Peter Stanley, ex Business Bank Manager, professional property investor, author and great friend of The Money Gym, has written a great report that puts some perspective on the property market which by all media reports is "crashing and burning" at the moment (July 2008). We had a long chat after I read it, and he has given me permission to share it with you.
Peter says: "Regular readers will know how much I dislike media reports on the property market, as they're often based on a single piece of data, or an opinion that's passed off as fact, when most articles closely resemble works of fiction.
You only need to watch the evening news to realise that good news is in short supply, not because good things don't happen, but because bad news sells. Sad but true. If you don't believe me, next time you're listening to the news, make a note of every good story - you won't need a big piece of paper !
So, for anyone who'd like to know what's really happening out there, here's the most common myths;
Houses aren't selling / people aren't buying
Whilst there was a lull for a couple of months, houses are selling again.
That isn't an opinion, but fact.
As you can imagine, I get to speak to a lot of estate agents and watch a lot of houses, waiting for the sellers expectations to reach mine and I'm seeing more and more houses bought between those times.
In fact, I was surprised recently (and not much surprises me these days) when I overheard a conversation between two estate agents about their sales figures. One of them had sold seven houses in ten days, which would be a good result in any market - perhaps someone should tell the Daily Mail & The Express.
It gets better though, as seven sales was for one of the estate agents in the office, not the whole office, so even if the rest of the staff had only sold another three houses, that's a house sale a day !
No-one can get a mortgage
Whilst mortgages are harder to get than they were, there are still mortgages to be had.
If you haven't got a deposit, or have a poor credit record, then you're likely to struggle, but this is a knee jerk reaction to the Banks' over eager lending policy of recent years.
I recently went to see a house where the owner was about to get repossessed, to talk about a deal
Within the first five minutes I learnt that he'd borrowed 110% of the purchase price, as well as adding in his legals costs and mortgage fees, which meant that he owed around £20,000 more than the house was worth on the open market.
I like to think that I can come up with some good ideas and solutions, but even I was struggling with this one.
The best I could think of was to babysit his mortgage, whilst leaving it in his name, take an option to buy the house and then rent it out to someone who wanted to buy, but couldn't quite manage it at the moment. As his mortgage payments were £800 per month, which is far more than the market rent, it was a dead duck.
Still, I find repossessions a sad business, even though I didn't create the problem, as there's no winner, not even the Banks.
Prices are falling
The concept of falling prices is an interesting one.
If you were offered two items that looked the same, but one was cheaper, you'd buy the cheaper one.
Houses may look the same and may even be on the same street, but often they're worlds apart inside. Even if I own a house on the same street, I want to see inside, as there can be a lot of changes made in he 100 years since they've been built, doors moved, walls moved or removed, to the blight caused by too many TV programmes and over-ambitious trips to B&Q.
So, given that houses aren't all the same, I find it statistical impossible to know that prices are dropping.
The reports look at types of houses and postcodes, but even this apparently small sector can still contain great variances in price.
One of our main buying areas is Denton (M34), but not the one where Jack Frost lives, and a 3 bed terraced house can vary between £90,000 and £160,000 depending on the location and size. This means that the split of properties greatly impacts the numbers, giving the scientific method the same value as holding a finger in the breeze to check the wind direction.
Having said that, if people believe the market's dropping, it's the time to buy for two reasons;
Reason one
People are scared, which means they're staying away form the market, thereby reducing the number of buyers and offers made.
The banks are happy with this, for the time being, as it allows them to cleanse their lending books by getting rid of the dross and only taking on people with better credit histories.
Reason Two
Many people are waiting for the market to bottom out, as if the housing market is the same as the share market. The housing market and share markets are quite different for a number of reasons ;
- One share in a company is exactly the same as any other, houses on the same street can be quite different and worth thousands less
- Shares are traded openly, quickly and prices are freely available, whereas houses have legal and survey costs, need mortgages and aren't valued daily, let alone by the second
- Shares can be valued instrinically, by looking at the company's assets, whereas the value of a house depends far more on location, e.g. a house in the Welsh mining valleys does the same job as one in Alderley Edge, but their values are worlds apart
Don't get me wrong though - we're using the lack of buyers and the press headlines to buy houses cheaper than we have since 2006, which when coupled with 2008 rents makes it a great time to buy.
Buy To Let's Dead!!
I've seen this headline a lot recently, so it's doing its job of attracting readers to the article, but it's misleading.
In the UK, demand for houses outstrips supply and the gap is increasing as the years go by.
When you read these articles, the nub of the authors' logic is that investors who bought city centre flats have caught a cold, as selling won't clear their debt and the rent won't cover their mortgage, now their fixed rate deal's expired. You then go on to read of people who've taken a developers word for the value, rather than an independent valuer like we do, have no comparables and bought without understanding the basic principles of property investing.
I imagine that most of us would do more research when buying a television or booking a holiday than many of these investors did. So many people got caught up in the get rich quick idea of buying off plan, that they forgot to check the numbers were accurate.
Wise investors know that property isn't a get rich quick scheme, more of a get rich slow scheme.
Quite contrary to buy to let being dead, in our part of the world, it's firing on all cylinders.
Tenants are signing up for our houses before the refurbishment's finished, at a good rent, yet we're buying houses more cheaply than we have for the last eighteen months, so our returns have gone up.
CONCLUSION
If you're as sick of all the media comment as I am and would like to hear the thoughts and logic of someone on the front line, rather than in an ivory tower, then I've got something special for you.
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