Guest Blog: Hysteria and The London Housing Market

Monday, October 5, 2015

Hysteria – noun – exaggerated or uncontrollable emotion or excitement

Panic – noun – sudden uncontrollable fear or anxiety, often causing wildly unthinking behaviour

Hype – noun – a deception carried out for the sake of publicity

“Staggeringly incompetent”

“Bereft of ideas”

“A total lack of mental toughness and heart”

No, this was not the stirring analysis that I gave Milo’s under seven football team at half-time. Nor was it the constructive criticism of my wife as I once again failed to assemble the kids’ bunkbed.

These withering comments were aimed by various press commentators at Arsenal after their loss to Olympiakos last week.

McGivern, you crashing bore, why do you always have to revert to football? What on earth has this got to do with prime London property? I hear you lament.

But bear with me. There is a point to this. You see five days later, Arsenal crushed, annihilated and generally pulverised Manchester Utd. The press coverage suddenly swung to say how mighty the team was, the best thing since Brazil 1970 and a template for attacking football.

The huge swing in opinion based on two games is symptomatic of the age we live in. There is no middle ground. Either everything is going to hell in a handbasket- cue panic and pandemonium as everyone heads for the exits.

Or we are on the verge of a massive boom – cue panic and pandemonium as everybody loads up on whatever the latest catalyst for happiness and abundance may be.

Hence the reporting of two football matches is not dissimilar to the reporting of the London property market (I told you I’d get there in the end…). Either the market is booming or crashing. The slightest fall in performance is taken as a clear indication that a total market collapse is imminent (I read it in the papers so it must be true!).

Equally any uplift in figures is conclusive evidence to the bulls that the goldilocks property market is functioning perfectly – it is neither too hot nor too cold. Prices are increasing at just the right rate.

At the moment the market is both up and down. Prices under £2m are still holding strong. The market above this is down a touch as this is the section of the market most affected by SDLT and other tax uncertainty.

Transaction levels are down about 30%. To many commentators this signals a crash although if prices were going up then it would be the cause of the increase: ”the lack of supply is driving prices up – why can’t we build more homes?” is the typical headline.

Obviously everything you read is just opinion – it is just that particular journalist’s or talking head’s interpretation of the facts. The question is how qualified is that person to give an opinion and what actually are they basing their opinion on? Is it just the latest data set which in itself may be too small or unreliable to be of any real use? Has what they have actually said been reported accurately? Should you really care about short term moves as no market goes up or down in a straight line?

For example, the fall in transaction numbers of c. 30% has many commentators gnashing their teeth as it is evidence of an apocalyptic housing crash just around the corner. Alternatively you could study the last 15 election years as Hamptons International did and discover that a 30% fall is the norm for London in an election year (15% fall for the rest of the country).

I recently gave a talk for Investec Bank where I was discussing how few people actually study the history of the property market. To be fair most people have lives. Fortunately for you, I don’t. So, I gave some examples of press commentary between 1998 and 2005 which I list below:

1998 – The Budget – “Mr Brown said: “I will not allow house prices to get out of control and put at risk the sustainability of the future.” He said he was determined that the UK should not return to the “instability, speculation and negative equity” of the 1980s and 1990s.” The Daily Telegraph

2000 – “Housing-market experts, from estate agents on the ground to analysts in the high-rise city banks, are agreed on one thing: this is more than the annual summer slowdown. House-price inflation has dropped considerably and, in some pockets of the capital – usually areas on the fringes of more fashionable addresses – where people were paying silly prices for bad houses, properties are indeed worth up to 10 to 15 per cent less than they were six months ago.” The Daily Telegraph

2001 – “The house price indices are for once agreed: prices are slipping as the effects of recession take hold. Suddenly, the telephone-number price-tags of rather ordinary two-bedroom flats are beginning to look ridiculous.” The Daily Telegraph

2002 – “The top of the property market has been in trouble for some time… Property in some outer London boroughs now changes hands at phenomenal multiples of average local earnings – the prices being pushed up by a relatively small number of people driven out of expensive parts of the city.

In Bromley, for example, house prices are now 10.4 times local earnings” The Daily Telegraph

2003 – “He [Roger Bootle] said: ‘The message is clear. Houses are now so over-valued that a prolonged period of falling prices is on the cards.’ … Some London ‘hot spots’ have already seen prices marked down in recent weeks, which has been attributed to lower City bonuses and Stock Market uncertainties.” The Daily Mail 1st March 2003

2005 – “After five years of unstoppable price rises, the housing market has been showing signs of jitters.” BBC

Does much of this sound familiar? Which just goes to show that you do not want to rely on or be influenced by commentary in the press, even if it comes from highly regarded sources. For example, in 2003 Roger Bootle, managing director of Capital Economics, formerly chief economist at HSBC and one of the Bank of England’s ‘wise men’ said:

“House prices could fall by as much as 30 per cent over the next four years”

If you had followed his advice you would have missed out on some of the largest house price gains in history.

The real problems began in mid-2006 when the majority capitulated and decided that this time property really only did go up. Of course, it is when the consensus turns that you know there is trouble ahead. If I had time I would show you idiotically bullish headlines in 2007! We all know what happened next.

As they say in the City – “Markets climb a wall of worry”. It is only when you hear the words “It’s different this time” (or the more pretentious “It’s a new paradigm”) that it is wise to run for cover. For now the Wall of Worry is still being scaled and we are not even half way up it.

Fears of interest rate rises, increased taxation on London property, stock market jitters in most jurisdictions, Jeremy Corbyn, house price to earnings’ ratios (see the 2002 quote above) and much more have many people sitting on the side lines.

Meanwhile with much less fanfare and attention, the economy plods happily on. Unemployment is falling, wages are rising and if you have tried recently to buy or rent office space in London, you will know that the market is hugely competitive.

Businesses in London are thriving and growing. Great news although a dreadful headline…

Does this mean that the property market is going to rocket to the stratosphere in the next year? Unlikely but an absence of booming hysteria doesn’t preclude pleasant price increases.

So you need to be careful when negotiating. It is essential to discover how many people are looking for a similar property to you and how many properties are available in your target segment. Ask multiple agents. Do not rely on hearsay and opinion. Get the facts. Once you know how much competition you have compared to the supply of the type of property you wish to buy, then you can develop your negotiation strategy.

If you have any questions on negotiation strategy or would like to receive accurate information on prices, please contact Veronika at [email protected] quoting JDG or call 0800 389 4280 (or +44 800 389 4280 from outside the UK).

Best regards,