WORD ON THE STREET
House sellers will find themselves between a Rock and a hard place
So mad have the past few weeks been that it is difficult to know where to start. Perhaps with the still shocking fact that there has been a run on a British bank for the first time since the 19th century.
I trekked down to my local branch of Northern Rock last weekend and the sight of perhaps 100 people — perhaps more — queuing up to withdraw their life savings was difficult to take in.
The last time I saw something like this was in Argentina six years ago, when the economy suffered a cataclysmic shock and everyone ran for the hills. Buenos Aires at that point was characterised by wild riots, and while I don’t think the mainly silver-haired crowd out there was capable of similar mayhem, the mood was still one of confusion and rebellion.
At the time of writing, there was still no confirmed buyer for the bank, though the stock price had recovered fractionally and the queues had abated.
I don’t think anyone in the financial world — even the more pessimistic of us — anticipated such a dramatic event. This event and the Government’s reaction to it raise plenty of political questions about Britain and the nature of its free market economy — and check out the Your Money section for more advice about what it means for your investments.
While it’s now pretty clear that the banking crisis will leave a sizeable dent in consumer confidence, no one can truly predict the eventual result for the wider economy.
But I now have little doubt that this will well and truly bring an end to the housing boom. Don’t take my word for it: listen to Alan Greenspan, the former head of America’s central bank, the Federal Reserve. He told me that the housing market is “going to turn — it’s got to turn”.
Or what about Martin Weale, the head of the National Institute for Economic and Social Research, who believes that the Northern Rock debacle is likely to be the trigger that causes a housing correction.
With consumers more worried than ever about their finances, it seems likely that many of the more speculative buyers will abandon the market.
The buy-to-let sector, is already looking slightly fragile, seems particularly vulnerable.
However, the likely correction — or crash — owes less to the events of the past few weeks than to the record amount of household debt that has built up over the past decade. Things haven’t changed: consumers are still more pressed than they have been for well over a decade; house prices are still massively overinflated.
I will investigate the likely fate for the market in next week’s edition, but in the meantime here is some advice for would-be buyers and sellers. It is now a buyers’ market. This will make it easier for buyers to bargain for cheaper prices — even if they have already had an offer accepted. I wouldn’t expect the advertised prices of properties to fall all that much, but people will now be able to get hold of properties for well below the asking price rather than comfortably above it.
The next move in interest rates is almost certain to be down rather than up — perhaps sooner rather than later, depending on how long the financial crisis lasts. But there are still plenty of decent fixed-rate deals out there.
My final warning would be that those buying a home today and intending to sell it on within the next two years should not expect its value to increase much — if at all. With the market likely to flat-line at best, things are now very different from the past decade.
edmund.con[email protected]graph.co.uk. Edmund Conway is Economics Editor of The Daily Telegraph
See Property Clinic on page 15 for mortgage advice and tips on buying in a cooling market