Is the housing market slowing down again?

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With mortgage rates at all-time lows there should be plenty of incentive to get on with the business of nest-building, so what has led to recent headlines claiming that the housing market is slowing down and how do we ensure our sale goes through as quickly as possible? The directors at Harrison James & Hardie provide an answer...

James von Speyr, Principal Director, is based at the Bourton on the Water branch of Harrison James & Hardie and assists Steven Buchanan – the company’s dedicated sales progression manager - with transactions in the pipeline. He identifies the loss of professional skills and falling fees as a major contribution to the slowdown and instability of the housing market today.

‘One particularly depressing element highlighted by the Sunday Times (Feb 19) is the sheer length of time it is apparently now taking to move nationwide, reporting up to ten months in some parts of the country. In the boom years, it was only half that. This slowdown is in part due to avoidance of risk as lenders have been forced to be far more careful about affordability, but the root cause is the impact of a decade of recession and uncertainty upon the health and effectiveness of the entire property industry (excluding perhaps the new homes sector which generally has been making hay whilst the sun shines – that is until Brexit takes away ten per cent of their workforce).

‘Increasing financial pressures have forced wholesale fee-cutting and job losses in most services from local councils to solicitors, surveyors, lenders et al.  This has inevitably led to a combined critical loss of skills, experience and man-hours to deal with today’s transactions, however hard we all try to keep timescales as tight as possible. As a result, the local knowledge and expertise that once underpinned all professional estate agency and conveyance practice has been seriously compromised over time.

‘Looking back to the crash in 2008 when over 2,000 estate agencies folded, those that remained were forced to slash their costs to survive, often by making redundancies that left them unable to react quickly when the market improved, a plight that was replicated by all other associated services, of course. The industry as a whole has continued to face a huge uphill struggle not just against fee challenges but increasing business costs, loss of talent and of course inadequate reinvestment into training, recruitment and so on.

‘In the ‘shock and awe’ fall of 2008, despite selling as many properties as our competing local agencies combined, our turnover still dropped by 50%. The directors were faced with bleak choices too, but unlike most agencies we were determined to retain valuable skills and experience, not to make redundancies and not to drop our fees, opting instead to move everyone into our Moreton and Bourton branches with the temporary closure of our Stow on the Wold branch (which raised a few eyebrows but didn’t stop us remaining the most successful agency there even without an office). 

‘As conditions improved with a sudden influx of investors during 2009 we re-opened Stow, but more importantly our decision ensured that we able to cope with rapidly increasing activity and to accelerate our position as the leading performer in the local marketplace.  Meanwhile those who lost the luxury of experienced staffing soon began to show the strain, having resorted to fee-cutting to overcome questions on performance and engaging in over-pricing in order to secure their ailing market share. This merely added to their inability to achieve a successful result within a reasonable timescale; after a declining market during 2010/2011, the second pit of recession in 2012 only compounded those difficulties.

‘2013, 2014 and 2015 brought reasonable stability, a welcome uplift and some strong evidence of sustainable growth, especially in the upper quartile market and with an influx of professional landlord investors in the holiday let and residential lettings industry – but coupled with uncertainty over Brexit, there is a new challenge. Online-only companies that are offering really cheap conveyance and sales packages have fuelled the neglect of good agency practice under the false premise that traditional estate agents and solicitors are getting money for old rope.

‘These new online agencies sell marketing packages not houses, of course - no need for a successful end result to profit from the housing market or, indeed, even to be responsible on price, and of course conveyance work must be paid for even with an abortive sale.  When the two most important elements of a successful sales strategy are firstly to ensure an acceptable offer in the shortest possible timescale from the best buyer and then to reduce the risk of failure at all points of the transactional process by the swiftest possible exchange of contracts, this wilful neglect of the real business of estate agency is not just foolhardy but actually fuelling the slowdown.

‘When their success is not based not on proof of performance but on plausible slogan-making (“commisery, the misery you feel when you realise you didn’t have to pay thousands of pounds of commission”) and their fractional up-front fees are invested not into good practice but wildly expensive TV advertising campaigns, eventually the combination of unrealistic vendor ambition on prices plus poor industry practice is bound to create an over-inflated, stagnating marketplace – worse, with a highly unstable sales pipeline.  

‘The average statistic for abortive sales in the UK (excluding Scotland) is one in three but the length of time and fall-through rates of sales will get considerably worse, as dedicated and effective sales progression is the most expensive and time-consuming element of proper professional estate agency. Vendors must understand just how vulnerable they are to a bargain basement option. Not only does it flag up their susceptibility to a low offer, a cheap remote online agency exposes them (and everyone unlucky enough to be part of their chain, wherever they are in the country) to a far lengthier and far more expensive outcome than the right decision in the first place.  For sure, an online agency will certainly not ensure the best possible price in the shortest possible time nor provide the best chance of securing a desired onward purchase with the least possible stress.’

