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We're all used to sensational headlines, it's what grabs the readers' attention and encourages you to read on. There have been predictions of house price carnage (and there are even web sites such as 'housepricecrash') but surely we are only experiencing an over due correction?
Well, we all hope so but I fear that in fact things are already worse than the main house price indices suggest. Here's why
Part art, part science
House prices, like the value of any other asset, are part art (appreciation of a picture or bottle of wine) and part science (supply, demand, the amount you can borrow and on what terms etc.). In the current market, there are precious few motivated by pure esthetics - looking to buy just because 'it's got the perfect view'.
The science part is in many ways the easier bit because it boils down to what else has sold and at what price. 'Facts' don't require Brian Sewell to explain what you should appreciate. But I'm worried that the science is looking pretty grim.
Irish house prices are already 50% off their peak and in Japan, homes lost over 80% of their value during what became known as 'the lost decade' in the early 1990's so the first thing to accept is that house prices can fall a long way.
Truths and half-truths
According to the web site Rightmove, asking prices are about 10% above the levels that deals are being done but their statistics suggest it may be much more. Rightmove's average asking price last month was £222,077 compared to £151,861 which was the average selling price that those few that sold according to Nationwide.
The few buyers who can perform are clearly being merciless when it comes to making offers and there's a big difference between what people are asking and what those that are selling are accepting.
The Halifax Index suggests that prices are academically 22.5% off their peak in the summer of 2007. Like other indices, this is based on completions in the previous month which in turn are deals that were agreed two or three months before that.
According to the likes of Nationwide and Hometrack prices are falling at nearly 2% per month So in some places we are probably nearly 28-30% down today.
Most experts, be they the chief economist at the Halifax, or the wise men and women on the Monetary Policy Committee now say publicly that house prices will be cheaper tomorrow than they are today.
Buyers take fright
This obviously frightens potential buyers who don't want to spend more than they have to. Another 10% to go before we hit the bottom? That may turn out to be conservative but lets be reasonable - in total it's still 38-40% less than it was at the peak.
In fact, the value of a property (or any other asset) isn't as is often said 'what someone will pay for it' but actually what the under-bidder will pay. If you put your hand up for something and get home to find your spouse thinks you've made a mistake comparable with the one they made when they said 'I do!' you will find that the value of the bargain you have just snapped up isn't what you paid for it but what they chap who lost it bid. At the moment around 5% less than the top offer. 43-45% off the peak then.
If you are one of the few who can actually extract a mortgage offer from a bank then you are going to find that whatever you have agreed to pay will mean a nice man in a shiny suit is going to pop round and check that the bank isn't lending 75% of an over inflated price (old dog, new tricks?).
The valuer has to stake both his reputation and his insurance on the line so it isn't a surprise that his instinct might be to be cautious. Much easier to under value than to get it wrong and get sued!
Academically then house prices might be around 45% below their peak. As many can verify, there are a lot of properties on the market at present that can't find a buyer at any price.
Average of one in ten chance of selling
If you put your property on the market today you have roughly a one in ten chance of selling it. Now there are those who will disagree and there are examples that challenge these numbers but there are so few sales (down 67% in London) that I would argue that if you have just sold you should be very pleased and if you have just bought then you almost certainly paid too much.
The Halifax states that house price to average earnings ratio is back down from the peak of 5.84 in July 2007 to 4.26. However, the Council of Mortgage Lenders figures, which are based on the ACTUAL eventual price a home changes hands for, tells us that last month the Average Income Multiple (mortgage to average earnings) on the average sale price was just 2.95, down from 3.35 in February 2008.
Hold onto your seats...
If you buy a home to live in then paying 10% more than you ought is fine because that will be where you live for the next ten years. What price a happy home? But those whose business is based on the value of property will only lend 75% of what the man in the suit thinks. It's how we know which way they think prices are going.
Most home owners think that their property is worth more than it is and while there is always the 'art' part to add to the value of any property, the scientific part suggests that today, your home is really only worth roughly half what you might have thought it was in the summer of 2007.
Do you disagree? Or agree? Let us know what you think and help shape future articles by emailing PryorOnProperty@mac.com
None of them can really be trusted as they are all out to feather their own nests. We need to sweep it all clean as it is now as dirty and nasty as it gets!
Only a cruel and greedy government would destroy our manufacturing industry, (because it's hard work and frankly, it's not very profitable), and replace it with an economy based on ever inflating house prices, together with a finance sector, passing out ridiculous loans to all and sundry, to purchase said dwellings, in order to eke out a miserable existence.
This house-price-inflation scam, first happened in the late eighties and the subsequent collapse, followed shortly after, in the early nineties. It made a lot of rich speculators, even more rich, and caused misery for millions of peasants.
I personally, couldn't beleive they were trying the same stunt again in the post 2000 era and even more amazed that people were fleeced, yet again.
I predict then, that should we manage to avoid a civil war, similar to Yugoslavias, and given that we are able to maintain the kind of society that has existed since WWII, that the same trick will be deployed again, and will work again, commencing around 2020 a.d.
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