now have a seller’s market where anyone looking to shift property is doing well.
Hamptons International says that there has been a 67 per cent rise in the number of offers on properties already on agencies’ books. The Royal Institution of Chartered Surveyors says the recent drop in the number of new instructions received by agents is the biggest since 1999.
Surveyors in Devon and Cornwall say this situation has intensified over the past year, and shows little sign of changing. They talk of an “acute shortage” of new houses and say people now have to pay significantly more than the guide price, many of them with cash.
On the bright side, this is hardly consistent with a slowing market. Often, when people become overextended, they put their house on to the market to free up extra cash. This is not happening right now, suggesting that households are not in as much of a financial pickle as many thought. Some sellers are also confused about the introduction of Home Information Packs in June.
However, the shortage underlines my suspicion that the housing market is probably not as healthy as some of the surveys suggest. Both the Government and Halifax’s figures suggested recently that prices are rising at a fair clip. However, high prices due to a shortage of supply is not the same as high prices because of massive demand. And the figures are also distorted by the massive rises in London, driven by City bonuses.
The real picture is still of a market which is slowing, and will continue to slow for the rest of the year.
Even if you don’t follow property news closely, you may well have spotted a story this week warning that interest rates may need to rise to 8 per cent — or even 10 per cent — to bring the market under control.
Fear not — the chances of that are extremely slim. The economist Martin Weale was illustrating what it would need to induce a slowdown. However, what he also said — and what was not widely reported — was that the best way to bring the market under control would be by changing the tax treatment of housing rather than hiking rates to such dangerous levels. He is a proponent of a land tax, something I will look into in a forthcoming column.