“If you are looking to buy a house in Q1 you will have the market to yourself.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In some places, in particular prime markets in London and the south-east, house prices have been tumbling. According to London-based estate agency LonRes, average “achieved” prices:
- In Prime Central London: -6% in Q4 2018; and -14% from their 2014 peak.
- In slightly cheaper Prime London districts: -5% in 2018.
- In Prime Fringe districts, i.e. prime sectors further removed from the city center: -7% in 2018.
In a survey by LonRes, 63% of the agents said they had seen prices in their market plummet by 10% or more from peak levels as sales ground to a standstill. In London transactions slumped by 9% between 2017-2018 for properties under 1 million, by 25% for properties between £1 million and £2 million and by 12% for properties between £2 million and £5 million.
Another indicator flashing red is the Royal Institution of Chartered Surveyors’ house prices balance, which measures the gap between the number of estate agents and property surveyors expecting increases and those anticipating decreases. It crashed to -22% in January, its lowest level since March 2009. The sales expectations balance for the next three months reached its lowest level since the survey began in 1999, dropping from -28% to -32%. Here are some more standouts from Rics’ report:
- Agreed sales dropped further in January, with the pace of decline “seemingly gathering momentum compared to December results.”
- The average time taken to sell a property, from listing to completion, reached 19.4 weeks.
- Northern Ireland and Scotland enjoyed the strongest price expectations for the next twelve months, followed by the North West of England and Wales.
- Contributors in London still see house prices falling over the next year.
Acute uncertainty over Brexit and the UK’s political future is taking its toll on an already weak market sentiment, putting many prospective buyers off taking the plunge and leaving frustrated sellers facing three unappetizing choices: drop the price, sit tight in the hope the general mood will soon change, or take the house off the market altogether. With many opting for the latter, more homes were removed from the London market due to a withdrawal than a sale in 2018, according to LonRes.
Market sentiment is likely to deteriorate even further in the next six weeks as Brexit talks go right down to the wire. “If you are looking to buy a house in Q1 you will have the market to yourself,” says Henry Pryor, an independent luxury property buying agent. “I suspect if you ring up an estate agent and ask them if you can go and see one of their properties they will probably send a stretched limousine to pick you up.”
For the first time in quite some time, the UK property market is now a buyer’s market, but with very few buyers left out there. Yet for those who do choose to transact there are some juicy opportunities on offer, LonRes points out:
Find a vendor keen to sell, and buyers could be paying significantly less than at the peak of the market four years ago. Buyers of homes in prime central London paid 14% less in Q4 2018 compared with the 2014 peak. Even for those with something to sell, the cost to trade up has fallen. For overseas buyers there are opportunities too. Those buying in US$ are paying on average 36% less in Q4 2018 than at the peak of the market in 2014.
The housing-market downturn in London and the south-east could be spreading to other regions, a report released this week by the UK’s Office for National Statistics (ONS) suggested. The worst performing markets were the North East, where prices fell by 1% over the year to December 2018, down from an increase of 1.7% to November 2018.
Thanks to some strength in other regions, on a national basis house prices rose by 2.5% in 2018, the lowest annual rate since July 2013 when the economy was beginning to recover from the Financial Crisis.
And there could soon be a nasty surprise in store for foreign buyers of UK property. As part of a Treasury consultation, the Government has proposed that non-UK residents, firms, or trusts should pay an extra 1% charge on newly purchased properties. The surcharge will be levied on top of the standard rates of stamp duty and the higher levels of stamp duty imposed on second homes and buy-to-let purchases in April 2016. Stamp duty can reach as high as 15% on second properties worth over £1.5 million, which still doesn’t go very far in London these days.
These tax hikes were designed to tamp down on activity particularly by non-resident buyers and investors in a market that had long gone haywire. And they appear to be doing their job, so much so that the Bank of England warned this week that the recent hikes in stamp had slammed the brakes on the housing market by putting off potential buyers, particularly in London. Yet even as house prices across London, the south east and elsewhere tumble, they’re still not nearly low enough to fall within the reach of most first-time buyers. By Don Quijones.
Desperate measures for desperate times? Read… Lloyds Bank Resurrects 0%-Down Adjustable-Rate Mortgages for First-Time Buyers to Prop Up UK’s Housing Market
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The mood among London house owners is clearly darkening from anecdotal impressions – which are easy to collect as this is the preferred conversation topic right after the weather.
