The opening comment by the recently deceased Ante Circin-Sain’s (obituary Times 26.01.09) was in direct reference to the current financial crisis. With this mind, I attended the British Property Federation annual conference a week ago to give a short speech. What struck me most of all was the often strong difference on opinion, and sometimes opposing views on the housing market from some of the delegates. Ranging from optimism along the lines of ‘bricks and mortar is always the safest bet’ to ‘ we are heading into a severe depression’, it was interesting to see how people could with theoretical access to the same information, form two very contrasting views.

 

Whilst pessimists seem to be in the significant majority at the moment (perhaps a natural human reaction to the events of recent months), what is needed in times like this is neither optimism nor pessimism but realism. As the title of this article implies, over-reaction  and negativity can become a self-fulfilling prophecy if enough people fall into that way of thinking. However simply telling people (as I have seen some industry commentators try and do) that they need to be more positive is akin to telling a manic depressive to cheer up. The sentiment may be right but it isn’t on its own going to work. Arguments, opinion and sentiment ultimately rest (or rather should) on facts.

 

I made reference to the one of the assertions by the now much maligned Jim Rogers  earlier this week simply as I believe that all of us in this industry have a duty to address inaccuracies where we see them. If we don’t opinion often seems to somehow to morph into ‘fact’. To this end it was very refreshing to listen to the opening speech given by Fionnuala Earley from Nationwide at the conference. Free of opinion and sentiment and concentrating only on the economic facts, Fionnuala made a number of very interesting observations but two slides on access to funding particularly stuck out.

 

 

 

As the table from Nationwide clearly illustrates, liquidity for the mainstream prime borrowers is relatively unaffected. This is particularly the case for prime remortgaging which has seen very little change.  

 

 

 

 

We may argue about whether prime rates should be cheaper than they are, but borrowing itself for the prime market does not appear to be an issue. Increasingly liquidity here therefore is going to have little impact on the market as a whole. As we iterated in recent blogs, it the more ‘risky’ sectors where liquidity is desperately needed. Unless we can provide liquidity to the ‘riskier’ sectors of the housing market, the market is going to remain very ‘constipated’ for some time to come.
 

Whilst the recent government initiatives are welcomed, the problem remains that the government is asking or expecting too much from too few. The large deposit-taking institutions, where the support is focused, do not have the capacity or arguably the ability to bridge the £200 billion shortfall between 07 and 09 gross lending. In fact, they can’t supply half of that figure! If you seriously want to get lending again, the market needs the return of wholesale funders. With the margins that are potentially available, with the right level of support and encouragement this is not only possible but probable.

 

Wholesale funding has been much maligned as the catalyst for much of the present mess. However it is important to recognise that wholesale funding in this context would be a very different beast. Supported by government guarantees (either on the bonds or on the individual mortgages by way of MIG or preferably both) and focusing on the wholesale markets represent an opportunity to pump liquidity into the housing markets in the places where it is needed most. To have a healthy, functioning market you need competition. We don’t have this at present and the longer the demand/supply imbalance continues the more painful the housing market becomes.

 

As I stated this blog with a quote from Ante Circin-Sain, it is appropriate that I need with the full quote so that we keep the current issues in context.  “To panic is to evoke the devil. If you do it often enough, he will come. But there is no reason either to panic or to evoke the devil.”  Enough said.