Housing takes a tumble
Wednesday 11th February 2009, 3:00PM GMT.
THE economic slowdown is starting to hit the housing market with average prices falling by £28,000 in the last three months of 2008.
And the number of house sales plunged to a seven-year low during the quarter, according to official figures issued today by the States Statistics Unit.
The price of an average home stood at £480,000 at the end of December as compared to the record high figure of £508,000 three months earlier.
In the 12 months from December 2007 until the end of 2008 prices rose by ten per cent. But the number of transactions on which the figures were based dropped to its lowest level since 2002, averaging 20 a month.
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So 5% in the last quarter that would be 20% annualised and the decline may well accelerate through this year. Looks like as some predicted we are lagging about a year behind the UK in entering this recession/depression. Even with a 20% fall, house prices would still bear no relation to wages earned by workers here. I fully anticipate prices continuing to fall over the next two or three years as in the US/UK and by as much as 50% peak to trough. Just as prices tend to overshoot on the way up they undershoot when correcting on the way down. At that 50% drop the average house would then be £240,000 with average wage currently £39,000 – I doubt many will be getting pay rises over the coming years – it will still be over five times salary with a 10% deposit !
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Your paper says it all, 7 pages of property and 2 pages of jobs. I like many others that cannot afford to own their own property in Jersey are actually pleased to now see prices dropping. When they actually get down to more modest affordable levels in line with salaries which will hopefully be the trend over the year and well into 2010/2011 then it will be even better news. The days of property investment are over for now. And if people find themselves into negative equity then they can only blame themselves for being so greedy.
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and we are surprised by this?
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You cant find yourself in negative equity purely because of greed Matt, it might even be because you panic bought before it got worse. Dont be so narrow minded.
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For those of you who read my posts I’m sorry to say that this was predicted, despite political statements to the contrary.
The housing price reduction in Jersey has the potential of being significantly greater than the UK and the reasons are simply this:
Mortgages are going back to a basis of a sensible salary multiplier of 2.5. This is not to penalize the borrower but to make sure that they can both pay the loan back and live without an increasing debt level.
This means that if your combined income is say £80K p.a you can borrow around £200K giving repayments over a 20 year period of around £1100 a month which leaves £2900 after tax as income. Add to this a 10 to 20 deposit and show me the property. They simply don’t exist. OK lets go and double the salary multiplier and get £400K then shall we, but oops the salary remains the same so the monthly mortgage costs rises to over £2300 leaving only £1700 a month to live on. And all this is on the mega low interest rate of 3.75%. And again show me the property.
In reality the calculation between the UK and Jersey for comparable properties perhaps does suggest a premium but that is not the existing almost doubling up in prices that the market has created for itself.
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There were loans of 5x salary and 125% of the price of the property being handed out in the confident expectation that salary increases and bonuses would make it all affordable.
If we enter a period of two years of economic stagnation or even decline the outlook for housing is going to be very grim indeed.
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No bad thing as it will mean houses become more affordable. I am fortunate enough to own my own home having saved for years to buy it but as I don’t plan to sell I don’t care if prices fall.
Especially if this helps more onto the property ladder it can only be a good thing. It was getting to the point where only the rich could afford a house.
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I don’t find the drop in prices shocking in the present financial crisis however I do think that people need a bit of a reality check here.
1. While lowering house prices is good for first time buyers, there is a general rule of thumb that if you couldn’t save for a deposit when the economy is healthy there is only less chance when it is not.
2. A drop in residential house pricing will actually take houses off the market making it even harder to find homes and meaning that the initial drop it soon outweighed by demand.
3. People that already partially own their homes will not sell as they may be left owing money to the bank if the value drops below what they have borrowed.
4. Aligned with extraordinarily low interest rates and the knowledge that Jersey housing is always going to be a desirable commodity anyone with ANY business sense will remortgage to the hilt and buy up all the non-first time buyers property while they can afford it.
I have today been to visit a new investment flat that will cost me less than £400 per month in mortgage payments on a second mortgage yet the identical flat downstairs is currently rented at £1100 per month… Do the math! Falling house prices do not help in an environment that is full of potential investors and rents are high. The only way to prevent this is to raise the bar again on housing qualifications and reduce the number of people that are eligable to gain housing thus increasing the number of properties availiable for the qualified.
Without legislation from the States to protect the local comunity this is not going to be an easy time for low income people/families.
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Only another 50% to fall before i can afford to buy a house!! And i earn more than the average joe!
