QUEEN'S Crescent is a leafy enclave on the south side of Edinburgh city centre, not far from the Commonwealth Pool.
It is the sort of street where lawyers and bankers exchange golfing wisdom on Saturday afternoons while snipping their hedges or sponging their cars, and where many of the properties have been turned into guest houses to make full use of the embarrassment of room space.
Loading article content
Number 24 went on the market the other day. The owners sought offers over £750,000, though such garish details are left out of brochures at this end of the market. It is a beautiful period house with four bedrooms, a drawing room, a family room, dining room, office, a formidable cellar, garden and so forth. It received 20 viewers within days and went under offer only a week after it was advertised.
Oh, for the days when the same could be said of any two-bit shed with a for-sale sign outside. The housing-market gloom has been going on so long that the five-year-olds who started school this autumn have never lived through anything different.
Casual readers might struggle to keep sight of the big picture, however. For instance, when the Council of Mortgage Lenders (CML) recently announced a 9% rise in the number of mortgages secured by first-time buyers in the second quarter of this year, you would have been forgiven for thinking things might be turning around. Ditto when the Royal Institution of Chartered Surveyors put out its monthly survey last week, saying the balance of surveyors expect a rise in the number of property sales in the final three months of this year. Read on and you find they also believe house prices will fall by the year end.
Will a rise in the number of transactions really cause prices to fall? When you look at the broad sweep of figures since the crash, there is not much to smile about. The number of houses being sold each year tanked in 2009 and it has never remotely recovered. Where there were fewer than than 70,000 properties sold in 2011 in Scotland, in 2007 there were 155,000. Even in a more moderate year like 2004, there were more than 127,000 transactions.
True, the first half of 2012 was better than the first half of 2011. Sales volumes rose by 9%, which tallies with what the CML was saying about mortgages. But most estate agents say things turned down as consumer confidence fell around May, so the figures for the past couple of months are likely to be poorer. And we have been seeing, these kinds of rises and falls since 2009.
Kennedy Foster, Scottish policy specialist at the CML, says: "It will be a pretty consistent picture in terms of mortgage lending this year. It's still at a pretty low level. It's probably fair to say we are bumping along the bottom."
At first glance the picture does not look too bad. Where the average property sold at £151,600 in 2007, this year it is going at £151,100. But when you take inflation into account, the average house is now worth barely £130,000 compared to what it was worth in 2007. Prices have really fallen by about 13%, despite being propped up by lack of new properties going on the market, which means supply is restricted.
And with apologies for one more piece of bad news, the value of house prices has fallen in real terms each year since 2007. When once properties continually got more valuable, now the exact opposite is happening – even in areas like Aberdeen or Edinburgh where prices have risen before you take account of inflation.
When you drill down into the different types of property, you find pretty much what you would expect: flats are down the most, since the market for first-time buyers has been particularly hard-hit by banks only offering reasonable rates for people with minimum 20% deposits. The number of flat sales is down by 60% compared to 2007, where the number of sales of detached houses is down by 46%.
It has still been tough enough for wealthier people, though. The average value of their houses is down about 10% from £245,000 to £222,000 in 2007. Or if you can bear to look at the price after adjusting for inflation, £195,000.
This lends weight to the assertion by Chris Hall of upmarket estate agents Rettie & Co that the owners of bigger houses have not had it easy. Hall was behind the sale of 24 Queen's Crescent, but he does not see a growth trend emerging. He says: "You can take selected sales [like Queen's Crescent] and say we have sold this property within a short period of time, which shows a certain health in the market. But the majority of properties at the top end are taking longer to sell and their value has fallen by 20%."
Mark Hordern, chief executive of GSPC, says the top end of the Glasgow market held up very well at first but has tailed off lately. The problem, he believes, is an insufficiency of forced sellers in that bracket.
Across the market as a whole, Hordern says a bright start to 2012 has been snuffed out by the collapse in consumer confidence with the double-dip recession.
"There are two dynamics," he says. "For the sellers, there is a reluctance to put their house up for sale in weak market conditions out of concern that they will not fetch a decent price. Buyers have a concern they will buy a property now that will be worth less in future. That makes both halves of the market cautious."
