February 2010 Edinburgh and Lothians Monthly Property Market Update

Hmmm…so I had a meeting with a lady today who works with a lot of estate agents and she tilted her head sympathetically to one side and asked how things were going. She clearly expected the news to be dire! She seemed genuinely surprised to hear that things were going really well. The news she is hearing from most solicitors and estate agents at the moment must still be overwhelmingly negative.

The Press is reporting drops in mortgage lending and yet reporting rising house prices and lots of estate agents and solicitors still seem to be very down in the mouth, so it’s not surprising that people don’t really know what’s happening in the property market at the moment. My job here is to try and cut through this and to let you know exactly what is happening to the property market at the moment. So here goes…

Lending Down, Prices Up – What is the Press Are Saying About the Property Market?

• The average value of a house in Edinburgh was reported in the middle of February 2010 as being £201,687, up 11.4% on the last quarter, according to Lloyds TSB Scotland. However, property prices remained 8.9 % down when compared to January last year.
• Meantime, The Herald reported that the Scottish housing market is going to be slower to recover than the rest of UK. It reported that the Council of Mortgage Lenders said that the 47,000 loans advanced for house purchase in Scotland during 2009 was the lowest level since it began collecting data 16 years ago. The Council of Mortgage Lenders  added that a gradual improvement in market conditions and the wider economy should support a modest increase in activity later in the year.

So, prices are rising or have risen recently. However, lending in Scotland is at a historical low. This would seemingly indicate a low demand for property, yet prices are rising. How does that work?

Question: Why Have Prices Risen Against a Backdrop of Apparently Low Buying Activity? Answer: Lack of New Properties on the Market and Increased Buyer Confidence

The beginning of the year has seen a number of our clients’ properties going to closing dates. One property that we sold recently attracted nearly 50 viewers in a two week period and multiple offers at the closing date. And it wasn’t even ‘Offers Over’! Some properties that have been on the market for quite a long time are suddenly generating interest in spite of the price not being reduced in the past few months. So, how does this sit with reports of record low lending and low demand?

I’d like to claim that it is due to us being fantastic estate agents. And that is of course partly true! However, a huge contribution to this return to health in the Edinburgh property market is the fact that there are more buyers out there than there were a few months ago.

This is not just a hunch. We are registering about 150 new property buyers per month on our database at the moment: more than this time last year. The total number of ‘active’ buyers on that database has grown on a month-by-month basis in the past few months. So the number of people LOOKING for a property is higher than the number of people who have FOUND a property and deregistered. It’s a modest increase, but as a well known supermarket says, every little helps!

However, how can property prices be going up when mortgage lending still appears to be so low? First, there’s a lack of SUPPLY: there doesn’t appear to have been an increase in the number of SELLERS wanting to put their properties on the market in the last few months. Second, there is more BUYER DEMAND: the BUYERS who ARE in the marketplace are more motivated to buy than they were a few months ago. Why? Press reports of property prices rising in the past few months mean that they are more confident to buy.

Therefore, when a nice property comes on the market, there is more competition amongst motivated buyers. It is a lack of that kind of competition in the last couple of years that has been causing house prices to slide.

Some sources claimed that a rush to beat the Stamp Duty change at the beginning of 2010 caused a stampede of buyers and therefore caused prices to rise, however the statistics don’t appear to show a spike in lending activity during this period so I’m not sure that I back this explanation. I think it genuinely is just a case of low supply of properties and higher, more motivated demand amongst buyers for those properties.

So, What Does This All Mean If You Are a Potential Property Seller or Buyer at the Moment?

If you have a nice property or one that will be keenly priced…now is probably the time to put it on the market!

We were, for a while in early 2010, selling more properties than we were putting on the market. This is entirely consistent with demand outstripping supply of new properties coming to the market.

We are currently seeing a spike in seller activity: 16 appraisals of new properties last week, most of which will be coming to the market quite shortly and another 10 or so appraisals so far this week. Spring is traditionally the time of year when people put their properties on the market so that’s not entirely surprising.

If our experience is typical, this increase in PROPERTY SUPPLY will perhaps balance-out the increase in BUYER DEMAND. This in due course should lead to some stabilisation of property prices. Time will tell and I will of course update you on this in my Monthly Property Market Update next month.

Meantime, property sellers in Edinburgh can only hope that some of the £1.3 billion of bonuses paid to RBS employees in the last couple of days will flow back into the property market and further stimulate demand!

