FT - (Auctions) Fears of fresh house price weakness

martin8_2

Make of this what you will guys... not intended to inflame but just more food for thought on the current climate.

Hopes that the housing market has emerged from slump may prove premature, after a leading indicator of house prices suggested fresh weakness ahead.

The median discount on houses sold at auction compared with their value in the conventional market rose to 18 per cent in July from 13 per cent in June and 11 per cent in May, research published on Friday shows.

The second consecutive month of increasing discounts on auction properties could point to a further downturn in house prices.

Auction prices should provide an early warning sign of changes in house prices because most sales close within a day and many sellers are under pressure to dispose of properties, providing a “mark-to-market” value of what properties are worth.

Prices in the normal market can take much longer to adjust as sellers and agents are slow to realise prices have risen or fallen, while the transaction process is much slower.

“The increase in the auction discount runs counter to the pervading mood of cautious optimism that the worst may be behind the housing market,” said And!rew Brigden, senior economist at Fathom Financial Consulting, which compiles the index of auction prices.

“The widening of the auction discount over the past two months is perhaps the first indication that the nascent housing rebound is already fizzling out.”

The auction price index showed that more than 40 per cent of properties sold at auction in July went for a discount of between 10 per cent and 40 per cent. This was a big increase in the dispersion of prices, after about 25 per cent were sold for 10 to 20 per cent discounts in June, and may point to increasing uncertainty about the right value for purchases.

“It suggests investors are getting a bit wary,” said Mr Brigden.

............................[snip]....................

I've only posted the first half of the article as I don't wanna get into trouble and here is the URL for the full article.

http://www.ft.com/cms/s/0/d8c7f7ea-8828-11de-82e4-00144feabdc0.html

Really2

martin8 wrote: »

Make of this what you will guys... not intended to inflame but just more food for thought on the current climate.

I've only posted the first half of the article as I don't wanna get into trouble and here is the URL for the full article.

http://www.ft.com/cms/s/0/d8c7f7ea-8828-11de-82e4-00144feabdc0.html

Auctions for residential properties will always be lower (eg 3 bed semi etc)

They are usually repos that have not sold via EA. Perhaps for a number of reason but on may be removal of all fixtures and fittings, this makes it fairly difficult for your average buyer to purchase as they usually need a toilet, taps, boiler etc

If you want a cheaper house auction would be the way to go but the chances are on the majority of properties they need work spending on them.

It would be interesting to find out what percentage of repos are getting to auction compared to last year. I would say that figure as dropped.

(and before someone says large estates and farms are usual sold at auctions this is because they are either semi commercial or that they are distressed estates eg. owners are dead.)

To add though I still feel we have some drops but how far will they go? only the market will provide that info..

martin8_2

People have mentioned that I should visit one of these house auctions when I was seriously looking at houses previously. I don't mind a bit of hard graft doing up a house and all but the whole process of "buying a house at auction" to a newbie like me just seemed rather daunting... maybe it's about time for me to do abit of research about it!

Anyways, back to the article... I'm not sure how it will translate (if much) into price decreases overall but as really2 has said it would prob explain prices for less-attractive houses in the market. I suppose if they were % of repos at auctions of a certain standard then that maybe more of an indicator...?

Really2

martin8 wrote: »

Anyways, back to the article... I'm not sure how it will translate (if much) into price decreases overall but as really2 has said it would prob explain prices for less-attractive houses in the market. I suppose if they were % of repos at auctions of a certain standard then that maybe more of an indicator...?

There would have been more higher standard ones if repos had been expected levels.

I think it takes a certain amount of saturation by repos for it to start to have a marked effect on standard sale prices (EG EA sales)

Much of the current situation is being caused by a lack of houses on the market. I can remember at the start there were auction links all the time with loads of houses listed.
I presume there are not as many listed now as people never seem to post them.

the_ash_and_the_oak

Really2 wrote: »

There would have been more higher standard ones if repos had been expected levels.

I think it takes a certain amount of saturation by repos for it to start to have a marked effect on standard sale prices (EG EA sales)

Much of the current situation is being caused by a lack of houses on the market. I can remember at the start there were auction links all the time with loads of houses listed.
I presume there are not as many listed now as people never seem to post them.

agree, forced sales were a factor in the first stage of crash. this quite clearly no longer a factor

Graham_Devon

Really2 wrote: »

There would have been more higher standard ones if repos had been expected levels.

I think it takes a certain amount of saturation by repos for it to start to have a marked effect on standard sale prices (EG EA sales)

Much of the current situation is being caused by a lack of houses on the market. I can remember at the start there were auction links all the time with loads of houses listed.
I presume there are not as many listed now as people never seem to post them.

I find that hard to correlate with the story. Less homes so the prices drop?

Really2

Graham_Devon wrote: »

I find that hard to correlate with the story. Less homes so the prices drop?

Did you read my first post?

Auctions for residential properties will always be lower (eg 3 bed semi etc)

They are usually repos that have not sold via EA. Perhaps for a number of reason but on may be removal of all fixtures and fittings, this makes it fairly difficult for your average buyer to purchase as they usually need a toilet, taps, boiler etc

If you want a cheaper house auction would be the way to go but the chances are on the majority of properties they need work spending on them.

It would be interesting to find out what percentage of repos are getting to auction compared to last year. I would say that figure as dropped.

On a like for like basis they are usualy of lower quality and need money spending on them.
They go to auction after not selling on the open market. There is usualy a reason why they have not sold on the open market. one being they are uninhabitable until a certain amount of work is done.

In simple terms less are going to the market and to auction, this meaning the absolute dregs of repos are filtering through to auction level.

Graham_Devon

Really2 wrote: »

In simple terms less are going to auction, this meaning the absolute dregs of repos are filtering through to auction level.

Fair enough.

I don't agree less are going to auction, the figures are higher than a lot of previous years, just 1000 less than the last quarter, but can see where you are coming from.

Really2

Graham_Devon wrote: »

Fair enough.

I don't agree less are going to auction, the figures are higher than a lot of previous years, just 1000 less than the last quarter, but can see where you are coming from.

?

In the boom the majority of houses at auction would not be Repos

Boom people think they can sell for more at auction and speculators are their buying upping values.
Bust. People strip out all assets of their repo home rendering virtualy unabitable.
Auctions are an exaggerated view of the markets. (high boom, low bust)

Get the HPC goggles off it is a simple concept to understand.

It is not a bull bear issue it is a fairly simple fact how the market works

Repo goes to EA.. sold within three months.... no auction.

Repo goes to EA.. No interest at EA for three months.... Goes to auction.

Are the figurs of repos going to auction now higher than any time in the crash?

mewbie_2

Really2 wrote: »

the absolute dregs of repos are filtering through to auction level.

Do you work for Savills?

Really2

mewbie wrote: »

Do you work for Savills?

No but I did back up my argument in my first post.

Really2 wrote: »

(and before someone says large estates and farms are usual sold at auctions this is because they are either semi commercial or that they are distressed estates eg. owners are dead.)

Most of their stuff are country estates or farm type estates usualy distressed (death mainly to split ineritance)