The Telegraph reports on a recent release from Rightmove that there are now double the amount of properties on the market than mortgages being approved.
Of especial concern is that sellers are proving very reluctant to reduce prices to increase the chances of a sale.
The bottom line is that any property is only worth what someone is willing to pay, and the lack of First Time Buyers in the market means the number of buyers overall in the market is very much reduced.
The result is that there are too few people buying, and sellers are not making rational corrections in price for this.
While Rightmove also provides the following statement, “There is still a clear imbalance between supply left on the market and demand even taking this into account. Demand is restricted by mortgage availability and potential buyers economic circumstances.”
While demand is indeed restricted by mortgage availability, it’s important not to fall into the trap, oft parroted in the media, that the problem of slow market conditions is due to banks being more restrictive.
In fact the opposite is plainly true, and that property prices and not mortgage availability are the key problem.
Property prices experienced a boom as cheap lending – up to 125% mortgages – resulted in people over-reaching normal sensible spending. Property prices are also way ahead of normal trend curves such as the earnings to price ration.
Market conditions suggest that property prices will need to come down, the sooner the better to get this correction out of the way.
Otherwise, if we don’t see a clear orderly retreat from the current highs, then the twins dangers are extended stagnation, or a sudden house price crash as too many sellers knock down prices at the same time.
Filed under: Property
