Through The Roof
6/8/2004 5:22:31 PM
by Vadim Pokhlebkin
"A record shortage of homes for sale in London has prompted a new property trend - the sealed-bid auction," read the opening line in yesterday's Evening Standard article.
So, it's finally come to this - auctions for houses. In London, there are now 10% more buyers than sellers of homes. For the privilege of home ownership, buyers are now willing to bid on houses at above their maximum asking price. No negotiations, no "let me think about it" - take it or leave it.
In fact, the number of house buyers in London has exceeded sellers every month since July 2003. Real estate agents attribute this to a low supply... but wouldn't it be more accurate to blame high demand? After all, it's the demand that drives the supply.
Now we're on to something: It’s the demand for houses that’s truly unprecedented. Halifax, Britain's largest mortgage lender, reported today that houses in the UK are now appreciating at 20.4% a year. To an average person, that sure beats owning stocks: The FTSE 100 is at best flat for the year. Real estate became the investment dujour in the UK (and the U.S.) after the 2000 top in global stocks. But at least in the U.S., the housing craze can be "explained" by low mortgage rates, pegged to the Fed's historically low 1% interest rate. In the UK, however, the Bank of England began raising rates in 2003, and is expected to do so again on June 10. Yet even the rising cost of borrowing is not able to cool the demand for homes.
Real estate investment on both sides of the ocean seems to have entered the mania stage. Houses today are the tech stocks of the late 1990's. Wasn't the 80% drop in the NASDAQ a hard enough lesson for investors? Or did it happen so long ago that people already forgot how quickly the market can "regulate itself"? In the face of a mania, these questions become meaningless
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