It’s all relative, your house is only worth as much as someone is willing to pay…at the moment, it’s worth zero!
I have been told i can only borrow 4 times my salary, back to the old days…of tighter lending, which i agree with…but i can only afford a garage at this rate…mind you, i can rent it out for an extra 20 pence and hour now!!
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Matt, I take it that you are simply waiting for prices to drop to an ‘affordable’ level before you attempt to get on the ladder. (i.e. speculation.
If you are lucky enough to do so and you get the timing wrong, thus sending you into negative equity, would you blame yourself for being ‘so greedy’?
Not everyone who buys a property and who goes into negative equity is greedy Matt. Most of us would not worry too much because we bought a house to live in. As far as investments are concerned, the prices will peak again one day.
How would you consider yourself and your house then?
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Bit more inside knowledge, the calculator that the Banks are now using for mortgages is caled the SAD calculator (salary against debt)
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You’re not going sell your house for less than you paid for it. So keep paying the mortgage, sit still, do it up and wait for the market to come back. If the market takes years to come back then you will be there for a while, so why not keep your house. The house you have now is the house your going to stay in for the rest of your life.
Who will suffer: Estate agents and some lawyers.
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This is good for the young ones, hopefully some more will stay in the island, and if prices fall enough we may be lucky and dandara wll leave.
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I would have to be slightly out of touch with reality to buy an investment flat at the moment.
1) I can get a really good yield on corporate bonds.
2) I can probably get the flat a lot cheaper if I wait until next year.
3) Next year I will have a better idea if I can get a tenant, there are a lot more flats than tenants at the moment and if anything it is getting worse.
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I should add that there are hundreds of properties on the market at the moment but only 20 a month are being sold.
I know of some where the signs have been up for over six months.
As you say, do the math. If the economy does not pick up in the next year the only way prices can go is down because some people have to sell because of death or divorce etc so they are willing to accept a lower price.
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Geeman:
1) Lower prices are good for first time buyers and anyone trying to trade up.
2) You fail to factor in the more general recessionary effects that are coming principally lost jobs/rising unemployment. People will sell up before it is too late or will be forced to by lenders as arrears mount.
3) Also as jobs are lost there will be less and less highly paid non-qualified suckers to pay extortionate rents so rents will also come down with prices.
4) If you are buying with a mortgage as a leveraged investment with prices set to fall significantly your equity will be wiped out in short order. You will then at the end of your deal have to languish on the lenders SVR or have to inject more equity.
Raising qualifications would mean less people able to buy and so competing with investors like yourself and so lower property prices. This would likewise force more ppl to rent for longer and so lead to an increase in rents. The reverse of what you suggest.
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No need to worry there are plenty of Dandara apartments to buy at half the price of a house.
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First time buyers.
Nat West 90% loan to value, lending five times income, or affordability.
RBSI- same as Nat West.
Lloyds/TSB – 85% loan to value – five times income.
HSBC 25% loan to value first time buyers – five times income, or affordability.
Barclays – 85%, loan to value, first time buyers – five times income, or affordability.
Skipton – 85% loan to value, first time buyers – five times income, or affordability.
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Fantastic news! If this continues, we will perhaps be able to afford living in our own home rather than pay sombody else to finance theirs.
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This is great news. Sky high property prices in Jersey only benefit property agents and property speculators, and boy they have made some profits in the past. The bubble has finally started to lose air and a burst cannot come sooner enough.
I might consider buying if we see a realistic drop by 30%.
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I think this image says it all really:
http://i325.photobucket.com/albums/k398/Extradry_Martini/UKHPvAvEarnings2.jpg
Not exactly rocket science, is it?
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They’ve got a long way to drop before they reach the bottom. Like I keep saying, it’s a good time to sell and a bad time to buy.
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Geeman, you are correct in everything that you say, and I like you will take advantage of the drop in house prices and buy for investment purposes. Whilst house prices are falling, rent is not!
Buying to let will more than cover my second mortgage and then some!
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Average house price only £480,000. I must rush back to live in Jersey. I have taken a new pill where you can live forever so I can pay the mortgage. Just 422 years instead of 500, so I will be able to enjoy my retirement in 300 years time!!!!!
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I will never understand why people want to get themselves into so much worry and heartache with a mortgage, as I just see it as owning a huge debt for 20 odd years, not owning a property, unless you can afford to pay it off very quickly of course!
