December 2009 – Edinburgh and Lothians Property Market Update

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.

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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.

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.

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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.

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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.

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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!

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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!

I'm Robert Carroll, Managing Director of MOV8 Real Estate, Estate Agents and Solicitors. MOV8 is an innovative and forward-thinking estate agency and solicitor firm with its Head Office in Edinburgh, UK. It is one of the fastest growing firms in the east of Scotland. I see first-hand every day what is actually happening in the property market and am regularly quoted in the Scottish Press in property stories. Through this blog I aim to give an honest, fresh and sometimes light hearted take on what is happening in the Scottish property market for anyone who is interested in that kind of thing...

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