Downturn and downtown in 2008: how investors in UK city-centre flats may feel the chill first

Downturn and downtown in 2008: how investors in UK city-centre flats may feel the chill first
WHAT exactly does a housing market downturn feel like?

ANNE ASHWORTH PROPERTY EDITOR
WHAT exactly does a housing market downturn feel like? This is the question on the minds of many of the 12 million people with a mortgage who have never been up close and personal with such a reverse, having known only good times.

These strangers to slowdowns will now be looking for guidance to homeowners who have experienced this phenomenon at first hand. In the 20th century, there were four severe falls in house values: 1930-1933, 1973-1976, 1979-1980, and 1989-1993, when there was a decline of 13 per cent.

Homeowners who were children in the early 1930s can recount their memories of the Depression years; survivor accounts of the three subsequent slumps are also useful.

But only up to a point – although if you are interested in stories of relationships going wrong, you will be mesmerised by the tales of some of the unfortunate couples who bought places together in 1988. Within months they fell out of love and into negative equity. And, for the next four years, they rowed incessantly in claustrophobic studio flats they could not sell.


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The common features of the four periods were recession combined with increases in unemployment and interest rates. Two of these conditions (recession and rising unemployment) do not currently apply, although the US market’s woes prove that a recession is not necessarily the precursor to a housing slump. There may indeed be a role reversal, with the property price collapse precipitating the recession.

Since history cannot provide an accurate guide to what lies ahead, forecasters currently predicting how the market will perform in 2008 are sometimes having to rely on guesswork. The depth of the problems resulting from the American sub-prime crisis is not yet clear, for example. It is certain that the resulting credit crunch has made UK mortgage lenders much meaner, but other side effects may still emerge that would have repercussions on both sides of the Atlantic.

The response of the nervier kind of buy-to-let investor to stagnating or sliding prices is also difficult to divine. As recently as 1993, the role of amateur landlord was much less popular than it is today. But even Capital Economics, the gloomiest guru collective, does not foresee a collapse in this sector. There are likely to be painful lessons, however, for those who invested unwisely in low-grade apartments in shoddy poorly located developments in Leeds, Liverpool and other cities. There are fears that these may go down in history as the properties most adversely affected in the downturn of 2008. For most other homeowners, the sensation of this slowdown seems likely to be more a ride down a gentle slope than a stomach-churning sudden descent.

GARAGES GO SKY HIGH

The prices fetched by garages are not yet a key indicator, but they do say something about confidence in the long-term prospects of the market in certain cities.

A double garage in Edinburgh sold for about £90,000 this week, a record. The space is suitable only for parking – it could not be transformed into a more valuable pied-à-terre for its new owners.

Huge potential for uplift, however, lies behind the $700,000 ($340,000) price of a garage in a block being built in the Chelsea district of Manhattan – which is an island of property price optimism amid the deepening sub-prime-induced misery elsewhere. Owners of apartments in this block will be able to drive into an elevator that will hoist them to garages on the same level as their luxury lofts. The security-conscious will be able to dodge “the hoods in the hood”. Those who are in the public eye will also be able to evade the photographers for whom celebrities forced to park in the street are ready prey.

As we report on pages 6-7, the garage feature is so popular that nearly three quarters of the $3.65 million-plus apartments are already sold. These values suggest faith in the continued availability of lucrative employment in Wall Street and the rest of New York. The jobs of paparazzi, however, may be under threat.

ESTATE OF MIND

Estate agents are called all sorts of things, some of them not that nice. Anyone who is less interested in the denigration of this trade than why they are so called (when most deal in semis rather than rather country piles) should know that the 200th anniversary approaches of their naming. The Times was involved.

Melanie Backe-Hansen, the historian at Chesterton, the estate agent, has uncovered the first use of the term “estate agent” in the edition of The Times of November 9, 1807. Formerly “house and estate agent” was the preferred phrase. The shorter name stuck and estate agents thrived to become businesses so successful that some are even able to employ their own in-house historians.