Property: Buy now, if the spirit moves you: The market will improve as soon as we rediscover the feel-good factor, says David Lawson
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Your support makes all the difference.DO YOU feel good? No problems with debts, looming unemployment or worries about what new taxes the Chancellor will spring in the autumn Budget? Then if you have been thinking of a move, go out and buy a house. If you don't, we are in for another hard year.
All the talk of lower interest rates, rising incomes and falling unemployment means nothing unless people feel secure and happy. They normally do at this time of year, fresh from a holiday and raring to find a new home. Times are not normal, however. They have not been normal since the property bubble burst, sending us spiralling into slump.
Still, this autumn should be different, say the forecasters. Pent-up demand is so high and prices and mortgage rates are so low that the streets will be thick with buyers. Prices will increase by Christmas and soar by between 5 and 10 per cent in 1994.
But last autumn was also going to be different, after interest rates halved overnight. So was the one before, when prices hit 'unrepeatable' lows. Yet prices have continued to fall. Even when buyers flocked out early this year, the figures kept slipping.
The basic problem is that ordinary people do not think like computer-aided economists. They rely on gut instinct, the 'feel-good factor'. And at the moment, they are not sure how they feel.
Certainly, they can latch on to the glad tidings (for some), relayed by Simon Arnes, at William H Brown, that a first-time buyer in East Anglia can pick up a home for 40 per cent less than he could in 1990. And it is good news for all, that the mortgage rate has halved since then, with another interest rate cut in prospect as a sop to the Tory party conference. But anyone latching on to the negative will counter with a chancellor about to raise taxes, an employer making losses and a brother-in-law made redundant after 15 years in his 'secure' job.
The betting among pundits is that pluses will outweigh the minuses. Prices will creep up this year, but not enough for people to notice, says Gary Marsh, of the Halifax. By mid-1994 people will have a clearer view that the economy is improving and he predicts rises of between 5 and 10 per cent, in line with national earnings.
Other forecasters generally agree (a rare event in recent years) on a rise of about 7 per cent, although David Kern, at NatWest, warns that this will vary widely around the country, with the South-east coming off worst.
The difference of a few per cent hardly matters - except perhaps to almost 1.5 million people caught in the negative-equity trap. Calculations as to the average debt per household vary: the Woolwich puts it at pounds 6,500; the Bank of England at pounds 4,400 (see left), but, whatever the true figure, a minor change could put many back into the black. More than 90 per cent of owners are, however, not affected. For them, the obsession with price changes is a diversion from the more important issue of getting the place sold.
Look at it this way: you grit your teeth and accept a price cut, but it still leaves you with a profit over the amount you paid in 1985. Then you slash the same percentage off the home you want to buy. Assuming the new house costs more than the old, the actual price reduction made by the vendor will be larger than your own.
Lack of sellers rather than buyers has restrained the market because the former refused to accept this logic. Matters appeared to improve when deals boomed in the spring and early summer, but the steam has gone out of the market. Peter Constable, of the CEA Property Index, blames the holidays, and forecasts a substantial upturn in the autumn. We shall see. Whatever happens, fewer homes will be sold this year than last, says Jimmy Adams, who produces the Adams Residential Index.
The National Association of Estate Agents is so frightened by a drop-off in activity that it is pressing hard for another 1 per cent cut in interest. Almost half the agents it polled during June said fewer buyers were looking at homes, and more than 40 per cent said inquiries and offers were down.
There are other ways in which buyers could help. During booms you normally find a new home before putting the old one on the market, thus ensuring that you lock into a price on the new place before it can rise further. You then cash in by upping the price on your existing home. The danger of being stuck with two homes is minimal because everyone else is doing the same. When prices are flat, the reverse should happen. Buyers are scarce, so you sell first and look later.
Now the situation has gone awry. People are acting as though prices were soaring and are trying to buy before they sell, presumably hoping to acquire something cheap, then to sell when prices rise. In effect this means there are few homes available, and deals are not being done. Many people want to move but cannot do so because they cannot find the next link in the chain, says Tony Crew, managing director of Mann & Co. If all owners considering a move put their property on the market first, the choice would soar, opening up possibilities for deals.
This all sits on one premiss, however; people have to feel confident about their future. Agents, lenders and financial pundits are betting that this 'feel-good factor' is seeping back.
'When we look back in a year or two, it will be plain that the tide began to turn at the end of 1992 and then gradually flooded back in,' says Gary Marsh.
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