Tom Burdett, Sales Director, is based at the Moreton in Marsh branch; as head of residential sales he divides his time between both sales offices, keeping a track record on current local market trends and competitor performance. He believes that lack of funding and the costs of moving are still proving prohibitive for first time buyers and young families.

‘As you say, this situation is highly ironic when mortgage rates are so attractively low and so many people would dearly love to move up, down or simply get onto the housing market right now.  In November 2016 alone we agreed an astonishing 250% more sales than our average monthly target to outstanding.  These sales came from all sectors of the marketplace, from properties priced at entry level to those in excess of £1 million, so there’s plenty of motivation to get on with things locally, at least. However, there are factors here in the North Cotswolds that have increased difficulties beyond general failings within the industry, let alone the fears revolving around economic stability.

‘After the crash banks were very risk-averse for years, refusing first time buyers and young families high loan-to-value mortgages despite evidence - in the North Cotswold market place at least - that high demand and short supply of stock was set to ensure the recovery and stability of prices soon after the initial shockwave of recession. This reluctance to lend has slowed down a whole sector’s recovery, particularly when coupled with the government’s proactive support of subsidised, affordable new-build programmes, which produced volumes of entry-level housing stock into what had previously been a very low volume marketplace.

‘Since the Blenheim Park development was built in 2005 for example, the town of Moreton in Marsh has almost doubled in the provision of family housing (albeit without new infrastructures, schools and transport networks to cope with the additional volume). Meanwhile, the value of period village homes is only heightened by comparative rarity. Modern estate homes have had to contend with stiff competition from readily available, pristine new home stock for several years now, keeping prices static. All things are therefore not equal in the Cotswolds compared with the pre-crash marketplace when properties in every sector sold well, often and quickly.

‘Prime property here commands 20% more than in 2007 but modern housing only very recently stretched towards a 10% uplift, much of that due to investment into the lettings sector by professional landlords from 2013 to 2016. And since April 2016 any investment into the property market - considered by many as the most secure form of pension planning – is now subject to an additional 3% stamp duty charge, with further tax implications set to undermine the attractiveness of the lettings sector from April 2017. Cash investors are now noticeably less pro-active than this time last year but they are still circling and speculating. There is very little on the market at the moment – this at least keeps prices high - but the disincentives now in place for investors in the lettings marketplace should have left the way open for local families encouraged by great mortgage rates.

‘This has been the most active sector since the change in taxation, however things are still not easy. Young homeowners struggling with the cost of living have taken on additional loans on essential items such as cars and white goods, for example.  There is no spare cash and this 10% upturn is needed just to break even: debts will need to be cleared to get a new mortgage and the average cost of moving from a £300,000 property is around £15,000 including 3% stamp duty.  How do families move upwards and onwards except to new homes when would-be downsizers currently occupying desirable, established family homes are unable to move, still accommodating their adult offspring? (At least £10,000 is required even for an ‘affordable’ percentage of a starter home when stamp duty is due on the whole value, not proportionate to the share, and having been worst hit as school leavers during the worst of the recession, no surprise the average age of a first-time buyer today is still the wrong side of thirty.)

‘The re-sale residential sector does represent incredibly good value compared with the rise in prices for the prime sector since 2007, especially sizeable modern properties like Fosseway House on Fosseway Avenue at £675,000 (sstc), but affluent family buyers hoping to take advantage are being hampered by sheer lack of stock - in for a long wait before they can get their hands on those lovely mortgage rates, too. And no wonder extending is still a very popular option when re-mortgaging liberates cash without having to pay the government handsomely for the liberty of needing extra living space.

‘However, there’s little doom and gloom at local level. The North Cotswolds has proved time and time again to be remarkably resilient to stresses within the national marketplace. One has only to look at Harrison James & Hardie’s performance during 2016 [gleaned from statistical evidence on re-sales within GL54 and GL56 provided by the Guild of Property Professionals for the period Jan 04 2016 to Jan 02 2017] to understand too, the hugely positive difference made by using a well-staffed, professional, experienced and demonstrably successful local high street agency, even against other apparently similar competitors on the same high street.

‘For example, last year 310 properties were offered for re-sale in GL56 by the nine most active local agencies (each recording seven or more sold properties during the year to qualify). Harrison James & Hardie was by far the best performing agency with a third share of those sold [91 of 310: 34%], almost as many as the two closest competitors combined [91 cf. 95]. By converting 95% of available stock [91 of 96] with an impressively low cancellation rate of 18%, the overall average time per property on the market with the company was just three months [91 days].

‘The second best agent here was considerably less effective. Converting under three quarters of available stock to sold [56 of 75] with more than one in four cancellations [28%] meant their properties remained on the market on average for more than two weeks longer [103 days] whilst the next best in GL56 managed to sell only two thirds of their available property stock [39 of 59] with their properties spending a whole month longer on the market than those placed with Harrison James & Hardie [119 days]. 

