"Against a backdrop of dramatically falling transaction levels and growing financial pressures, the three Ds of the housing market are expected to gain prominence as discretionary sellers simply withdraw and watch the market from afar", says Lucian Cook, director of residential research at the property adviser.
Of the three Ds, debt is the real growth area, while divorce related sales appear to have fallen sharply. In 2007 debt related sales accounted for just one in fifty sales, but by late 2008 this figure had risen to almost one in ten of all prime market sales. Says Cook, "Although repossessions in the prime market remain rare, the change in the financial position of owners of prime property started to translate into debt related sales in the last quarter of 2008, when Lehman Brothers and the turmoil in the banking sector signalled that we were in for the long haul."
Debt related sales are particularly pronounced in the prime markets of the South East, where they account for 16% of all prime sales. They are most concentrated in the £500k to £1million and £1-2million price brackets where they now account for 13% and 18% of all sales. By contrast, only around 6% of all Savills sales at below £500k or between £2-4million are debt-related.
"This suggests that debt is a major issue for those who have overstretched or over-mortgaged themselves whilst working their way up through the middle tiers of prime housing market. Undermined job security and reduced equity levels in property bought at or around the peak will make it difficult or possibly impossible to remortgage, possibly forcing them to downsize", says Cook. "Interest rate cuts will mitigate the issue for some, meaning that the big drivers will be unemployment and the fall in the value of homeowners other investments."
By contrast, divorce related sales have all but halved, repeating patterns seen in previous downturns. They have remained at around 7% of all prime market sales, which suggests a halving in a market that has seen transaction levels fall by over 50%. The fall in the value of the family home, and the reduced equity post sale, would seem to suppress the number of such sales as couples simply muddle through.
As expected, the proportion of sales attributable to the final D, death, has broadly doubled as turnover has halved; death being no respecter of economic cycles.
