Supply and Demanding

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29 January 2010

SUPPLY AND DEMANDING

It was Scottish writer Thomas Carlyle who, dismissive of economics as the 'dismal science', said "Teach a parrot the terms "supply and demand" and you've got an economist," and with all the squawking about whether the recession is or isn't over and whether house prices will go up or down, his witticism appears to have wings.

Trapped in this aviary of speculation it may be worthwhile to take a moment to dwell on the fundamentals of the old adage because in the current market it appears that any equilibrium is "no more...bereft of life... pushing up daisies"...indeed one could suggest balanced supply and demand is now "an ex-parrot."

I want to buy a house...

Without attempting to rewrite the 'Wealth of Nations' there is arguably a trifecta of factors that will most acutely influence buyer's decisions this year.

The most highly reported of these is house prices; Nationwide announcing a 1.2% increase in January. With prime property values in Edinburgh and Glasgow on average circa 10% lower than at the peak, and with even greater 'savings' to be had in secondary locations and new build product, many buyers are keen to take advantage of this perceived value - of course, this is only good value when the perception is that of property prices will go up. Consumer confidence therefore plays a vital factor in housing market demand and as the graph below shows there has been a significant change in opinion since the autumn of last year. Rightmove's January survey reports that 53% of their respondents thought house prices would increase in the coming year compared to just 10% in their 2009 survey - a positive sign.

However, as with many trilogies the second and third instalments can prove harder going; the Godfather 2 in this instance being household income. Increases in unemployment, pay freezes, restrictions on bonuses and increases in part time working have all influenced household wealth. This is particularly acute given the high level of household indebtedness in the UK. However, without wanting to be too negative, higher levels of job retentions and lower unemployment, default rates and interest rates than previous recessions are protecting households, providing them with options.

The final instalment in this trilogy, our own Mad Max 3 if you will, has been the post apocalyptic wasteland of the mortgage market where Thunderdome ratios of two men entering and one man leaving seem far more forgiving than current mortgage availability. According to the likes of Moneysupermarket.com and the Council of Mortgage Lenders, we now have just over 2,500 mortgage products on the market compared to over 30,000 at peak. Whilst there have been improvements in the availability of 85% and 90% LTV mortgages, up by 22% and 11% respectively since December 2009, the number of products still remains modest and out of the reach of many buyers.

This simplistic summary illustrates some of the restraining factors acting on a growing buyer appetite that has seen Rettie & Co. experience a circa 35% increase in enquiries year on year and Rightmove reporting a 26% increase in page views compared to a year ago.

I don't want to sell my house...

Feeding this demand is a limited menu of available property, 15% less than a year ago and 43% below market peak according to Rightmove's latest figures. These statistics bear out our experience in the market which despite our increased market share - giving us the largest supply of prime stock in our core business areas - has seen the volume of quality property coming to the market down some 30% in Q4 2009 compared with Q4 2008. This constrained supply combined with strengthening demand in key areas has protected prime areas from the levels of falls experienced by secondary location where funding and demand are sparser. This has meant that there is an emerging sense in some market sectors - £400k to £1m - that as we move into February and the spring market it may be a good window of opportunity if you are thinking of selling to enter the market while demand is improving and supply remains on the short side.

Another aspect of supply is new build property - which has also recently shown signs of improvement according to figures released by the NHBC stating that applications in Edinburgh were up to 290 in Q4 2009 compared to 93 in Q4 2008, with an 87% increase across Scotland. While this is a positive sign for the construction industry for the average house buyer this supply will take time to be delivered and release will be closely managed - the days of speculative development with people camped outside sales offices to buy the first release off plan are not expected back anytime soon.

In conclusion, the market clearly has some issues to resolve between the balance of pockets of demand and limited supply, but at this point, with some hints of improvement and confidence strengthening with consumers maybe we should insist that the parrot is just resting and not quite dead yet.

*Apologies to Monty Python for the abuse of their famous Dead Parrot Sketch.

FORECASTING THROUGH SPORT

Last year in a revolutionary piece of economic analysis Rettie & Co. indicated a link between British sporting success and the housing market cycle, this insight gained extensive acknowledgements in literally some publications (click here for full analysis).

With Andy Murray having reached the final of the Australian Open we will be up early on Sunday morning, swapping the Sunday papers and dressing gown for a TV remote and a swathe of Saltires, watching with baited breath for the future of the housing market.

RETTIE & CO. HERALD COLUMN

This year in an attempt to share our property knowledge and experience with the masses we will be contributing a fortnightly column to The Herald's property magazine, Scotland's Homes. 

Our second issue is out this week.

TWITTER

Rettie and Co. is now on Twitter to keep our clients updated with news and view from the property world. To follow click below or find us http://twitter.com/RettieandCo

QUOTES ABOUT ECONOMISTS...

Economics is extremely useful as a form of employment for economists.
John Kenneth Galbraith

An economist is a man who states the obvious in terms of the incomprehensible.
Alfred A. Knopf

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today. 
Laurence J. Peter

Isn't it interesting that the same people who laugh at science fiction listen to weather forecasts and economists?
Kelvin Throop III

In all recorded history there has not been one economist who has had to worry about where the next meal would come from.
Peter Drucker

If all economists were laid end to end, they would not reach a conclusion.
George Bernard Shaw

An economist is a surgeon with an excellent scalpel and a rough-edged lancet, who operates beautifully on the dead and tortures the living.
Nicholas Chamfort

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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