This morning has brought news to bring the current winter chill into today’s policy meeting for the Bank of England. This is that there are more signs of declines in London house prices as the Financial Times reports.
High-end homes in central London are selling at the biggest discounts in more than a decade as sellers continue to set ambitious prices even as the market declines.
Let us look further as of course for most of the period even the concept of a discount was a mirage.
In 2017 homes in the most exclusive postcodes were sold at an average discount of 10 per cent or more on their initial asking price, according to figures from LonRes, a research company. The gap between what buyers will pay and what sellers ask for their homes in this segment of the market is now greater than it was in either 2008 or 2009, following the financial crisis.
The areas most affected are shown below.
LonRes’s data cover London’s most exclusive districts, including Kensington and Chelsea, as well as prime parts of the capital extending from Canary Wharf in the east to Richmond in the west and Hampstead in north London.
Actually though if we look further we see that the position seems rather similar now across London.
Outside the most expensive “prime central” areas, discounts to initial asking price stood at just over 9 per cent — the highest level since 2009.
As ever we see that estate agents have their own language as we note “prime central” is a further refinement to “prime”. Also whilst the situation is now similar so far the more exclusive areas have been hit harder.
Prices per square foot in prime London have fallen 5 per cent since their 2014 peak while in the most expensive “prime central” areas they are down 11 per cent.
Also there are fewer transactions taking place.
Transaction volumes fell across central London in 2017, with the number of properties sold down 3.6 per cent over the year as fewer homes were put to the market.
Although care is needed as how many homes are sold in central London as a 3.6% fall may not be that many. It would appear that there is one remaining source of demand.
Foreign buyers, who are attracted by favourable exchange rates between sterling and most currencies, were an exception.
So presumably not Americans then if we look at the exchange-rate.
This issue reminds me of this from the Guardian at the end of January.
More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”………The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units.
If you are wondering what ultra-luxury means?
The swanky flats, complete with private gyms, swimming pools and cinema rooms.
Cinema rooms are a new one on me. But as to the problem I don’t know about you but the £3 million price tag gives quite a clue.
Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts Molior London. A typical high-end three-bedroom apartment consists of around 2,000 sq ft, which works out at a sale price of £3m.
I guess such numbers distort your view of reality as I note the definition of affordable being used here from Steven Herd.
“We need ‘affordable’ one- or two-bedroom apartments priced at £500,000.
What we are getting seems instead to be more of the same old song.
Molior says it would take at least three years to sell the glut of ultra-luxury flats if sales continue at their current rate and if no further new-builds are started.
However, ambitious property developers have a further 420 residential towers (each at least 20 storeys high) in the pipeline, says New London Architecture and GL Hearn.
My personal interest in Nine Elms as it is close to me – 25 cranes now between Battersea Dogs Home and Vauxhall visible to someone on a Boris Bike – makes me read the bit below and wonder how such a good development can be made of the wrong properties?
Herd says the Nine Elms development, near the new US embassy in south London, was one of the best redevelopment schemes in Europe but consisted of “the wrong properties that Londoners don’t need”
As ever boom seems to be turning into dust as we look back to the lyrics of The Specials from three decades ago.
Do you remember the good old days
Before the ghost town?
We danced and sang,
And the music played inna de boomtown
The downbeat view of the UK housing market started today from the view that London is a leading indicator or if you prefer the canary in the coalmine. It was added to by the latest data from Halifax Bank of Scotland.
On a monthly basis, prices fell for the second consecutive month in January (by 0.6% following a 0.8% decrease in December)……….House prices remained unchanged in the recent quarter (November-January) from the
previous quarter (August-October).
Thus we see that anything like the same trend will mean that we will see a quarterly decline when we get the February data. Also the year on year growth is fading away.
Prices in the last three months to January were 2.2% higher than in the same three months a year earlier, although the annual change in January was lower than in December (2.7%).
Finally it is down to a similar level to wage growth although of course we need it to be below it for quite a sustained period to see any real improvement in affordabilty as for now thinks have simply stopped getting worse.
Looking ahead there was a worrying sign for estate agents and the housing industry at the end of 2017.
Mortgage approvals for house purchases ended the year with a sharp fall. The number of
mortgage approvals – a leading indicator of completed house sales – fell by 5.7% month on
month in December to 61,039, the lowest level since January 2015. Over the year to December
2017 total mortgage approvals were 2% lower than in the same period in 2016.
There is a fair bit to consider here as we only get partial glimpses of the market. What I mean by that is that it is estimated that 30%- 40% of property purchases these days do not involve a mortgage. Thus places like the Halifax only see 60/70% of the market. It is also true that the Nationwide numbers were more upbeat last week. But we do see signs of ever more stress in London and it would be logical for lower real wages to be having an effect.
We need some falls especially in London in my opinion as prices became ever more unaffordable as intriguingly even Professor David Miles admits in VoxEU.
Average house prices in the UK have risen much faster than average incomes over recent decades. Relative to average disposable incomes, houses are not far off three times as expensive now as they were in the early 1980s; relative to median incomes, they have risen even more.
I say intriguingly because missing from the piece and his description as a Professor at Imperial College is his role in all of this . You see he was a policymaker at the Bank of England from 2009 until 2016 who could be described as an uber dove. He even wanted to ease monetary policy just as the UK economy was picking up in 2013. Yet all the monetary easing seems to be missing from his explanation of higher house prices. Is he not proud of the consequences of his actions?