IS IT JUST ME .... or has the boom in house prices made us all a bit too greedy? If you bought a house for £150,000 ten years ago, it could now be worth more than £425,000 – an increase of 183%. It’s not a bad return, especially if you have been living in your investment. House-price inflation is now running at 13.7%, according to the Halifax index. Admittedly, it’s past a peak of 22% last July, but it’s still completely barmy.
Of course, there is nothing wrong with making a bit of money out of the sale of your property. And these days you need to make a healthy profit just to cover the cost of the next house purchase. The stamp-duty bill for a family home of £500,000 is £15,000, remember. But our greed is out of control — and could actually cause the dreaded market crash.
There is a growing stack of evidence that buyers are staying away from the market.
The Land Registry recorded a drop of almost a quarter in the number of houses changing hands in the last three months of 2004: 230,000 against 300,000 the previous quarter. Activity has been similarly sluggish so far this year, according to a study by Hometrack, which collates information from estate agents. It found that agreed sales fell 13% in January, compared with a 4% dip in December.
The number of buyers registered with estate agents also dropped 13% last month. Hometrack’s national demand index has recorded an increase in supply relative to demand for eight consecutive months.
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You only have to log on regularly to property websites to find houses that have been advertised for months and months, obviously with no takers.
Why are buyers shying away from the housing market? The rise in interest rates has undoubtedly knocked confidence. And last week’s inflation report suggests that we should not assume that interest rates have peaked.
However, you can still get a mortgage at about 4.5% — way below the peak 15 years ago of 15.4% — so budgets are not too stretched.
But the problem is not how much buyers can afford, but how much they are willing to spend. As any estate agent will tell you, a house is worth only what someone will pay for it. And buyers just don’t want to pay these prices.
Which means that prices have to come down, and by quite a long way. Nationwide logged price falls of a mere 0.2% in December — the first since 2001. But they were back up again in January, if only slightly, at 0.4%. Some areas did not even experience a drop at the end of last year, which is pretty hard to believe.
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Jeremy Leaf of the Royal Institution of Chartered Surveyors said: “You would expect sellers to be more realistic because four out of every five are also buyers.”
He is too polite to call them greedy, but we should be blunt. If you are selling your house, you have presumably made a profit. So you can presumably afford to bring the price down a bit.
I speak from experience. I recently sold a house in London. It was on the market for about six months before I decided it would be sensible to drop the price. All in all, I “lost” about £25,000. But I still almost doubled my money.
Sellers who hold out for inflated prices could be waiting a very long time to find a buyer.
First-time buyers cannot afford a property in nine out of ten towns, according to Halifax. In 2004, there were an estimated 361,000 first-time buyers — the lowest annual total since 1981.
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Property investors once rushed to fill the vacuum, but they too are starting to retreat. New mortgage lending to buy-to-let investors has fallen for the first time since records began. It dropped by 18% in the second half of last year compared with the previous six months, and was the first fall since 1999. So who is shoring up the market? If everyone does the decent thing and brings their prices down to more reasonable levels, then we can look forward to the much-touted gradual slowdown.
But if stubborn sellers refuse to acknowledge that the balance of power has shifted to the buyer, then they could get a brutal reminder. If prices come crashing down, it will be greed that is to blame.