January 2010 – Edinburgh and Lothians Property Market Update

Green shoots

It’s been quite a start to the year and one that we didn’t expect.  Breathe it softly but…the property market in Edinburgh at least seems to be returning to some semblance of health.  If you’ve been following my updates for some time now then you’ll know that I have been fairly unoptimistic about the state of the market for some time so it will come as no surprise that I temper this good news with a little caution too!

So, why do I say that the market seems to be returning to some semblance of health?

Well, in the first week back after Christmas we sold a number of properties that had been lingering around on the market for several months.  There was nothing wrong with them, nor the way we were marketing them: they just weren’t attracting any interest.  And it’s that last word, ‘interest’, that is key here.

The statistics are showing that more people are looking at the properties that we are marketing on the variety of websites that we advertise the properties on.  More anecdotally (I wouldn’t generalise the entire market based on our own experience, but it’s still interesting…to me at least!), the number of phone calls about properties we are marketing has been going up too.  This is also translating into more viewings.  Properties that hadn’t had a viewing for a while are suddenly having getting encouraging signs of progress.

But is this translating into concrete results for property sellers?

Yes!  You would of course presume that, based on the simple principle of supply and demand, if there is more demand or interest in a product then this will cause more sales or increased prices.  And in this case that presumption would be absolutely right.  Properties that were on the market for a while are now selling.  Not only that but there are more Notes of Interest and more closing dates being set.  We have had multiple offers on a few properties already this year.  In short, the market is moving again and, thus far, we are seeing a cautious return to the days when, in Edinburgh at least, you could put your property on the market with at least a very good prospect of selling it.

So, what is the caution that I would urge (pessimist that I have become in the last couple of years!)?

Well, we could have just had a bit of a bottleneck over the festive period which is leading to a slightly artificial ‘blip’.  What do I mean?  We had an awful December in terms of the weather and then the holidays: it’s only a part month at the best of times and the sub-zero temperatures and snow hardly encouraged people to leave their homes and go looking at other people’s homes!  In addition, very few people put their property on the market in December, preferring to wait until the new year or even February or March of the new year.  Some people also take their properties off the market for a while because they don’t want to have to worry about it over the holidays.  Lastly, and especially with the weather being as restrictive as it was this past December, people are sitting around their homes (which perhaps are feeling a little bit smaller than they used to because of all the family being home) with a lot of time on their hands to browse the internet for property.  In brief: we have had a seasonal drop in supply and an above-averagely seasonal spike in demand.  Which of course would lead to the circumstances that I have mentioned above.

So is this a ‘blip’ or is it sustainable?

Of course, it depends on supply i.e. the number of properties coming to the market.  If the spring sees a flood of properties coming to the market but no increased supply of funding or relaxation of the lending criteria by mortgage suppliers, I’d expect that we will see lower interest-per-property ratios.  This of course will mean that some properties take longer to sell in the spring than they would now.  It also means that there will be less competition and therefore lower prices on those properties.  Supply  and demand is of course a fundamental of any market so by that rationale it would be difficult to call the market at any time.  However, the market is more precarious than it used to be because the volume of transactions is still relatively low.  It is therefore more sensitive to smaller variations of these key factors.

In conclusion…watch this space!

I will know much better towards the end of February how the market is shaping up for the coming months.  I am delighted to be able to report good news at the moment for property sellers.  Equally I urge caution to anyone who wants to conclude from this spike in interest and sales that it will continue and that we’re back to the ‘good old days’ where you stick a For Sale Board up and a bidding war automatically ensues!  I’ll be in touch again next month and in the meantime just keep my fingers crossed that I will be reporting good news then too…

December 2009 – Edinburgh and Lothians Property Market Update

It’s the end of 2009 and I thought that I’d stick with tradition and make my predictions as to what will happen in the property market in 2010.  Since these are only predictions and not rocket science, and I’ll be the first to admit that I could be completely wrong with any predictions that I make, I also thought it might be fun to look back at my Monthly Property Market Update from December 2008 and see exactly which bits did and did not come true.

However, just in case you do not wish to read on, on behalf of the whole MOV8 Real Estate team I want to wish you a fantastic Christmas and New Year and wish you all possible happiness and prosperity in 2009.  I’d also like to take this opportunity to thank David, Rosslyn, Iain, Lee, Gillian and all the rest of the MOV8 Real Estate team for working tirelessly through 2009 to ensure that we continued to exceed our clients’ expectations in providing estate agency and conveyancing services to our clients against what has continued to be a very tough property and economic backdrop.

