Seven years of drought and other plagues on the mar­ket

The Daily Telegraph - Property - - West country - Ed­mund Con­way

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.

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