Housing Market: Buyers Disappear

Rob Mackrill - Tue 25 Mar, 2008

Estate agents report record low activity levels as buyers desert the market.

Dear Subscriber,

It’s a race for the bottom with the forecasts for UK plc, as activity in the housing market slows to a crawl... Meantime, global stocks have come out the other side of our Siberian Easter break in bullish mood with the FTSE 100 up nearly 180 points by early afternoon at 5,674.

The Confederation of British Industry (CBI) is less bullish. It continues to downgrade its forecast for UK economic performance for the next couple of years. 2008 we know will be slow, but ’09 will be slower still, they reckon, pencilling in GDP growth of 1.8% this year and 1.7% next.

Britain faces “a financial shock on a scale not experienced in recent times,” says CBI director-general Richard Lambert ominously. He adds that government finances will continue to deteriorate and inflation will rise. That will, in turn, act as a constraint on consumer spending. A process that looks to be in train already, according to the latest findings of a YouGov survey. Consumers are pulling in their horns amid worries about rising costs, tightening credit and increasing job insecurity.

For anyone with a variable rate or tracker mortgage, the positive end of the slower growth picture is this: the CBI sees inflation peaking out in the third quarter this year as weaker demand eases price pressures. This then will allow room for the Bank of England to lower interest rates - 4.5% by 2009. Also, outside the news-hogging financial sector, much of the UK economy remains in reasonable shape.

Much of this just reinforces what we already know. Though the central sticking point remains inflation. Inflation has to be bested to give more wiggle room on monetary policy. And while the anodyne CPI measure is ticking up – at 2.5% currently, it is 50 basis points above the Bank of England’s target – Mervyn King and crew will have a tough time doing any more than sitting on their hands.

Not really what those of us with an interest in the UK housing market want to hear right now. Activity in the housing market continues to display predictable symptoms of depression. The average number of prospective house buyers on estate agents books fell 12% in February to a record low from a month earlier, reports the National Association of Estate Agents. The number of homes on the market also fell by 11% and the number of homes sold by the average estate agent is down from 13 last year to a modest eight this. Overall, though, prices are said to be “steady”. All of which adds support to our general theory that the recession in the housing market continues to be characterised more by activity levels than price. NAEA president Stewart Lilly calls the prevailing mood “a climate of confusion” which is clouding the market place. It is a mood that looks like it has some way yet to go yet.

Whilst on the subject, here’s one in the eye for the new Home Information Packs (HIPs) introduced recently as a requirement for sellers in the housing market.

A young Mum at a children’s party yesterday recounted her experiences as she tries to sell her London home and move out to a part of the country less given to “hyper-parenting”...

“We’ve had 18 people come to view our house and none have requested to see the HIP... The Home Information Pack cost us £360 and it goes out of date after three months.”

Perhaps the prospective buyers were not serious, we wondered?

“Actually, estate agent says this level of disinterest in HIPs is pretty typical.”

*** A word on petrol tax. Next to the Turks, Brits hand over more tax when filling up at the petrol station than the rest of the industrialised world. This chart from the Economist says it all.

*** And a couple of topical tips from theZurich Club Communiqué...

Check the information on your credit rating is accurate, says editor Emma-Lou Montgomery. As we know, squeezed lenders are getting more picky about who they want as customers. Only last month, for example, in a highly publicised move that succeeded in losing it friends and alienating people, online bank Egg stopped 161,000 of its customers using its credit cards. Some, including dear readers of the Daily Reckoning, felt they had been very poorly treated. Perhaps the reason for the injustice could lie in a credit file - it can be worth getting a credit report from credit agencies: www.experian.co.uk and www.equifax.co.uk.

And a tax planning tip from pensions’ expert and Zurich Club contributor Tom McPhail of Hargreaves Lansdown. The end of the tax year is approaching fast... just eight working days left. So if you’re thinking about putting something into your pension plan, now’s the time...particularly as you’ll get less tax relief in the new tax year. The basic rate of income tax falls from 22% to 20% from 6 April. That means the tax relief due on personally made pension contributions will fall.

UK taxpayers currently receive £22 for every £78 contributed into a SIPP for example, so turning it into a £100 contribution into your pension pot. After April 6 you will need to contribute more and get less from the taxman to match that same £100 contribution - i.e. £80 from you plus £20 from the taxman.

So, to wheedle a little more out of Alistair Darling, now is the time to act.

Regards,

Rob Mackrill
The Daily Reckoning