People pin their hopes to the whole hiatus dissolving end of March when the Brexit uncertainty will be resolved one way or the other – or not under an “extension” being agreed currently with the EU. How long can you hold out with your sale?
Another group that can’t hold out are the many buy-to-let landlords mortgaged up to the hilt. The rental market has weakened noticeably and each month holding out for a renter to pay ask is a month of negative cash flow.
Bad business decisions are getting punished. There is some Justice left in this world. If only the same rules applied to the big boys.
Guess you missed the memo on retail bankruptcies, airline bankruptcies, newspaper merger/layoffs, .Com bankruptcies, auto/truck loan defaults, student loan defaults, shopping mall owner distress, homebuilder problems, Sears + GE +KMart financial distress.
It’s called competition, it results from net results of billions of consumer decisions made on a daily basis, it happens all the time (good times & bad, especially bad), it happens to good guys (Toyr R Us) and bad guys (Theranos), it’s been going on for thousands of years.
And yet somehow the wealthy are getting wealthier despite their malinvestments.
Big Bosses like Fred Goodwin are usually allowed to walk away with millions of cash in pockets, it’s only the shareholders or taxpayers who pays the bill for theirs malinvestment.
You have prices at GBP800-4000/ sq ft, and the cost of basic building is maybe GBP150, total cost for prime developments including S106 related payments maybe GBP300… 14% from the peak is for the birds.
Glad to see the 1% extra charge on foreign purchases in London. Housing should not fluctuate in price like a stock or bond.
Exactly, it is only supposed to fluctuate upwards, and the 1% adds a sense of privilege to foreign buyers.
Have you ever had someone firmly vindicate their new nationality to you by telling you they have paid for it ?
When the speculators depart…those who hope that it’s any way related to the resolution of Brexit one way or another are living in false hope.
14% less than the 2014 London peak puts prices at ‘ludicrous’ rather than ‘insane’.
Still around another 50+% downwards to go, over the next five years or so. This is merely the beginning of the unwind.
Wolf, regarding the Inflation Hedonic Adjustment you put up in article 6 days back.
The issue is the SELECTIVE Hedonic Adjustment — in vehicle, the Federal government wanted to adjust away the price by Quality improvement, as if there is no Inflation.
But then, in terms of Food, they did not play by the same rule! If Steak prices increase, the CPI would ASSUME you would switch to eating ground beef. Hence, AGAIN, NO Inflation! Quality be damned in this case.
It is clear, the Federal government want to cheat all people of their social security, and the Fed to play with QE and interest rate to blow bubble assets.
I hope you can make a new article on the food and other items that Fed cheat on us on CPI. Thanks.
I’m thinking about it.
Sean
Very good point. This is exactly what they are doing.
The Fed’s being running this game for the last 3 years.
They should also throw in medical premiums into this CPI thing. Then you will really see what’s going on with consumer prices.
I’m constantly being told that the increase in my food bills, etc are so much higher than the govt published price indices, because of where i live. That’s complete nonsense…..
Health insurance premiums? It would skyrocket! I get naseous every month I see the bill
So, with your food substitution analogy, consumers will go from buying albacore for their sandwiches and substitute pilchard, and the government will assume that everybody is just as happy as before.
Brexit will help bring prices back to normality. This is a good thing
It’s funny to me to watch these old Boomers vote ‘Leave’, then watch their housing values plummet – like it was going to be just another day and no reprocussions would come of it.
“Ya know, when I voted for the Leprechan Arsonists Act, I never thought the Leprechans would burn down MY house”!
Many of those boomers own several houses, some of them fully equity-owned, some still on mortgage which though is comfortably paid by rents. The boomers have had a great run during the multi-decade house price boom. And that’s across the country, not just London. Many of them are indeed Brexiters and fear no (major) damage from a correction.
The generation after, groaning under their mortgage mountains, indeed wish fire and brimstone upon Brexit(ers) and you’ve got to be cautious to even bring up the topic with them. They know any correction will wipe them out and they blame Brexit.
The millenials also think Brexit is uncool because Europe (and that’s their Berlin/Barcelona booze trips memories) is cool. House prices interest them not as most can only dream of putting together even a 5-10% deposit for a crappy place.
