Why Estate Agents Will Be Going Broke

Rob Mackrill - Fri 29 Feb, 2008

Others lenders are likely to follow C&G’s move, says The Telegraph. More liquidity drains away. Not good news for estate agents as the pool of buyers continues to shrivel.

February 29th . Leap day in a leap year...a year with an extra day in it.

Tradition has it women have licence to snag their man and propose marriage. Commitment-phobic readers, consider yourselves warned.

Love seems to be a popular topic in the US according to Google. The top search is the question: “What is love?” say City traders M005e and “M” in their latest Undercover in the City. They add that the most popular search in China, in the Baidu search engine, is: “What is a mutual fund?” The world’s biggest consumers ponder the philosophical question...while one of the world’s biggest savers ponders how to make their savings work harder. And given the lopsided demographic from China’s one child policy, romantic questions we assume are a depressing waste of time for many a less fortunate Chinese male.

On the subject of trading, if you’re interested to learn how to make money spread betting, look out for a message coming tomorrow and an opportunity to learn from the pros.

While the US ponders love, it does not extend to its currency unit. We believe in a strong dollar, said Treasury Secretary Hank Paulson a while back. Well they can talk the talk. Yesterday the dollar sank as Bernanke talked. It wasn’t a good news story. Paul Chertkow, head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd told Bloomberg:

“There is very real concern that there is a possibility of a dollar crisis, I don't use the word crisis lightly; we are in uncharted territory for the dollar, especially against the euro.”

The U.S. Dollar Index, which tracks the currency against six major counterparts, touched 73.63, the lowest since its start in 1973. Which means of course oil and gold are going up some more. Oil hit $103, gold sells for $967 (more on the third leg of the gold bull market from Bill below) and gold’s poor relation - silver - is shooting the lights out too, now over $19. It started the year a couple of short months ago at $15. Equities, on the other hand, are going down as stock markets absorb a continuous flow of bad news and position themselves for more incoming.

More mixed signals on the hot topic of the UK housing market...

House prices surprisingly went up 0.9% in January said the Land Registry yesterday. House prices went down 0.5% in February reports the Nationwide this morning. On their reading the annualised rate of house price inflation is now 2.7%. At that level the average house is probably deflating in real terms given CPI inflation is 2.2% and rising, and RPI (including property costs) is 4.1%.

And the lenders continue to up the ante. Cheltenham & Gloucester, part of Lloyds TSB, will now turn away mortgage applicants who can’t put together a 10% deposit. According to BBC, house price data the average price of a flat is £200,000. So that’s £20,000 a first time buyer needs plus £2,000 in stamp duty plus surveys, legals etc. A tough ask for first time buyers, particularly those who’ve been to college. Lord Rees-Mogg noted in a recent issue that the average student loan debt is £20,000 on graduation.

Others lenders are likely to follow C&G’s move, says The Telegraph. More liquidity drains away. Not good news for estate agents as the pool of buyers continues to shrivel. Whatever happens to house prices, this can’t be good news for activity levels, which will surely continue to be depressed. We may even start to see some estate agents go out of business if the lettings side of the business doesn’t take up the slack. Bumping into an old colleague on the tube this morning, he tells me the Foxtons office in South Kensington, one of London’s ritziest enclaves, sold exactly nothing in January. Given the controversial funky-mini driving Foxtons agents are not renowned for their laid back sales style, business must be tough indeed.

The impact of tightening liquidity shows up in the hedge fund world today too. Ex-Goldman Sachs traders have raised the white flag on Peloton Partners. It has frozen $2bn in assets after leveraged bets on mortgage backed securities went wrong, says the FT. It was a big surprise too, they say, given the fund made 87% last year for investors when it bet the right way on subprime. And just last Friday, it reported being 8% down for the month. It had invested in what it believed to be “deeply discounted” AAA mortgage securities but what tipped it over the edge was the fact it was 4-5 times leveraged and got squeezed by its creditors. This from Pelotons letter to investors:

“...In addition, because of their own well -publicised issues, credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls.”

While the banks will get their money back, “it is thought” there will be next to nothing for the investors”, says The Telegraph. At which point we think of the old FSA risk warning mantra. The value of your investment can fall as well as rise. And you may get back less than your investment...or, on occasion, zip. Especially when you’ve entrusted your cash to sophisticated gamblers, taking big bets on borrowed money.

A note from Daily Reckoning friend, Jim Parton. He sends word from Poland:

“The local bus service to London has just been stopped. Not enough takers. So either Poles are running out of building work in England, or they're finding plenty to do here and the sacrifice of being away is no longer worth the candle.”

The tide of prosperity is turning.

A further thought on my rant some days back on the open-ended cost of public sector pensions on the taxpayer as life expectancy continues to rise. According to the Taxpayer’s Alliance, a fifth of the money we pay in Council Tax, around £300 a year on average per household, goes to funding those guaranteed index-linked pensions for ex-local government employees. So if you’re landed with an inflation busting Council Tax bill, this may be a clue why.

Regards,

Rob Mackrill
The Daily Reckoning UK