Has Spring Sprung?

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14 April 2009

Is Spring in the Air?

As we return from the Easter Break we are reminded that this time of year is all about renewal and reinvigoration; the clocks change, the tax year ends and real, rather than metaphorical green shoots emerge. So, is spring in the air and do recent events reflect this seasonal optimism?

Reasons to have enjoyed your Easter Eggs

At Rettie & Co we have certainly seen an increase in activity over the past 4-6 weeks with 6 competitive closing dates in the last month, in addition to the increasing number of agreed one-to-one sales. It seems that buyers are starting to feel that they are now achieving sufficient value to re-enter the market, especially if they are planning for the mid to long term.

This has meant that in the past month we have had the most activity since summer 2008 in terms of viewings and, more importantly, sales; this has included  one property that having struggling to find interest had two offers on the same day.

The graph below shows the volume of sales per month for our Residential Department. This illustrates how the market failed to wake up in 2008 after its seasonal summer siesta but also the very clear increase in activity over the past month, albeit at a far lower level than in previous years.

This upturn is certainly promising not only due to the volume but also because there has been a shift in buyers' attitudes from watching and waiting to serious consideration, and in more and more cases action. While it is still too early to establish the significance of this upturn for the longer term, it has certainly led to slightly more optimism this Easter.

First Quarter Statistics

The ESPC has released its 2009 First Quarter statistics, the full release can be found by clicking here

• 'Offers over' down to 3.3% above premium
• Buyers' market - only 1 in 5 sales achieving its fixed price
• Supply down from 6,000 at peak to 4,500 active properties
• Sales volume down almost 50% year-on-year
• Edinburgh City Centre Prices plateau on previous quarter
• Other sample areas report an average decline of 10% on the previous quarter

These latest figures suggest that prices have retreated back to 2006 levels, however, the low volume of sales is likely to undermine a true like-for-like comparison.

It is interesting that for two consecutive quarters transaction volumes and average prices have remained at a consistent level, potentially showing a plateau in the mass market.

With ESPC members strongly representing the sub £300k market, where credit retreat and affordability issues have been most notable, any trend of stabilisation in this sector will have implications for the rest of the market and is therefore worth monitoring even if you are active above this price point.

Bank of England Credit Condition Survey

The relationship between credit availability and asset prices has been all too clearly demonstrated in recent years. Unprecedented credit expansion fuelled much of the strong growth experienced over the past decade and subsequent credit retreat has led to governmental and media pressure on banks to resume lending despite their obvious need to recapitalise. With the importance of credit in mind we look to The Bank of England's Credit Condition Survey to get a steer on the current state of play(covering various forms of credit; availability and demand, home lending to business lending). Their latest report has the following to say about the first quarter of 2009...

• Tightening of credit supply for those above LTV 75%
• Slight credit loosening availability for those under 75%
• Lenders expecting a small increase in credit availability in the coming 3 months.
• Improvement expected due to the cost and availability of funds.
• Demand declined 'less than expected' staying in-line with the previous quarter.

The current risk and economic outlook means that lenders are likely to be remaining cautious about extending available credit, especially in higher risk or LTV sectors.

With demand for credit, sales volumes and Nationwide's consumer confidence surveys all returning broadly stable results and the HBOS and Nationwide House Price Indices suggesting a slowing rate of decline some commentators are suggesting that this may signify a proximity to the market bottom.

To read the BoE report click here...

HIP Pain

As the ongoing debate continues, regarding the benefits or damage that Home Reports are having on the Scottish market, it is interesting that according to UK Government statistics 77% of our English neighbours are not finding their HIP Scheme useful when deciding to buy a house. This vote of no confidence comes just as the rules down south are being tightened, requiring that the HIP is completed before the property is put on the market. This has been met with opposition by the National Association of Estate Agents whose surveyed members thought...

• 89% do not agree with new measures
• 65% suggest that the rules will discourage sellers from putting properties on the market.

Open Market Shared Equity

The Scottish Government has recently announced that it is expanding its Open Market Shared Equity Scheme across Scotland, increasing funding from the original £24m of the pilot scheme to £60m. The scheme is expected to assist 1,500 buyers on to the property ladder this year. Schemes such as this should prove useful in promoting better market function towards the bottom end while helping to prevent paralysis higher up due to lending issues at the foot of the ladder.

More information can be found on the Communities Scotland Website

Are we nearly there yet?

The Centre of Business and Economics Research (Cebr) have been quoted in The Telegraph saying that if mortgage lending improves over the summer the market may only have a further 8-10% to fall; far less harrowing a statistics than many recently released. If this is to be believed, and considering that is relating to the national market, it may suggest that quality properties and locations may have far smaller, if any, falls ahead as they are traditionally more robust and the first to recover.

Breach of Covenant

Now over a year into the decline and 18 months since Northern Rock in Sept '07 we are beginning to see the fundamental re-structuring and inevitable administrations, of which Mountrgange Limited (and the 14 companies in the group) and Heggarty's are just a couple. The March 31st cut off date for placing assets into the government Loan scheme by participating banks may be one factor in the fundamental shift in decision making.

Taylor Wimpey's debt restructuring (click below for details)  offers an insight into the fundamental shift in covenants that are likely to be required from the next generation of house builders to emerge from this period.  The eye watering increase in margins and the focus on operating cash flow are bell weathers for the way in which major house builders will have to operate in the next cycle.  If applied across the sector they also have interesting implications for land price recovery.

Trading and Financing Discussion Update

Taylor Wimpey Market Update Presentation

Contact Us

If you have any questions, would like any further information regarding the above content or would like to discuss how the Rettie & Co. Consultancy & Research Team can help your business, please do not hesitate to contact:

Andrew Meehan
Researcher
t: 0131 624 9051
e: andrew@rettie.co.uk

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