What a few weeks we’ve had! Elections, budget speeches, flu pandemics and of course for all those in SA - the frustration of working 3 day weeks!

In the latest edition of South African Real Estate INVESTOR Magazine (REIM), I write about the Sunday Times Rich list that has just been published and the reasons why the rich hold their wealth in property. Grab a copy at CNA or Exclusive Books if you want to read the full article but here are some interesting stats on the FTSE100 vs. UK property market.

• Over the last year shares are down 31.1% (down 28.3% with dividends) as Halifax’s house price index has fallen 17.6%
• Over the last 3 years shares are down 31.9% (down 23.7% with dividends) while Halifax says the average house price is down 10%.
• Over the last 5 years shares are down 9.1% (down 8.9% with dividends) while house prices are up 3.9%
• Over the last 10 years shares are down a whopping 35.4% (down 11% with dividends) while house prices are up 111.5% 
  

Source: The Sunday Times   

Modest demand and low supply.

In the last issue we looked at the first stage of the recovery, characterised by a low supply of property coming to the market and a low demand for property from prospective buyers. Today I want to look at Stage 2 – Modest demand and low supply.

Housing stock – Last year estate agents were complaining of a lack of willing buyers, this year good quality housing stock seems to be the problem. Many home owners who bought at the top of the market are unwilling to sell at a loss so they are sitting tight and new property coming on to the market is 19% down on this time last year. Property developers have either closed up shop or downed tools resulting in the lowest number of new housing completions since the Second World War. The chancellor conceded in his Budget speech that the government have no chance of achieving its target of building 3m homes by 2020. He also addressed fears of the market being flooded by repossessions by announcing a new £20 million Repossession Prevention Fund, which will allow councils to make small loans to families at risk of losing their homes. Furthermore the Governments Mortgage Rescue Scheme, designed to help homeowners who can no longer afford their mortgage, was extended to include those borrowers in negative equity, who had previously been excluded from this form of help. 

Mortgage finance – I have always maintained that it was the sudden withdrawal of mortgage finance that turned the 2007 slowdown due to affordability, into a full scale downturn. For this reason the return of good quality mortgage products will be fundamental to any upturn in the market. The Council of Mortgage Lenders (CML) has reported that gross mortgage lending was up again in March by 16%. This is the third consecutive monthly increase but to put it into perspective it’s still 52% down from March 2008. The Government announced in The Budget that they are willing to underwrite mortgage-backed securities, a move that may encourage lenders to feel more confident about offering home loans to borrowers who do not have big deposits.

Buyer’s activity – Inquiries from new buyers rose for the fifth consecutive month in March, and at the fastest pace since September 2003, according to the Royal Institute of Chartered Surveyors (RICS). April experienced continued growth in the number of buyers registering with agents, with applicant numbers up by 6% throughout the month and by almost 32% in the past three months.

This increase in demand along with more realistic pricing has supported a 15 per cent rise in the number of sales in April according to the national housing market survey from Hometrack.  Sales are up by 70 per cent over the last three months, albeit from a very low base.

The average time taken to sell has fallen for a third consecutive month, standing at an average of 10.4 weeks compared to a recent high of 12.3 weeks in January this year. Sellers are now achieving at 89.6% of their asking price, up from 88.3% in January.  

Many families who have put their lives on hold for the past 18 months to see what happens in the market now feel that prices have fallen sufficiently to justify jumping back in. Many are also using the downturn as an opportunity to upsize arguing that if they sell their smaller homes at a 10% loss, but buy a higher valued property at a 10% reduction they are in fact better off. 

With interest rates on savings close to zero and shares perceived by many as too risky, bricks and mortar seems like a no-brainer for those investors with cash.  

Considering all of the above I think it’s clear to see that we are firmly into Stage 2. This is likely to be the most prolonged stage of the recovery due to the simple fact that the limited availability of mortgage finance will keep many buyers from entering the market. It’s clear however that both demand and confidence is returning to the market. All that’s needed now to take us into Stage 3 and widespread upswing is the same thing that got us here in the first place – mortgage liquidity.