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From The Times

March 18, 2008

Credit crunch: Don’t expect to walk into a Georgian pile

Anne Ashworth: Property editor

At the Affordable Art Fair in Battersea Park, London, on Sunday afternoon, affluent young professionals queued to have their purchases bubble-wrapped, apparently unconcerned by the far-reaching consequences on both sides of the Atlantic of the impending demise of Bear Stearns.

One visitor trying to make his way through the cheery throng at the event, where attendance hit a record and affordability was a relative concept, wondered out loud why these “investment banker and hedge fund people” did not look more scared.

But although the sale of Bear Stearns is the most serious indication yet of how sub-prime slime is spreading everywhere, killing off things on which we have learnt to rely, such as a ready supply of mortgage finance, the pain will not be shared equally. The impact will be greatest for the less well-off who either aspire to, or have just achieved, homeownership. There will now be even fewer half-decent home loan deals either for overextended home buyers hoping to remortgage, or for would-be owner-occupiers not clutching a large deposit. Even the creditworthy could face refusal.

The Easter weekend is traditionally the time when the housing market gets a spring in its step. This year the only people who will not be hesitant are those fearless investors who believe in buying before you see the light at the end of the tunnel.

Anxieties about redundancies in the City will mean the values of London houses between £1 million and £3 million where bankers reside will be hit. But most of those who stay employed will have a cushion of equity. They also have the long-term reassurance that there is a shortage of family houses in Central London and the most sought-after suburbs.

However great the impact of the Bear Stearns affair, no one out home shopping this weekend should expect to see prices plummeting. Sellers continue to be reluctant to cut asking prices: it can take as long as a year to accept that values have fallen. Meanwhile, banish the idea that Georgian rectories are about to become bargains. There is a dearth of such properties and the buyers pay cash: one unchanging thing in a much altered climate.

Anne's turning but stil in denial. It's understandable: Vested interest of the property-commenting media to maintain the mountain of words / images they need to churn on "how to achieve your dreams with property" (Riches, Escapism, Artistic rebirth (essentially, colour schemes / bathroom marterials), whatever).

Property, of course, is a completely unique market from all others in that it travels inexorably upwards. The market is now travelling downwards. The only question is velocity. Over time, people will become less motivated to talk about property-related matters and the quantity of frothy property journalism and tediously boring property shows will diminish. Thank God - every cloud has a silver lining.

Pete, bristol,

anne - your rectory buyers may well use cash but the only reason that they have put the major part of their liquid wealth into the property market over the last few years is on the expectation of capital gains - i dont think that buyers will be rushing to invest 1-3m quid in a property this year until they feel they are getting a discount

ricky, london,

If one is versed in the fact that credit excesses drive asset bubbles and that this is a constant since the creation of modern credit, and then add in what happened in Japan from 1990 (less land, higher popn growth, lower interest rates and unemployment) and is now happening in the US (lower interest rates and unemployment)â€¦both countries are seeing or saw falls in house prices as credit excesses reversed.

Here is an admittance that the fall is being driven by the credit cycle. How do these people then not see that prices went up because credit availability was going up. THEN how do they conclude that less access to debt is a problem for FTBs? Prices were driven by "irrational exuberance" and excess/easy debt. If prices fall FTBs benefit in the long run. EXCESS liquidity puts everyone in a debt trap.

Fools were being given too much money before. Now bidders will not give as much just because they can, prices will fall back, and FTB will need less debt. That is good, not bad!

Raj, London,

Wow! This is huge news! Its been a long time coming, but finally Ashworth is beginning to accept reality. Another property ramper falls, can't be many left guys, just Allsop to go. Crash, along with big brother Recession, has very few deniers left

robert, hull,

Anne, the tone of your article is far too optimistic.

UK Property prices are set at the margins of affordability and the market is highly speculative. The UK is entering a downward cycle of falling property prices resulting in a weaker economy, leading to further falls in property prices.

If sellers hold out prior to accepting reduced offers this will result in further downward pressure as UK economy deteriorates.

Costas, Cyprus,

Cross your fingers and your toes it'll all be over in no time.

judy, Liverpool, England

History is littered with the remains of those who say "this will never happen." Six months ago you were saying no properties were going to lose value. The US property editors and estate agents were saying the same of Beverley Hills 18 months ago.House prices had apparently reached a permanently high plateau. One rotten apple infects the whole barrel. The demise of Bear Stearns is the tip of the iceberg in terms of credit contraction. House price rises of the last decade have been driven by constantly increasing credit expansion. You have accepted that even the creditworthy will be denied high mortgage multiples but can't seem to make the next logical step that if all credit lines are hit so are all house prices. Cash rich buyers understand the situation ( hence have cash now, not debt)and will not to try to catch a falling knife.

Edward, London,