UK is knee deep in Subprimes and ARM’s… Australia is taking the crown for Lehman 2.0 in 2019, but UK is right behind them
Brexit or not, there RE is doomed
Hey @Lemko, have you read about this in Oz:
https://www.abc.net.au/news/2018-10-18/expats-face-large-capital-gains-tax-bills-under-proposed-laws/10382814
Bill is currently before the Senate. What is it about Australia and retrospective taxation? This isn’t the first time…
Deutsche Bank was in LaLa land creating money then playing the derivatives casino. This created an imbalance in European power. Brexit is a reality check for the market. Deutsche fall from grace has been largely cushioned from media eyes but Merkel admits impact on Germany and Europe via Italian and Spanish Government bonds ownership is significant. Brexit is also opportunity for Brits to convey to the London mile that now is the time to separate London from UK and become its own Vatican like nest of slease. Brexit is so much more than short term 10 year gains. Its about climbing out of a 40 year quagmire.
I took a quick informal survey of recent comments at WolfStreet in a UK house price article and 4 out of 6…. oops 5 out of 7 now…mention Brexit.
I therefore deduce Brexit, not for house prices, but just because of Brexit. Anyone who knows exactly what Brexit means or adds up to would they please enlighten us all.
I don’t know neither.
The thing is Mrs May said ” Brexit means Brexit. ”
She doesn’t know either.
The referendum question was “Remain” or “Leave”.
How the word Leave got translated into Brexit remains a complete mystery to me and lots of others.
Don’t pretend you didn’t know what it was all about. That’s a revisionist story.
Its a portmanteau of Britain & Exit.
I’m in the US, and not informed enough to discuss the basic details, let alone the nuances of Brexit, but it seems safe to say it means uncertainty, and Mr. Market no like that…
Jon Oliver broke down Brexit very well on his show last week.
https://youtu.be/HaBQfSAVt0s
That was very funny :-), thanks.
Actually I know all of that already , and was not allowed to vote (which fortunately saves me having my conscience later available to be twisted) . You see I actually live in EU, and have witnessed well the positive and not so positive sides to its evolution in various countries first hand over the last decades. I’ll be blunt, I don’t like EU, and I don’t like what Britain has become either, whether that is because of EU or not. However that is subjective and I recognise others will have their own views and visions.
What is missing though is real detail, because the overview by Jon Oliver explains well what we are being presented, but not the weight behind the referendum, which was not some trivial or naive choice of direction. So for example is Brexit :
An attempt to regain sovereignty (that is definitely yes if you study the concessions knowingly made by Heath in private) .
An attempt to wipe out sovereignty and the more nationalistic side of Britain (it could be with a reversal, which would wipe out the older generation) .
An attempt to disrupt an already fragile EU because its construct is seen by some as a dangerous antithesis to national values (could well be so)
A globalist push at a new chaos from which to install a new preferred order (that goes a bit far, but it is a fearful thought).
An event organised with EU to be used to reformulate EU (could be so, either way EU will take full advantage of any opportunities )
I actually expect various eventualities are planned for and being pushed by one side or another. My own view is that the EU/Europe before Euro was much more acceptable and of much better values.
I can think of more possibilities and potential facets. I am not smiling at all at what I am both experiencing and witnessing due to the total evolution of the last couple decades, nor for one circumstance nor the other. I don’t complain, but there it is said.
So what exactly is the meaning of Brexit ?
I should think we will find out eventually.
New York property prices have fallen … maybe … 5-10% – no Brexit
Sydney property prices have fallen … maybe … 5-10% – no Brexit
London property prices have fallen … maybe … 5-10% – ???
So maybe, just maybe, London is like every property bubble that is hissing in the western world.
Auntie Maude’s cat died. Yep, Brexit.
Global warming. Yep, Brexit.
Jeremy Corbyn mind has defected to the Monster Raving Looney Party, leaving his carcass at the Labour Party, all El Cid like. Yep, Brexit.
Some voted Leave so their kids would one day be able to afford a house.
I know people with that as one rationale knowing full well house prices would/could take a hit.
That’s why it’s time to get this Brexit over with, one way or the other, so that people can focus on what is really causing some of these things. But uncertainty for businesses is the worst. Given enough time to prepare, businesses can generally deal with the problems they might face. But being confronted with the indecision of the UK government, businesses don’t even know what to prepare for.
