Real Estate

I've been absolutely inundated today with different Interest groups littering my inbox with their house price predictions. Here is a snapshot:

-Hometrack HPI - Annual house prices fall 5.3 per cent.
-Halifax HPI - Annual house prices fall 10.9 per cent.
-Nationwide HPI - Annual house prices fall by 10.5per cent.
-Land Registry House - price growth fell for the 11th month in a row in July.
-Bank of England Number of mortgages approved falls to new low.
-Rics survey - Over the last three months, the average number of transactions per surveyor has fallen to 12.7, the lowest figure since the property survey began.

In a nutshell, here are the facts you need to understand from this data:

First of all, there is no such thing as a UK property market. With Mars Bars the price is going to be pretty uniform across the country. With beer, the price is going to differentiate from bar to bar but stay within a certain band. Property is something else altogether. Take two identical houses next door to each other. Both vendors want to move. One vendor has no mortgage on his house and sells up for £90,000. Does this mean that next door will automatically sell for £90,000? The answer is no. It may be the case that the next door neighbour has remortgaged some of his equity. He may have a secured loan that needs to be paid off. He may have to achieve £98000 in order to have enough cash to use as a deposit on his next home. Just because one Newsagent decides to sell his Mars Bars at 10p as a promotion does not mean that every Mars Bar in the UK is now worth just 10p!

Prices will continue to fall. This House Price crash has been caused almost entirely by the increased difficulties in finding mortgage finance. At the moment banks just don't want to lend mortgages unless you have a seriously big deposit to put down. This situation will not carry on forever. Eventually, some bright spark will say, "wait a minute; we could make a killing if we helped out FTB's with some more creative finance!" At this point a light bulb will appear above all the Banks and Building societies HQs and the rush to lend will start all over again. Remember - it is mortgages that make banks money! It is mortgages that provide the profits that allow banks to give you interest on your deposits. It is mortgages that allow you to enjoy free banking. It is mortgages that keep bank employees in work. Basically, mortgages put food on the table. When the banks remember this lending will recommence in earnest - and prices will shoot higher than ever before. This situation will come about at some time in 2009, or perhaps take as long as 2010 - but it will happen, guaranteed.