Australian clues to our own market
The Australian housing market is perhaps one of the few (if not the only) housing markets in the world that could be said to be a stage ahead of the UK. So, for clues to what may happen to the UK market in the short term future we could do worse than consider the situation down under.
Transaction volumes in Sydney halved in 2005 from the previous year and those that are selling are going for 20% less than last year. Overall, the situation is pretty bleak and it is possible this situation will be imported to the UK.
According to Nationwide, price growth slowed to around 2.6% in August 2005. The industry pundits don't see prices falling much either, but rather leveling off into a slow growth period. But those are conclusions wrought from studying the numbers of properties sold rather than properties not sold, which gives a different perspective of the market. It is possible that there are more for sale properties that don't sell than properties that get snapped up. So, the transactions that do not take place are perhaps more important than the ones that do. Until potential house sales turn into actual house sales, we cannot assess fully the situation in this downturn.
Developers in London's Docklands, who are reportedly sitting on £80million-worth of new but unsold flats, must be concerned. Last year it was reported that there were 263 unsold flats at three high-rise locations, with another 127 flats also on their way back to the market. Why aren't these potential transactions going through? Predominantly because the seller can't or won't lower the price to the buyer's level. So these properties cannot be counted in the statistics as they haven't occurred yet because none has sold. A downturn of activity is a typical feature of the first stage of any collapse. Only once sellers realise that not only are they not going to sell unless they lower their prices, but that the sellers of the property they are planning to move to will also have to lower their price, will transactions start to pick up. The dreaded chain also plays its part, which is why first-time buyers are so important. If they can be tempted back into the market with their ready cash, transaction volumes may start to rise again. But in a slowing or stagnant market they may be perfectly happy renting and waiting to see what happens.
In the meantime, the bald fact is that if the market seizes up and volumes collapse, it will be because the prices are too high and not until prices have fallen sufficiently to boost the flagging market will houses revert back to the 'right price'.
Back in the Australian situation, despite the fact that Sydney's house prices may already be down 20%, there's little sign of activity in the market. If the same happened in the UK with the average house price now £159,000 (2005) a 20% drop would reduce it to £127,000, which is still a hefty 6.5 times after-tax wages.
While it doesn't look as if we will suffer a big rate hike (which triggered the last house price crash), it is quite likely that the pain next time around will be more drawn out.
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