So, What Was My Prediction for 2009 at the End of 2008?

In December 2008 I wrote the following forecast…“MY OVERALL PREDICTION FOR THE MARKET IN 2009 is therefore this: we will see further property price drops of about 10 to 15% in 2009, before prices level-off around July or August 09.  At that point we will see some signs of buyers returning to the market, although this will be held-back slightly by the fact that many of these potential buyers cannot sell their own property at a level that will allow them to buy somewhere else.  Towards the end of 2009 we will start to see some increased in volumes of sales, and perhaps sales volumes will return to around 50% of where they were in 2007, pinned-back by the factors mentioned just above.  I would predict that this will then be the new ‘normal’ level of property sales levels until prices start to rise again, and rise to a point where the people who would like to buy, but cannot afford to because of a lack of equity in the home they are selling, can then afford to start buying again.  However, that point may be several years in the future.

I predicted that several estate agency/conveyancing firms would merge or go out of business.  I also predicted that Home Reports would have a huge impact on the property market in Scotland, though not necessarily for the good.

Did 2009 Work Out As I Predicted at the End of 2008?

Re-reading my December 2008 Monthly Newsletter actually made me shudder because it took me back to the place where I personally was, psychologically, in December 2008.  I’ll be honest, when I started this firm in 2007 I had absolutely no idea that the entire global financial market was going to go into melt-down nor that the property market would crash well in advance even of that.  If I had done, perhaps I’d have chosen to go back to playing piano in hotels in Asia and returned after the worst of the crisis was over.  But I didn’t.  And it was grim!

2008 had been a ‘brutal’ year, as I described it back then, and the problem back then was that I didn’t really see much improving.  Re-reading that email, I am reminded of the utter frustration at having to market and re-market a single property several times because sales kept falling through due to issues such as the buyer’s funding being withdrawn or the buyer simply changing their mind about buying a property in a falling market.

Were any of my predictions correct?  Actually, on the one hand I’m delighted to say that it wasn’t too far off the mark!  On the other hand I’m rather disappointed that my pessimism didn’t turn out to be misplaced.

So, What Did Actually Happen in 2009 Then?  The Year in Summary.

Prices most certainly did continue to drop in the early part of the year.  Home Reports did have a huge effect on the property market.  I’m happy to say that I was completely wrong about the negative effect of Home Reports on the market and that I am now a convert to them although I still think they could contain much more information that is useful to buyers.  For my article and conclusions about Home Reports, one year on from their launch, please see http://robert-carroll.co.uk/home-reports-response-to-criticism-by-espc-and-other-solicitors-in-scotland/.

Buyer confidence seemed to return to the market in the latter part of 2009, largely as a result of more positive press stories about the property market.  This, combined with a lack of sellers having similar confidence in the market, caused demand to out-strip supply in many sectors of the property market, forcing prices upwards.  That then caused quite a few sellers to put their properties on the market.  This seems to have created a bit of stagnation again because the number of buyers hasn’t really increased (lack of lending, lack of desire to buy, tighter lending criteria etc).  Whether this is merely a seasonal dip remains to be seen.

Several smaller ESPC solicitor/estate agency firms have indeed closed their doors or merged with larger firms.  Nobody ever says that this is because they were struggling financially so it’s always presented as a merger, even if that isn’t the reality of the situation, but quite frankly these firms would not have merged with anyone whilst they were enjoying the last few ‘boom’ years so you have to read between the lines.

So, What is My Prediction for 2010?

Ooooh, crystal ball time again…

What Will Happen to Market Conditions in General?

I think 2010 is going to be more of the same.  There is no sign of lenders much relaxing lending criteria so the days of the 95% mortgages and self-certification that fuelled the property bubble are over (until, in a few years, everyone forgets all about the pain that it caused this time around and we return to irresponsible lending once again…it WILL happen…!).  As a result, the number of buyers in the marketplace is unlikely to rise considerably.

2010 is General Election year so I suspect that the government will be doing all it can to ensure that any feel-good factor caused by low interest rates and falling costs of living continues at least until May.  What happens thereafter remains to be seen!  I know that the Bank of England makes decisions independently of the government but in recent months both seem to have a fairly similar view on interest rates remaining low.  As a result, people in negative equity will continue to live quite comfortably on Standard Variable Rates that make their monthly repayments lower than they would pay in rent and will not be forced to move house.

