Collapse of the UK housing market

[1nvest]

The trouble is that the BoE have a conflicted mandate:

"The Bank of England (BoE) has a dual mandate to protect price and financial stability"

They interpret financial stability to mean preventing rising unemployment and recession. Protecting the value of our currency comes a long way behind that.

The BoE is independent in name only, it just follows (reacts to) the pathway that the government lays. Serves as the government scapegoat. A idiotic puppet could do the job, as has been proven. A good Governor of the Bank of England such as Mervyn King can however impose influence rather than just being ignored.

[vand]

Barratt say their forward order book is 9% down in price:

https://www.standard.co.uk/business/hou ... 94132.html

that seems more accurate to me than the 3-4% fall that Nationwide/Halifax report - after all, it will be the smartest homes that continue to change hands when things are ina downturn.

[Lanark]

That's not the same as a 9% drop in prices, they could just be selling fewer expensive houses.

Granted a fall in turnover is usually followed by dropping prices, but I don't think we are quite there yet.

[dealtn]

Barratt say their forward order book is 9% down in price:

https://www.standard.co.uk/business/hou ... 94132.html

that seems more accurate to me than the 3-4% fall that Nationwide/Halifax report - after all, it will be the smartest homes that continue to change hands when things are ina downturn.

Instead of linking to a newspaper report why not go the actual source?

https://www.investegate.co.uk/announcement/rns/barratt-developments--bdev/barratt-developments-trading-update/7629623

It actually gives the reasons for the 8.7% fall too.

[vand]

Barratt say their forward order book is 9% down in price:

https://www.standard.co.uk/business/hou ... 94132.html

that seems more accurate to me than the 3-4% fall that Nationwide/Halifax report - after all, it will be the smartest homes that continue to change hands when things are ina downturn.

Instead of linking to a newspaper report why not go the actual source?

https://www.investegate.co.uk/announcement/rns/barratt-developments--bdev/barratt-developments-trading-update/7629623

It actually gives the reasons for the 8.7% fall too.

Don't be such a pedant. Nothing wrong with linking to a new article that is reporting on the same info. Sorry about the 0.3%.

[dealtn]

Instead of linking to a newspaper report why not go the actual source?

https://www.investegate.co.uk/announcement/rns/barratt-developments--bdev/barratt-developments-trading-update/7629623

It actually gives the reasons for the 8.7% fall too.

Don't be such a pedant. Nothing wrong with linking to a new article that is reporting on the same info. Sorry about the 0.3%.

Nothing pedantic at all. The original source gives much more information as well as being clean of any journalistic spin that might have been applied (in any direction). Unlike the Standard article it gives 4 reasons for the fall, and allows one to draw a more meaningful conclusion regarding the quantum of the fall, rather than an oversimplistic conclusion.

Why would one not prefer additional information when undertaking such a debate on the housing market?

[Dod101]

I agree with dealtn and cannot understand why people rely/quote third party sources. And on that note, why not go to the Company website and read the RNS directly? That is not being pedantic; that is simply obtaining the facts directly.

Incidentally, in the same report, Barratt tells us that the underlying fall in house prices within their order book was approximately 3.5% over the year to 30 June 2023.

Dod

[vand]

The question I find myself asking now is how will this downturn look compared to the slump of the late 80s/early90s in real terms? We have similar sort of drivers - an initial surge of inflation coupled with and soaring interest rates... back then it was followed by a recession in the early 90s and then generally tight monetary policy for a few years.

Back then, according to Nationwide index, prices slumped from £62,782 in Aug 89 to £50,128 by Feb 1993. There was no quick recovery and they bumbled along near this level for 2-3 years, hitting £51k in Dec 1995 which is probably where they made their inflation-adjusted lows.

62.7k to 50.9k over 7 years is a 19% nominal decline, but CPI inflation during those years was:

1990 - 8.06%
1991 - 7.46%
1992 - 4.59%
1993 - 2.56%
1994 - 2.22%
1995 - 2.70%
1996 - 2.85%


https://www.macrotrends.net/countries/G ... n-rate-cpi


So the peak to trough decline in real terms over this time was as much as 41%.

In comparison, current decline house prices have gone from a peakish price of about 273k to 261k in just over a year, which in nominal terms is a 4.5% decline, but if you factor in inflation that becomes more like a 14% decline.

There is clearly a long way to go before it looks anywhere near as bad as the early 90s, but this may be instructive for anyone who thinks the housing market is just going to bounce back next year.

UK property has had such a good run over the last 30 years, there is bound to be a prolonged period where it returns closer to a sustainable trend.

