Foreclosure Trends

Susy Copus asked:


According to the Royal Institution of Chartered Surveyors (Rics) house sales are at their lowest level since their monthly survey began in 1978.  The annual fall, according to Halifax Plc, is 10.9% and house prices in August fell by 1.8%.  Property prices have returned to the levels seen in early 2006.

  

There are a number of reasons for the fall.  Crucially the credit crunch means that banks are less able to raise funds from wholesale markets and therefore do not have the funds to lend on.  In addition, whereas this time last year banks were keen to invest in the housing market, they now see the housing market as a risky investment and want only to lend to buyers who are safe bets.  This equates to buyers who have a large deposit plus a good credit score.  Long gone are the 100% mortgages and the large salary multiples. 

 

For the potential buyer household incomes are squeezed with higher costs for food, energy and fuel, and with a recession looming employment may not be secure.  Such pressures have not been seen for a decade.  Furthermore, of the buyers that have secured mortgages they may wait to see how much the market falls.

 

In a nutshell, there are fewer buyers who have secured mortgages and with fewer buyers there is less demand for housing and so prices have fallen.  Some experts predict that prices will fall by as much as 25% in total from peak to trough and the market will begin to recover in 2010.  In contrast, the Centre for Economic and Business Research predict a total fall of 15%.        

 

So what will stop the freefall?  The UK government announced some, in effect, minor measures: interest free loans, a stamp duty level rise and help for those not affording their mortgage.  This was a welcome help but is unlikely to stabilise the market significantly as the key problem is the banks having funds to borrow and then those banks taking the risk to lend.

 

Hope glimmers as the US Treasury has in effect nationalised the US’s two largest mortgage providers, Fannie Mae and Freddie Mac which will protect millions of mortgages and indeed, banks worldwide who are exposed to them.  This hugely costly intervention is expected to stabilise the US housing market which in turn will stabilise the US economy.  As a result UK banks will be able to secure funds to lend to consumers.  However, return to the previous easy lending criteria is unlikely and even when banks have funds to lend they are likely to require the borrower to show that they are a good investment: with a deposit and affordable repayments.

 

The housing bubble has burst, but the fact remains that the property market in the medium and long term will be backed by the sheer necessity of housing requirements.  The population is increasing and there is not enough housing to home everyone.  With less sales, property developers are currently short of cash and are putting their projects on hold.  As a result new building will be well below the government’s targets and as demand outstrips supply prices will go up.  Indeed, the Centre for Economic and Business Research (CEBR) expect house prices to rise by 30% between late 2009 and 2012. 

 

And so the UK housing market is expected to be slow into 2009 but as the economy recovers so too will the housing market. 

 



RAFAEL

Susy Copus asked:


By mid 2007 house prices were still rocketing with the early predictions for 2007 to be that house prices would continue to rise possibly by around 10%.  That was before sections of the investment world realised that their money had been invested in the US’s collapsed housing market.  With that realisation, money was pulled out of the system and lending came to a near standstill.  We know the rest of the story.

First time buyers had been priced out of the housing market and were fearing that the longer they out of the market, the harder it would be to buy their own place.   Family members would contribute to a deposit, friends could co-own a property with a shared mortgage, or people decided saved and rented meanwhile.    Now, with house prices set to fall further in 2009 affording a house will become easier.  In fact, according to The National Association of Estate Agents (NAEA) the proportion of first-time buyers entering the housing market in November 2008 increased for the third month in a row.  First time buyers accounted for 10.4% of all properties sold, up from 8.3% in August. 

Cash buyers are the next winners.  Cash buyers will be able to buy a property without having to secure a mortgage and will be the crème-de-la-crème of buyers, so sellers will be more likely to lower their price even more to secure them. 

Investors buying property at auctions to renovate or to let out are winners too.  As reported in the Guardian, the average price of a house sold at an auction has fallen by 31.1% in the three months to November, compared with the same period a year ago. This is more than double the falls reported by Halifax and Nationwide. 

Homeowners wanting to move up the property ladder could also be winners.  Assuming a mortgage can be secured, the percentage fall in higher priced property will equate to more money in your pocket.

The main losers are those that bought at the height of the property boom and now are facing negative equity for a number of years.  For some homeowner, the recession and the expected redundancies may equate to mortgage payments being unaffordable.  As such, house repossessions are expected to rise by 67% from 45,000 this year to 75,000 by the end of 2009.  This includes homeowners and landlords whose rental income no longer covers the mortgages. 

In terms of life satisfaction, sellers waiting to sell are losing out on a daily basis.  They want to move house, yet are stuck where they are until they find a buyer.  In the meantime the value of their property is falling and they are losing money.  Estate agents are trying to drum up business by holding a high-street end of year sale.  Yet, moving over Christmas and the holiday season is historically a quiet time for estate agents and the housing market in general.

The housing market is likely to continue falling in 2009 and may bottom out by 2010.  A slow recovery is expected and banks, adverse to risk, are unlikely to lend at the levels seen in 2007.  Property will be in comparison, cheap and more affordable.  Borrowers will be low risk and able to pay either fairly small deposits with a higher interest rate or larger deposits with a lower interest rates.  As a result the market and prices will be more secure and making money on property will be through long term investment or property renovation. 

If you are thinking of buying or selling now, or in the near future, review your options carefully and work out how you can be a winner.



BOOKER