Don’t listen to housing ‘experts’ | Insight

Note the quotation marks. Of course, we can’t do without experts – most Property Week readers fit that bill. No, Gove – speaking in 2016 as Justice Secretary, one of his six most impactful government posts – used the term in “air quotes”. Similar to when Margaret Thatcher was widely reported as saying “there is no society”. What she actually said (answering a leading question in Woman’s Own in 1987) was, “Who is [imaginary air quotes] society? There is no such thing! There are individual men and women and there are families… It is our duty to take care of ourselves and then also to help take care of our neighbor and life is a reciprocal affair.

Generations of Guardian writers and readers failed to recognize the distinction.

There is one subject on which most people are “experts”: real estate prices. Judging by the headlines in the media, there is almost complete unanimity among the nation’s gurus that they are sliding into a dizzying fall. But the more sophisticated the financial and economic analysis they produce, the more they seem to deviate from the remarkably fundamental drivers of demand and supply. Or the more basic impulses of fear and greed.

Most potential buyers don’t base their decisions on Bloomberg screens or Excel spreadsheets. If that sounds patronizing, I’m an example: when I bought my first apartment, as a junior trade journalist, I had no idea about swap rates or yield curves. I didn’t think about the rate I was charged; what I feared was “missing the boat” as prices rose and I hurt myself in the first few years.

Sell ​​rate

Barratt CEO David Thomas put it succinctly last month. Following the October 12 trade update from Britain’s biggest homebuilder, he argued that rising interest rates ‘per se’ were not the main cause of a 35 per cent drop of his rate of private sales (although he admitted the sudden change had been disruptive).

The main reasons buyers were staying away were more visceral: “The main factors that stop deals are, first, when people perceive that house prices are going to go down. It’s not what we’ve seen so far, but I can understand [their reticence]. The second is concern about job losses.

Virtual views on its website, Rightmove and so on “surpassed scale,” but they didn’t convert to actual visits to real sites.

However, potential sellers don’t need to sell: hard selling has been the most powerful trigger for large-scale price drops. As for Thomas’ second cause, mass unemployment could be seen as the trigger. But the rate is at a nearly 50-year low of 3.5% and there are 1.2 million vacancies.

Even if job losses were to skyrocket, there is little risk that the banks will get thousands of loans. According to Zoopla, only 4% of buyers have loan-to-value (LTV) levels of 90% or more; 30% are cash buyers and 18% have mortgages with LTVs below 50%. Banks are much better capitalized today than during recessions in the late 1980s or 2000s – one reason, along with government pressure, that few homeowners will be forced out.

The threat of negative equity is almost non-existent, according to Zoopla. If prices were to drop 10%, only 401 homes would be worth less than their mortgages; a drop of 15% would bring this figure to 13,707, barely 1% of annual transactions.

If anyone were to fall into this category, it would be post-pandemic shoppers. Prices were at a standstill in 2019 before the Covid plague. (I remember many “experts” predicting the impending biblical plague.)

But prices have risen 25% since then. The main reason was the scramble to buy during the stamp duty holiday. And whose idea was this? The “expert” who took the keys to his new home last month: 10 Downing Street.

Alastair Stewart is an equity analyst and consultant

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