The economy is now officially in the longest period of recession since the second world war.  Expected growth this past quarter did not take place.  Nor did it the previous quarter.  The number of ‘To Let’ boards on the high streets tells its own woeful tale.  Scotland’s airline has just gone bust, not too many months after Zoom, another Scottish-based airline, went bust.  It’s not a pretty picture employment-wise in Scotland at the moment.  So, if you combine that with interest rates starting to creep up to counter-balance inflation caused by the government ‘printing money’ to bail out the country and the banks, I think we’ll see more and more people being unable to afford to stay in their homes.

Repossessions will start to rise.  This will be quite a middle-class repossession crisis and as a result we’ll start seeing increasing coverage in the media.  Up until now it’s been something that has largely been affecting people who bought buy-to-let properties during the boom.  Some of the people worst hit will be people from the financial sector who have been unable to find alternative work to fund the 90% mortgage on the £400,000 modern-build family home that is now worth 80% of what it was worth when it was purchased in 2007, leaving them unable to down-size.

What Will Happen to House Prices in 2010?

I predict that these will fluctuate and that nobody will really know what is happening in general house price terms, although this will not stop them from pretending that they do.  The Press will seize on whatever statistic makes for the most sensational reading, buyers and sellers will pick the story that most supports their own view of what they would like the market to be doing, and we will return to the situation we had in 2008 where nobody had a clue who to believe.  The key factor will be whether Press concerning house prices convinces property owners that it’s a good time to be selling their properties.  In the absence of a huge increase in the number of property buyers, a large increase in the numbers of properties hitting the market could actually lead to house prices dropping significantly.

Finally, What Will Happen to Solicitor/Estate Agency Firms in 2010 and How Will This Affect You as Consumers?

What has been quite exciting to see has been the number of new firms entering the property market in Edinburgh.  Some letting agents have opened fresh-looking, funky ESPC firms this year.  Some solicitors who have been forced to leave some of the larger ESPC firms have set up practices in their own right.  Some of the existing, slightly outdated-looking firms have been closed or merged with larger, more progressive practices.  People still don’t seem to be moving in any great numbers towards self-service estate agency sites that allow you to advertise your own home, probably because they don’t actually advertise your home to very many people since they can’t advertise on ESPC/GSPC/Rightmove etc and perhaps also because it’s not actually much more expensive just to use an estate agent or solicitor/estate agent and let them deal with all the hassle.

I hope that these new firms will perhaps breathe a little life into what in Edinburgh, in my opinion, is a property market dominated by out-of-date practices, out-of-date feeing structures and a complete lack of focus on the fact that the Customer is King (or Queen!) regardless of how many letters and qualifications you have after your name and the fact that you can speak some Latin (caveat emptor indeed!).

I have that since we started in business we have been swimming against the tide.  We are an ESPC Member Firm and we do provide legal service to our clients.  However, our function is simple: to sell property (which includes doing the legal stuff after it’s sold).  We are therefore an estate agency/solicitor firm rather than the other way around.  Sounds so simple, doesn’t it?  And yet that is simply not the perception that solicitor/estate agents (note the emphasis on solicitors first) want to give out.  Perhaps these newer firms will join us in letting everyone know that they can expect more from solicitor/estate agents.

In Conclusion and in Brief

The market will be pretty flat in terms of buyer demand.  Repossessions will rise, particularly amongst the middle-classes.   If there is a lot of media hype about house prices rising, we might see a large number of sellers put their properties on the market and actually depress house prices and create the impression of market stagnation unless there is a large increase in the number of buyers in them marketplace (from where?).  Estate agency will begin to change as people demand better value for money and more transparency about what their fees are paying for.  It will start to become a commoditised, menu-based service in the way that basic accounting and book-keeping services and conveyancing have become.  And unless the market turns around dramatically, several more mergers will take place with smaller solicitor/estate agency firms that are not generating positive cashflow merging into larger firms whose focus is very often on commercial work rather than property sales, leaving the door open for progressive, start-up firms to deliver estate agency and legal services to clients in new ways that hopefully benefit the consumer in terms of service delivery and cost.

I’ll check in with you in a year’s time and hopefully find out that most of this has not proved to be complete tosh!

What Do You Think?

Please post your comments on my blog.  I want to know what you think.  Am I being too negative?  Are you MORE negative about what might happen in the next year?  Or do you think we’ve turned the corner and that a return to the boom times is imminent?  I look forward to hearing from you all!

And Finally, Festive Wishes!

Meantime, I want to wish you all a fantastic Christmas and New Year and I look forward very much to being in touch with you all in 2010.

Best wishes to you and your families!