| Topic: | Re:Re:Property Market Stable But Confidence Is Shaky??! | |
| Posted by: | Ken Munn | |
| Date/Time: | 13/06/08 09:30:00 |
| I suspect that the reason the market has not (yet) gone into freefall is that underlying the upward movement in prices were strong demographic fundamentals which meant that demand has, for a long time, exceeded supply. Once the current blip is over, prices will continue to rise. Quite how this applies to W4 I'm not sure, but thinking on a wider horizon shows that property prices grew rapidly in the New Labour decade, ostensibly due to low interest rates, low unemployment and strong earnings growth. But supporting those financial factors were demographic factors which provided a genuine reason for house price growth. These factors haven't gone away and look likely to create a solid property market in the post-credit crunch years to come. The rise in the number of households because of an ageing population, immigration, increased divorce and a delay in settling-down has driven up demand which pushed up prices. The construction of new homes hasn’t matched growth in demand. The underlying demographic situation hasn't changed. The UK population is growing by 500 people every day. A more subtle but significant driver in demand is the growth in the number of households which has risen by almost 2 million since 1996. This growth is forecast to accelerate, with 27.5 million households expected by 2016, compared with 25 million today. Why are there more households? Because people live longer; because more people are getting divorced and living in single person households; because people are settling down and marrying later in life and thus staying in single person households for longer; because more young people are going into further education, and thus need accommodation away from the family home. Even if the population numbers were to remain static, demand for housing would still rise because of household growth. As demand rises, the supply gap becomes ever-wider. The government target is to build 220,000 new properties each year: 3 million new homes by 2020. Yet the housebuilding sector constructed only around 140,000 last year and this number is expected to drop significantly in 2008 and 2009. House builders have been hit hard because the banks are unable to supply loans to many traditional new home buyers and so sales have slowed to a crawl. Reluctance to move is another issue. The frequency of changing homes has been slowly declining, and with the current virtual freeze of the mortgage market has almost come to a stop – at the moment only those who absolutely have to sell will choose to do so. In 2005, turnover in the housing market was 5.5% of housing stock, the equivalent of people moving home once every 18 years. The average in the 1980's was 9.4% , or a move every 10.6 years. High transaction costs like stamp duty act as a disincentive for homeowners to move. So does the poor availability of good family homes, which is what many potential movers aspire to acquire. Fewer people moving up the housing chain means there are fewer smaller properties becoming available for those taking their first steps on the ladder. My reading is that If prices do fall, then when mortgage products again become more easily available, these supportive demographic factors will reassert themselves. If properties become more affordable then there should be plenty of demand to mop up supply, which will drive prices up again. In the meantime, the relatively few 'must-sell' flats and houses coming to market are being priced down in order to achieve sales, but the levels they go down to are not a true reflection of the market's underlying value. This is especially true of the auction market, where distress sales are finding only bargain-hunter investment buyers, so that the prices achieved don't represent a true picture of the real market. |