I know for certain that, unless I have some luck on the lottery or even win some money in a competition/prize draw, I will never be able to buy my own property and I have accepted that I will have to carry on renting. At least I don’t have to worry about having to sell the place if I want to move and I haven’t got the bank breathing down my neck all the time wanting to repossess the place!
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It is simple, 20 means 20, no more muliples of 5x+ mortgages, no more zero deposit mortgages and by the time dandara finishes, too many flats. Existing lenders have been stung by this lending, so legislation will come in to stop it re-occuring. Get some unemployment coming in and add it all up, a 5% drop in 12 months time will be nothing because nobody is goign to touch the market this year unless they are desperate.
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If you have a horrible landlord it makes an absolute misery of your life – I’ve been there, done that and thank heaven I was left enough money for a deposit to get me out of my basement or I’d still be renting.
Yes, it’s a worry sometimes whether you will be able to pay the mortgage each month but after what I went through I would hate to have to rent again.
The bank has always been extremely helpful, never breathed down our necks and the last thing they want to do is foreclose on a mortgage. At worst, if you really can’t make the payments, after a few years you build up some equity which will give you some money to move on which you don’t have when paying rent – if the landlord throws you out you are left penniless, particularly if you’ve made some improvements.
There are good landlords out there of course and lots of happy tenants – which is just as well as it’s so difficult to scrape a deposit together. Hopefully the current market will help more people to buy – I wish you all the best of luck.
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Sorry some of you think my views of the market are cynical. But I just think it is time we had a reality check. JTM is right about 20 means 20 on top. The tax relief for interest being taken away will do further damage to the market.
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Geeman.
1. People didn’t save for a deposit because they didn’t have to. This reason helped push house prices up because the demand for homes increased because anyone could get a mortgage. This is not the case now as you need at least a 10% deposit. With house priceses dropping in Jersey I see the maximum LTV being even lower than 90%, probably being 75% if you want any sort or good deal.
2. Demand doesn’t come into it if there isn’t the credit available to make these purchases. Transactions are at their lowest for 6 years and will get worse with dropping prices and low credit availability.
3. I agree with this but it all depends how hard the recession hits Jersey. Forced sellers i.e repossions will increase with job losses and the credit crunch. The credit card culture is dissapearing and people paying for those holidays and expensive cars using mortgage equitity withdrawl are in for a shock.
4. Rubbish, buy to let mortgages wont be around much longer (if they are still) and rental yields at todays prices are non existant. When property prices drop 50% that may change but we’re along way off that yet. Also rates are low now but only with low loan to value ratios and don’t expect them to stay low forever. After a period of deflation we will see massive inflation and rising interest rates to combat it imo.
Wow, that’s some deal you’ve been offered, you sure you didn’t miss a 0 off that £400. The place I rent is just over £1000pm and next door is on the market for over £400,000. I would be paying more than double what I’m paying to rent it if I wanted to buy it and that’s with a deposit, no thanks. Rental yields aren’t viable atm. Raisng quallies would drive house prices down and rents up which I’m all for. Reducing them would have the opposite effect.
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Big Bean, how noble of you. I hear that house prices dropped £300 per day in the last quater of last year I think we are at the bottom of the slowdown and a recovery is imminent. I fully recommend that you mortgage your current property to the hilt, and buy as many dandara shoeboxes as you can. You can then rent them back to first time buyers and young families to cover all your mortgages. Good luck in your quest.
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Phil (5)
Jersey lenders don’t tend to follow UK lending rules so comparing Jersey to the UK is not a realistic comparison. Jersey has had 5x salary for years and most lenders provide it without question including to the self employed. That simply wasn’t the case in the UK.
Things would have to be dire over here, and I mean the finance industry to leave, before lenders change.
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Joker
They are changing:
http://www.thisisjersey.com/2008/11/08/mortgage-shock/
If you think Jersey will be immune to the global credit crisis you are wrong imo.
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I thing is Joker, lending restrictions are being imposed with up to date legislation. Give it another couple of years 3.5 x mortgages will be the norm. They basically will not be allowed to give you 5 x anymore.
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Joker
sorry mate but lenders do not provide anything without question anymore. you will find that whatever the banks publish as a lending criteria the reality is totally differenty. it is now very very difficult to get a mortgage. this observation is based on hard fact as I work within the mortgage business. lending is now controlled from the UK and there is very little money, what there is will not be risked in jersey
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“Mort” comes from the word death in Latin and to “gage” is latin meaning to contract with someone. Therefore mortgage means ‘contract of death’. Which seems a suitable analogy for Jersey!
