October, October, why have thou forsaken me?
In August we were reporting the busiest month that we’ve ever had and I was questioning whether the old wisdom about spring and autumn being the best months in the property market really applied any more. And then October happened…oh, October.
A Link, Finally, Between General Economic Conditions and the Property Market?
I’ve been saying for ages, to anyone who will listen and to many who won’t, that there seems to be absolutely no sensible link between broader economic conditions and property price movements. There are certain predictions that would seem to most people like they are just common sense. For example, you would think that an increase in unemployment, cuts to the wages of people who are in work and the worst mortgage lending conditions for a decade should all mean that property prices take a nose-dive, wouldn’t you? Well, in Edinburgh and the Lothians and, from what I can see, on the west coast of Scotland too, this hasn’t actually been happening. The property market stalled prior to wider global financial concerns becoming well known. Job cuts have been happening in significant numbers since the financial/banking crisis, large-scale redundancies have been taking place in the financial sector which underpins the Edinburgh economy in particular and yet the property market has started to rise and recover in the last year or so.
So, having given up completely on looking for links between current events, economic conditions and house price movements and housing market health, I was rather surprised this month to see that there perhaps IS a link between all of these after all?
But what has happened in the last month in the property market to make me think this?
The Property Market Took a VERY Sizeable Shudder in October But, Touch Wood, Seems to Have Recovered Its Balance Again
Obviously November and December start to slow down a bit towards the Christmas and New Year holidays so a good October is important.
We were sailing along with a great August behind us and then September got a bit quieter. Nothing to be concerned about because October is traditionally one of the busier months for property market activity and maybe we’d just had a bit of a lucky month in August. Then it all went a bit wrong (I wrote this post about it at the time http://robert-carroll.co.uk/is-the-scottish-property-market-tightening-its-belt/)…
It was a Tuesday, near the beginning of the month. I came into the office, asked how things were going and was told that the phones had been very, very quiet. The next again day I was told the same thing. Then the following day. Then the following day. On some days the phone hadn’t been ringing for a couple of hours at a time. Now, as anyone who works for any company will tell you, having a bit of a break from phone interruptions is a nice thing. However, after a couple of hours it becomes a bit of a concern from a business point of view. And it wasn’t just the phone but the internet too. Web-based enquiries dried-up. Valuation requests dried-up. Things got so suddenly and seriously quiet that we checked all our phone lines, website forms, web portals and advertising. I’m not joking. I started phoning around other firms, asking what they were experiencing. They all said that they were seeing the same thing.
I’ve never seen anything like this before. Obviously the property market naturally has peaks and troughs and, in the last three years, we’ve got used to the idea that it can come to a crashing halt. However, the suddenness of this blip was what was outstanding here.
So, what could have caused such a sudden drop?
The Penny Has Finally Dropped That We’re All in a Bit of a Financial Pickle (aka George Osborne, is a Big Bad Nightclub Bouncer)
Here’s my theory: what we’ve just seen happening in the past month is the economic and housing market equivalent of a big, scary bouncer telling you that it’s ‘chucking out time’. Why? Please bear with me…
You’re in a bar and you know that it closes at midnight. The bar calls last orders, giving you a very good idea that it’s closing time very soon. The staff then tell you that it’s closing time. It’s midnight, you look at your watch and you know you should do take some action. However you stay a bit longer. The staff start putting chairs on the tables and sweeping the floors and you absolutely KNOW that you have to go. However, there’s a huge difference between conceptually knowing something and actually taking any action. Finally, the massive bouncer comes from the front door and tells everyone remaining in the bar that they have to go. ‘No manners, some people,’ you might think, but this guy means business and you know that he’s the one person who, out of everyone involved in this scenario so far, can actually do anything about it.
What the heck am I going on about and what relevance does this have to the incredibly sudden and serious blip that we saw in the property market? Simple…
George Osborne, Chancellor of the Exchequer, is the bouncer. The UK population is the customers. The UK economy and our economic security is the bar we frequent. The chairs have been going up on tables for quite a long time now: we’ve seen the signs and known, conceptually, that there is a problem in the bar and that we should do something about it but nevertheless we’ve just continued about our normal business in the meantime. However, the Big Scary Bouncer, George Osborne, has just told us all through the medium of the Conservative Party Annual Conference that it’s ‘chucking out time’. And he’s outlined to us exactly how he is going to go about it. And now, for the first time, we actually believe that it’s real.
The Conservative Party Annual Conference took place from 3 to 6 October 2010. It coincided almost exactly with a sudden paralysis in the property market. For about a week, nobody wanted to sell and nobody wanted to buy any properties.
I believe that, finally, the penny has dropped: we are all in this together. Cuts will affect all of us, not just ‘other people’. The benefits that are being cut now affect the middle and upper-middle classes. Public sector cuts will affect the jobs of middle and upper-middle classes. And now that the scope and specifics of the cuts have been clarified, it’s real. The property market is all based on confidence. I believe that these announcements fundamentally shook the confidence of the UK economy and property owners as a whole. And as a result, we saw a sudden paralysis caused by people looking around themselves, realising that they were going to be noticeably less well-off in the coming months and years, and wondering whether they really did want to move home after all.
So Is This The Beginning of a Property Market Slump and How Will the Property Market Respond to General Economic Factors in the Near Future?
I don’t think that this will have a longer term negative effect on the property market. I do think that it was a significant blip though and that it perhaps signals, finally, some correlation between general economic conditions and the housing market.
Why won’t all of this have a huge effect on the housing market? I think that people have finally realised that they will be less well-off in the coming months and years. However, I believe that most will still not be put-off moving home simply because there’s often something else that can be cut from their lives before they will consider not living in their ideal property. Golf club membership, dinner in a restaurant every Friday evening or a home that’s big enough for your whole family to live in? That’s an extreme example, but even on an emotional level, a person’s home is a very high priority in comparison to other things in their lives and other things will make space for the home move.
I do think that it will have some effect on the property market because not everyone will be able to make cuts in other areas of their lives to justify either moving up or getting onto the property ladder. Will that effect be negative or, is it possible that it might be positive? Now that the Big Bad Bouncer has outlined it, spelled-it all out to us, we at least know what £86 billion looks like as far as we are individually concerned and it’s easier to make decisions. All of which might even have a positive effect on the housing market as people are no longer just waiting in limbo.
Time will tell, but I believe that we will now see a clearer relationship between general economic trends and the property market and property prices. This view was backed today by a major UK property consultancy (see end of this article http://www.guardian.co.uk/business/2010/oct/28/uk-house-prices-fall-faster-expected). I am interested in your views, so please do click through to MOV8’s Facebook Page and leave your opinions about what you think is going to happen (http://www.facebook.com/mov8realestate)!