We are in this market looking to buy. Prices have definitely softened above +£1m generally but for anything near a good school you can forget about price drop. Properties in these areas still sell in days at good prices.
For the lower end of the market it is quite complex. Basically you can get a mortgage with 2 years fixed for around 1.5% right now. If you buy you can cut your housing monthly outgoings by maybe 50-70% vs renting the same place. For example a 2 bed flat will cost you £2000 per month. With an interest only mortgage and 20% deposit it would cost you around £800. This calculation is what has driven the lower end of the market since 2014 and while negative rates Carney is in charge it’s probably a good bet.
But borrowers are tapped out now and prices are largely constrained by loan to earnings limits. I imagine Carney’s next move will be to relax these to ‘support the market’ so I wouldn’t bet on a sustained fall in prices just yet.
My sister lives and works in London. She sold in 2014 and has been renting since. Rental rates increased to late 2017 but have been stable or dropping since. She is sitting on a pile of cash from the sale and patiently waiting for prices to drop further. Her landlord has recently offered to reduce the rent when she indicated she was thinking of moving, and she has a desireable place. If this continues for another six months, she will be well in profit from the move to renting.
Shouldn’t Brexit support housing prices instead of depressing them? How many British citizens currently reside in the EU, and may be uneasy about it? Or how about just owning property in the sunny south?
UK is trying to make us uneasy, basically by neglect and projecting uncertainty. Most countries in Europe are still welcoming, EU is little help. People who are used to everything being officialised worry about extra paperwork, taxes, insurance needs, possible travel difficulties. Also there is other political uncertainty in Europe so being possibly more outsider makes guarantees via EU less obvious, not that there was ever much. Take Gibraltar and Spain for a good example. Spanish are generally welcoming, but there is more nationalist anti foreigner recently, new elections (third in four years now I think) with new nationalist party to take maybe twenty seats. EU was looked to by Gib to moderate on Gibraltar, Gib voted “stay” for that reason, now
https://www.gbc.gi/news/spanish-navy-ship-exercises-jurisdiction-bgtw
where before it made (probably manipulative and mostly token) efforts – it has it’s eyes on an EU border.
For old timers who know their region well it is not all such a big deal , but there is some uncertainty around for the rest.
It’s a good thing housing markets are always local…
Wholesale commodities of finance are moving to EU and Dublin from London. First, they downsize and commodify finance departments before shipping what’s left to EU. A huge blow to expensive housing created from easy money from central banks since 2008. EU was slow with easy money and clean up the big banks. Wealthy foreign expats pushed the London RE bubble further. The two most inflated cities are London and Hong Long! The London bubble will crash much more!
I was interested in buying property in London but with all the knife crime and acid attacks that are now daily occurrences I’ve gone off the idea. Probably not the only one.
BREXIT is a simple game. You see, on the BREXIT event, world central banks will flood the markets with liquidity, and the prices of all risk assets will jump. That is all you need to know about BREXIT. Easy money.
My wife left me – brexit
House values drop – brexit
I lost my job – brexit
I tripped up and broke my arm – brexit
My pension fund value dropped – brexit
Maybe brexit has been a good thing as it’s stopped the West needing to invoke “the Russians” as an excuse for all the bad things that will happen because of terrible economic policy and nature.
That Gordian knot can always be cut by blaming Brexit on the Russians.
I think it is great that London is taking steps to cool off its market and control the inflow of foreign money. Recently I read the government was forced into this by a non-stop flow of articles in the press about how severe the problem has become.
We should all learn a lesson from this and start writing our newspapers demanding they report on what is going on.
It’s not a straight forward task calculating if you’re going to benefit from London house prices falling despite what some comments suggest.
The cost of carry of being short is tangible, high, and includes:
-Rental yields can be around 3% pa
-Stamp duty has gone up a lot in the last few years ie. if you got in earlier you are better off because entry costs have risen
-UK house prices are still up 10% or so over the last five years (Rightmove Index, Greater London)
-What other asset did you invest your deposit in whilst waiting for this ‘correction’ and how has this performed?
All in all you could easily have paid away (perhaps ‘given up’ might be a better term) 20-30% of the value of the type of property you want to live in over the last five years.
That property correction you’re waiting for had better be severe (and without prompting a policy response I might add) if you’re going to break even…
Buy now or be priced out forever.
Buy now or you’ll lose all the money you pay for rent.
Lmao :p