[vand]

I agree with dealtn and cannot understand why people rely/quote third party sources. And on that note, why not go to the Company website and read the RNS directly? That is not being pedantic; that is simply obtaining the facts directly.

Incidentally, in the same report, Barratt tells us that the underlying fall in house prices within their order book was approximately 3.5% over the year to 30 June 2023.

Dod

FWIW I do try to quote from source, or at least a respectable news outlet. but sometimes when I'm on my mobile I will frankly quote from what is easiest.

[AsleepInYorkshire]

During the late 80 and early 90's I was employed by the third largest [b] volume house builder in the UK.

The large house builders had no option but to write off a serious amount of value on their land banks. The company I worked for did the same. However, their write-off was considerably smaller than its competitors. Indeed I recall being told at the time that it was by far the smallest amongst its rivals. In the run up to the recession land price inflation was significant. The CEO had issued instructions that when preparing appraisals for land purchase the house prices were to be as the selling prices being achieved by the business in the current market. No house price inflation was to be included in the appraisals. The consequence being a small write down in land values.

As selling prices fall, house builder have various tools at their disposal which will mitigate against all the drop in revenue coming out of profits.

1. Sites can be mothballed.
2. The supply chain will be required to adjust their prices.
3. Site layouts can be changed.
4. Overheads can be trimmed.
5. Retained profits hidden in the cupboard[s] can be used to prop up profits for a year or two.
6. Land purchases can be frozen and only exceptionally good margin creating sites purchased.
7. Work-in-progress can be restricted.

The evidence I have seen since the 90’s is that the House Builders did learn some lessons. Most appear to be well geared carrying little or no debt. During this downturn I anticipate that for the most they will make efforts to increase their dividends. House Builders rely on shareholders loyalty. The real value of any house builder is the value of its land bank. Should anyone be looking to invest in house builders I’d suggest that those builders currently trading below a book value of 1 are where to begin your search.

I’ve always said this. The time to buy house builders stocks is “when the end of the world is nigh.” When it appears that the market is in terminal decline. When the news flow is so negative that it completely and utterly makes investment in their stock[s] look crazy.

AiY(D)
May I very politely add please that I am a Quantity Surveyor with 43 years experience in the construction industry. In the early 90's I was managing a team of approximately 20 commercial staff. I was there

[vand]

During the late 80 and early 90's I was employed by the third largest volume house builder in the UK.

The large house builders had no option but to write off a serious amount of value on their land banks. The company I worked for did the same. However, their write-off was considerably smaller than its competitors. Indeed I recall being told at the time that it was by far the smallest amongst its rivals. In the run up to the recession land price inflation was significant. The CEO had issued instructions that when preparing appraisals for land purchase the house prices were to be as the selling prices being achieved by the business in the current market. No house price inflation was to be included in the appraisals. The consequence being a small write down in land values.

As selling prices fall, house builder have various tools at their disposal which will mitigate against all the drop in revenue coming out of profits.

1. Sites can be mothballed.
2. The supply chain will be required to adjust their prices.
3. Site layouts can be changed.
4. Overheads can be trimmed.
5. Retained profits hidden in the cupboard[s] can be used to prop up profits for a year or two.
6. Land purchases can be frozen and only exceptionally good margin creating sites purchased.
7. Work-in-progress can be restricted.

The evidence I have seen since the 90’s is that the House Builders did learn some lessons. Most appear to be well geared carrying little or no debt. During this downturn I anticipate that for the most they will make efforts to increase their dividends. House Builders rely on shareholders loyalty. The real value of any house builder is the value of its land bank. Should anyone be looking to invest in house builders I’d suggest that those builders currently trading below a book value of 1 are where to begin your search.

I’ve always said this. The time to buy house builders stocks is “when the end of the world is nigh.” When it appears that the market is in terminal decline. When the news flow is so negative that it completely and utterly makes investment in their stock[s] look crazy.

AiY(D)
May I very politely add please that I am a Quantity Surveyor with 43 years experience in the construction industry. In the early 90's I was managing a team of approximately 20 commercial staff. I was there

Generally this is true of any sector. The process of capitalism ensures that the cure for low prices is low prices.

[vand]

Zoopla's report says average prices have been flat over the year, but transactions are down -21% (-28% for mortgaged sales vs -1% for cash).

https://www.zoopla.co.uk/discover/prope ... ice-index/

This doesn't seem out of line to me. It's not a good time to move house if you don't need to, so more people are just staying put.

Also, I have said before that London prices didn't really participated in the boom and real peak was 2016-17 and many houses today still wouldn't fetch what they were sold for at that time - which is backed up by this

[Mike4]

Zoopla's report says average prices have been flat over the year, but transactions are down -21% (-28% for mortgaged sales vs -1% for cash).

https://www.zoopla.co.uk/discover/prope ... ice-index/

This doesn't seem out of line to me. It's not a good time to move house if you don't need to, so more people are just staying put.