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Sorry people – I should have been clearer in my post and that it is just an opinion…
I was referring to the longer term in conjunction with property being a long term investment, and based on the fact the past tells us that banks have been more credit generous in Jersey a lot longer than they haven’t. After a couple of years of decline once things start picking up again things will return to normal in terms of lending. Unless desperate, and over the short term – i.e. over the next 2 years or so, people are not going to sell if they are going to make losses – they’ll hope to ride out the storm. The market will stagnate, meanwhile the number of first time buyers will increase therefore demand for first time buyers will increase and as long as there is demand house prices won’t fall through the floor before additional first timers kick-start another property boom. Obviously this will not be the case if we go all Japan and banks don’t lend for years.
Assuming a ‘short’ recession, once the economy is back on the recovery banks, unable to resist being ‘banks’ and the British loving their property, will eventually be lending 5x plus again for a nice return. As for long term changes in rules regarding borrowing I haven’t heard of any plans to change the regs. Even if there are regulations enforced, these will probably be loosely based (i.e. loop holed) as the government, even with current public outrage, prefers self regulation and they will probably be ‘forgotten’ based on the fact that time and time again banks, the corporate world and the government never learn from their mistakes… capitalism ensures of that – fortunately
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House prices will not fall locally the same level as the Uk simply because of the fact that we only have 9 miles x 5 miles to play with.
The only way house prices will fall significantly is if we build more and create a buyers market.
Unfortunately we have a choice, continue with high prices in Jersey – or build more homes and see the average price drop.
And therein lies the problem – people who already own homes want fields and green areas and stable prices, and those who are still waiting to get on the ladder want lower prices. We have to decide as a community what we are willing to give up – green fields or hope of considerably lower prices!
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Sorry but if you house holders are holding on to the fact that prices will not drop because Jersey is an Island… Get real.
If no one can afford the mortgages, loan the money or even save the 20-30% deposit then the only people to buy property is investors.
Thing is investors (unless rich) have to use banks and the banks are not playing any more. Also to make a profit the investors have to sell, well whos buying other than the investors?
Because prices will fall private owners will stay put until the market increases because who wants to sell at a loss?
So starts the vicious circle of a recession.
getting the idea now?
Prices will fall…by how much? Only time will tell, but don’t bury your heads in the sand.
2009 is going to be a tough year and all you householders should have reviewed your finances by now.
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Still profits in Jersey housing, what a joke. I can see why many sold last Summer. Got out just in time. I know people that have since been turned down for mortgages so if people cannot buy then the prices will drop a lot more than 5%.
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A house is for life, not just for Christmas…the downward rally in Jersey will not be as bad as many think, we will see a steady but slow decline in property prices over the next 2/3 years…maybe another 10-20% drop…that’s not including the fact that people will typically offer 10% less than the asking price and have it accepted!
What do home owners in Jersey tend to do when there is a drop in property prices; they stay in their homes until prices go back up…be it 5 or 10 years!
Unless you can’t afford your mortgage!
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House prices will continue to fall. Rents will also come down.
The population in Jersey will decrease as recession turns into depression.
This population shift (along with current borrowing difficulties) will be a major force in driving down rents and house prices.
The is good news for local families.
Government action which attempts to keep prices and rents artificially high will fail.
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Those who think property prices won’t fall are living on a different planet! Just because Jersey is a small island doesn’t mean it’s immune to the global credit credit crisis. And that’s just it, a lack of credit!
A downward spiral has commenced. Sellers start to accept lower prices, say 10% lower and people (especially estate agents) will very quickly realise that what they have been used to in terms of how much they value a property has changed.
20-30% over the next 2-3 years is probably about right.
When banks and businesses start cutting jobs they cut hard. Doesn’t matter which office/department is doing well it’s almost always a blanket cut.
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This all means that the sales clerks working in the homes 4 u shops will actually have to make more of an effort. The “Estate Agents” in Jersey have had it too easy. It’s been like shooting fish in a barrel for them in the past. It was almost as if all they had to do was stand outside with a shiny suit and the property would sell itself, because people were desperate to buy somewhere…anywhere!!! Simple really: over value the property, sell it on the premise that Jersey’s market it always going up and the buyer needs to get onboard now or lose out – then the clever bit – laugh all the way to bank with a nice commission.
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Awesome, maybe the people born in the island will be able to buy a place to live one day…
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