‘Again, in GL54 [excluding Winchcombe] Harrison James & Hardie was demonstrably the agency of choice, commanding a massive 51% of properties sold by the seven most active local agencies and as many as the three closest competitors combined. A 17% cancellation rate ensured the average time on the market for properties advertised by Harrison James & Hardie was even better at just under three months [86 days]. By comparison, the closest local competitor sold only two thirds of their available stock [50/75] and with a massive cancellation rate of 41%, their properties averaged a month longer on the market [115 days cf. 86 days]. 

‘The investment / London marketplace has been hit by stamp duty changes and the three local branches of high-end national agencies fared worst in 2016, between them recording less than 50% conversion of available properties to sold, with a combined average of nearly five months for each property on the market (149 days). These agencies are experiencing a sharp reality check today, having thus far escaped the long harsh lessons of a decade of recession. Having never needed to be proactive about generating activity, if not entitled and complacent then certainly over-reliant on the inherent desirability of their product, they have suddenly discovered themselves ill equipped to manage resolutely ambitious pricing by vendors and a clear decline in motivation and competition from potential buyers.’

Karen Harrison, Principal Director, has worked in the local marketplace since 1994. She considers that the trends and stresses of the national market place are down to the level of taxation imposed upon the whole industry today, particularly locally since increasing the levy for would-be purchasers in the investment marketplace.

‘The London market directly affects the health of the Cotswold marketplace. 40% of our sales usually come from the investment market but adding to all the inherent issues we face from the impact of recession, the government has continued to view the housing market as its golden goose and must take a large share of accountability for the current state of affairs. Despite the fact that market prices now exceed the previous height of 2007, every person involved in a sale or purchase today - within the industry or as a client - faces a far greater tax burden. Moving home costs far more than it did then, despite falling agency / transactional fees in professional services. There have been steep rises in business rates, uplifts in employers’ national insurance contributions, reductions in the benefits of dividends, contributions into staff pensions, the loss of mortgage relief, plus various increases in VAT and stamp duty, especially now in the upper quartile marketplace. 

‘Skimming off the cream on any element of uplift in the housing industry is hardly a surprise when you consider that the average high street agency might gross £5,000 per sale (before all staffing and running costs) but the net profit to the government is double that in stamp duty and VAT alone. No other industry can offer that kind of return. However, the decision to raise extra revenues from the traditionally resilient ‘London’ marketplace is now significantly impacting on the health of that sector, too. The Sunday Times (Feb 26) cites renowned businesswoman Celia Sawyer’s investigation into the slowdown there. She believes the government’s actions are counter-intuitive, directly responsible to the tune of £500 million in lost potential tax revenue on homes in excess of £1.5 million that would be “enough to run two hospitals” and, she reckons, by the next budget there will be another £370 million lost. 

“The rich aren’t paying. The rich aren’t buying. I work in the luxury top-end market and the market has gone completely dead. I see a lot of my clients not buying properties here any more. They are buying them abroad. If you are buying something for £10 million and you’ve got massive stamp duty on top of that, they just refuse to pay it. It’s not that they can’t afford to pay it - they don’t want to be taxed to death. Other interior designers have struggled. Lots of suppliers have closed. People have scaled down their businesses because it has affected them so badly. It has a massive knock-on effect.” - Celia Sawyer

‘When all these taxes are non-negotiable cash sums and salaries have been static for years where else is the money to be found to move, especially by struggling families, but to press upon agents to do more for less? And given pressures of affordability within every sector of the industry, how to survive but increasingly choose to concentrate on bottom line?   It is really not surprising that some vendors are seduced against better judgement by cheap online platforms claiming that traditional high street agencies are a waste of money, when in fact the reverse is true. Especially in today’s marketplace, however, without the skills and experience provided by experienced and hard-working professionals, the stability and speed of property transactions across the UK is undoubtedly beginning to suffer signs of stress.

‘To answer the second part of your question, when you consider Harrison James & Hardie’s performance against other local agencies in all sectors let alone the ten-month statistic quoted by the Sunday Times, even though the North Cotswolds is an inherently resilient and buoyant marketplace this confirms why vendors should never choose an agency on the basis of a plausible image, an over-ambitious marketing price or a low fee – those who do risk an unnecessarily lengthy and stressful experience in 2017. And those who throw away all sense and a few hundred pounds on a bet with a national online agent will fare even worse. 

‘Focusing on the bottom line is simply not the right way to achieve the best possible outcome nor is relying on a ‘name’ in the upper quartile marketplace.  There is a misguided notion that the ‘big boys’ are most likely to sell your house when in fact the reverse is true, as Tom’s statistics reveal. Great businesses at the top of their game are always ‘expensive’ for good reason but the benefits of their hard work, skills and ability are manifest whatever the prevailing conditions, and even in the local marketplace there is a wealth of difference between the best and the rest. To make the right choice about which agency will achieve a sale at the best possible price in the shortest possible time, base your decision on professionalism and performance - not highest marketing price and lowest fee. In short, just look for the Sold boards. Anything else is simply smoke and mirrors.’


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