1,000 Estate Agents Go Bust

Rob Mackrill - Wed 07 May, 2008

The collapse in housing transactions is forcing increasing numbers of estate agents out of business.

Spring sunshine may have arrived but the mood is still winter. The Anglo-Saxon consumer is at a low point.

In the US consumer confidence is at a 26-year low says Morgan Stanley’s David Darst. And in the UK it hit an all time low point in April says the Nationwide building society. At least, since it started monitoring customer mood with its own survey four short years ago. Says their chief economist Fionnuala Earley:

“Food and fuel prices remain high and with house prices no longer rising it is unlikely that consumer confidence will pick up very quickly."

The Daily Mail agrees under a headline “Broke Britain”. Families have less to spend as household income is eaten up by “unavoidable outgoings”. Discretionary spending – what’s left over after the “unavoidables” - is at its lowest level since 1991.

Economic forecasters Capital Economics expect food prices to continue to rise for some time yet at an annualised 6% and electricity prices will rise up to 10% in the second half. The average Council Tax bill is up 4% and the average water bill up 5.8%.

And then there’s the inexorable rise of the oil price. It notched up another record hitting $122 yesterday. For the car driver presently, that translates into 110p for an average litre of unleaded petrol. A level that means it has now crossed the £5/gallon threshold and filling the tank sets you back a wallet-denting £75. An average litre of diesel costs even more at 120p, or £82 a tankful. But hey, don’t worry CPI inflation is only 2.5% when you factor in all those DVDs, flat screen TVs etc. etc. it all pans out...doesn’t it?

Add in too the darkening cloud hanging over the housing market... But the frontline casualties to date look like house builders and, as we suspected, estate agents. Estate agents are going to the wall in numbers. As we know the credit crunch begat the mortgage famine which in turn begat a recession in housing transactions. That last part is a potential stake to the heart of those whose business is to broker the deals for a fee. No deals, no fees. No fees, no business. A slump in home sales has seen 1,000 estate agents close to date and 4,000 lose their jobs. It’s a strange situation Peter Bolton King, chief executive of the National Association of Estate Agents, tells the Mail:

'The irony is that there is no shortage of people who want to move house, but without mortgages they just can't do so. Estate agents are having to close because there just isn't enough movement in the housing market.’

I know, our hearts bleed for the poor unfortunates. Given their infestation in many high streets, some trimming may be no bad thing but the death of the market helps no one in the end. In Argentina they have a saying: La plata que no se meuva, se meura. Money that doesn’t move, dies. Putting aside the phrase probably arose during their ruinous experience of hyperinflation the central thought is one of the nature of markets - a market that doesn’t move, dies. And in the case of the UK housing market presently, it’s showing a weak pulse.

(Hispanic speakers are welcome to correct my rusty linguistics!)

*** There’s still plenty of money around judging by an art market that continues to make the headlines. Monet’s ‘A Railway Bridge at Argenteuil’, “considered a prime example of high Impressionism” says the International Herald Tribune fetched a record $37m yesterday. The previous owners paid $12.6m in 1988. A prize possession no doubt but aesthetic pleasure aside in investment terms that’s a modest return - a little over 5.5%pa. For that you can keep your Monet your editor will stick with his more humble investment trust savings scheme. Or perhaps a permanent interest bearing share (PIBs) is worth a look these days. One of these unfashionable and little known fixed interest investments – the Britannia 5.555% - is yielding over 8% Collins Stewart advises in a note this morning. No doubt a good deal more than you’d get in even Britannia’s most generous savings account.

More adventurous investors might like to consider what is perhaps the last of the emerging markets: Africa. The pros have been turning their sights on it. The FT reports today ICAP plc, the interdealer broker, is setting up a hedge fund investing in Africa and the Middle East. The region has not escaped the attention of our own emerging markets expert Manraaj Dheensay. He’s found a great opportunity to invest in the region and interested readers should look out to hear more about it from Manraaj, coming through this Saturday.  

Regards,

Rob Mackrill
The Daily Reckoning