Martin Paterson, the director of property services at Dundee-based law firm Blackadders, has a different diagnosis. "People are keen to move, but they are being held back principally by the lack of mortgage funds," he says. "In particular, the banks need to lend more for new builds. That's where it's hardest to borrow. Where you have got something that's already built, it's less of a risk.
"Home reports are another serious problem. They came out at the worst possible time  and have knocked the market. It adds between £500 and £700 to the cost of selling mid-range properties."
Whatever the main issue – one could add that household debt is at 99% of GDP, higher than most other major economies – the main question is where next. There may be no real signs of improvement but property specialists are heartened by the Government's Funding for Lending scheme, under which the Bank of England has lent £60 billion to British banks at rock-bottom rates to make available for mortgages. This was to counteract nervy markets pushing up interbank lending rates, which risked taking things in the opposite direction. On the back of the scheme, which was announced in July, a number of banks have cut their mortgage rates by a couple of tenths of a percentage point.
The Bank of England has since reported that the banks are competing to undercut one another again. For quite a while they had been wary because they risked attracting mortgage requests beyond the amounts of money they could realistically raise on the markets.
While Mark Hordern of GSPC welcomes these developments, he is waiting to see what happens with deposits. "The question is whether it will ultimately allow lenders to provide higher loan-to-value mortgages," he says. "A 10% deposit doesn't seem unreasonable. That would have a very significant effect on the market."
Another change being mooted by the Bank of England is some loosening of the rules on bank capital ratios, which govern how much money they need to hold for each loan they make. According to one source, banks currently need 10% more capital for each 90% loan compared to each 60% loan.
Whether lighter bank regulation is seriously viable in this climate, we will see. Meantime, most observers are determined things cannot get worse. There is an argument that most properties going on the market are through necessities like job relocations, deaths and divorces. If so, supply cannot fall much further and this should help put a "natural floor" under prices (at least until you adjust for inflation).
The industry equally argues that 2012 cannot be the "new normal", since it is just too subdued. Kennedy Foster speaks for many when he says: "I don't think we will ever go back to the period between 2004 and 2007, but there is probably a level higher than at present which will become the new normal. My hunch is that it will be the levels of the late 1990s."
We had better hope so. There is only so long you can keep on saying never say die before rigor mortis sets in.
ONE of the curiosities of the past few months is that the Scottish housebuilders have been posting quite perky results. Like Israelites shaking the dust from their sandals, Edinburgh builders Cala Group and Miller Group have both returned to profit after years of loss-making, while Stewart Milne Group of Aberdeen and Mactaggart and Mickel of Glasgow both increased their profits.
Tulloch Homes of Inverness made another loss but only because of restructuring, and promised it would return to the black next year. Gladedale, a UK company with a substantial presence in Scotland, trading as Bett Homes, returned to operating profit, even if it remains some way from black ink on the bottom line.
The companies are turning themselves around despite the fact that they are building far fewer homes than before. In Scotland, for instance, private housebuilders put up fewer than 10,000 new homes in 2011 compared to nearly 22,000 in 2007. Given the hefty debts of most of these companies at the time of the crash, it doesn't take a genius to work out that you can't overcome them by building fewer houses than before.
The banks duly tipped some such as Applecross or Kilmartin into administration, but others were allowed to continue – either because they had attractive portfolios or because the write downs were too unappealing for the banks. Instead debts were forgiven in exchange for control of the company. Lloyds, cleaning up the Bank of Scotland wreckage, forgave Cala £280m in 2009 but now owns 40% plus rather more in preference shares. It struck a similar deal with Tulloch through three refinancings between 2008 and this year.
Miller's debts were cut by nearly £500m at the end of 2011, but the family lost all but a sliver of the equity to Lloyds, RBS, National Australia and Blackstone. Lloyds took 30% of Gladedale in return for £100m, though the outstanding £455m debts will still need dealt with further down the line. Only M&M and Stewart Milne have avoided such deals but they still have substantial debts that must make for tricky negotiations – particularly Stewart Milne, which in 2010/11 achieved £0.4m pre-tax profits with debts of £328m.
Everyone agrees the banks will not want to control the builders for long, and returning to profitability will likely herald sell-offs. With talk of flotations, mergers and even the prospect of a new national housebuilder emerging, the sector is one to watch closely.