Indeed. This is what happened in the (supposed) crash in the early 90s. People couldn't afford to take a cut in price and still buy another house, so they simply didn't transact and the market seized up.

[servodude]

Zoopla's report says average prices have been flat over the year, but transactions are down -21% (-28% for mortgaged sales vs -1% for cash).

https://www.zoopla.co.uk/discover/prope ... ice-index/

This doesn't seem out of line to me. It's not a good time to move house if you don't need to, so more people are just staying put.

Indeed. This is what happened in the (supposed) crash in the early 90s. People couldn't afford to take a cut in price and still buy another house, so they simply didn't transact and the market seized up.

That's my memory of how it was in early 2008 when we were trying to sell up and leave; we got it on the market early spring and didn't do too badly. Friends who tried a month later ended up giving up, renting their place out and eventually selling it about 5 years later, when it became too much to manage remotely. (Edinburgh outskirts)

[vand]

Zoopla's report says average prices have been flat over the year, but transactions are down -21% (-28% for mortgaged sales vs -1% for cash).

https://www.zoopla.co.uk/discover/prope ... ice-index/

This doesn't seem out of line to me. It's not a good time to move house if you don't need to, so more people are just staying put.

Indeed. This is what happened in the (supposed) crash in the early 90s. People couldn't afford to take a cut in price and still buy another house, so they simply didn't transact and the market seized up.

yes. prices were the same at the end of 1996 as they were at the end of 1990, the majority of the nominal falls being in the first 2 years and then a grind along the bottom for another 5 years while inflation worked its cure. I think something like that could very well happen this time again. The fundamentals are just not in place for an immediate sustained bull market, even if interest rates moderate over the next year

[Charlottesquare]

Indeed. This is what happened in the (supposed) crash in the early 90s. People couldn't afford to take a cut in price and still buy another house, so they simply didn't transact and the market seized up.

yes. prices were the same at the end of 1996 as they were at the end of 1990, the majority of the nominal falls being in the first 2 years and then a grind along the bottom for another 5 years while inflation worked its cure. I think something like that could very well happen this time again. The fundamentals are just not in place for an immediate sustained bull market, even if interest rates moderate over the next year

Of course there is no one market there are myriad markets, property not being portable and being within certain (quite fluid) price bands re prospective purchasers. Accordingly those places where people want /need to live with supply shortages will likely still have supply shortages, in fact if prospective sellers have no confidence then supply will dry up.

I was told last week there were something like 169 fixed price flats within Edinburgh on Rightmove, yes a historical high, but there are still far more at offers over, the fixed prices seem to be lower down the price bands but in the market where buyers have decent equity life is, not yet anyway, that gloomy.

(my daughter tried to buy with her partner her first Edinburgh flat, 2 bed, traditional stone, decent area. Offers over 285k, Home Report 310k, she bid £335. It sold for £345k, this was only circa 3-4 weeks ago)

[scotia]

(my daughter tried to buy with her partner her first Edinburgh flat, 2 bed, traditional stone, decent area. Offers over 285k, Home Report 310k, she bid £335. It sold for £345k, this was only circa 3-4 weeks ago)

Our first house purchase was a 2 bedroom Edinburgh flat in the late sixties. Cost £3.4K.

[1nvest]

Looking broadly flat to me

https://www.gov.uk/government/statistic ... -june-2023

Government Open Licence data so ...

[Charlottesquare]

(my daughter tried to buy with her partner her first Edinburgh flat, 2 bed, traditional stone, decent area. Offers over 285k, Home Report 310k, she bid £335. It sold for £345k, this was only circa 3-4 weeks ago)

Our first house purchase was a 2 bedroom Edinburgh flat in the late sixties. Cost £3.4K.

Your were robbed, my Dad bought our family home (A three story 11 room (inc 1 Kitchen and 1 Bathroom) sandstone Edwardian property in Learmonth) for £6,700 in 1967.(Sold for £50,000 in circa 1981/82, would now be well over £1m)

[scotia]

Our first house purchase was a 2 bedroom Edinburgh flat in the late sixties. Cost £3.4K.

Your were robbed, my Dad bought our family home (A three story 11 room (inc 1 Kitchen and 1 Bathroom) sandstone Edwardian property in Learmonth) for £6,700 in 1967.(Sold for £50,000 in circa 1981/82, would now be well over £1m)

I couldn't have afforded £6700! Only the husband's income was counted, and I just about managed a 3 times income mortgage, supplemented by a generous deposit from my father-in-law.