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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: c.hinton who wrote (14959)	7/1/2002 2:55:07 PM
From: terry richardson	Read Replies (2) \| Respond to of 36161

Chinton: What happened to the UK housing market around 1990 was not quite so simple as just debt. As a precursor to the bubble in prices in 1987-8 the housing market was run up by national real estate brokerages buying out local high street firms all over the UK. There was a period when small high street real estate agencies were being snapped up at very high prices as national chains were formed and quickly sought to expand. They then proceeded to run up housing prices by encouraging what is called "gazumping." First you have to understand that unlike the US system, in the UK advertised prices are not contractual offers for sale at a price but indications of where offers would be of interest to a seller. In other words “invitations soliciting offers” around the advertised price, further more real estate commissions were about 2% I believe. Gazumping worked like this, once an offer was made at or even slightly above the listed price the broker would persuade other potential buyers to make higher offers to secure the property. With no contractual obligation to sell at the listed price the seller is free to change his mind without penalty at any time with the exception perhaps of part of the commission, depending on the agreement with the broker. What would happen in most cases is that once the first offer had been secured in writing with a deposit and thus obligating the purchaser but not the seller, the agent would go back to the seller and suggest that for a higher percentage on any extra monies he could get over and above the "listed" price he could secure a much better offer. Thus the market was run up and is still being pumped in such a manner, I believe, to this day. Of course the national brokers used the national press and any other avenues open to them to pump the market up until it topped out and collapsed possibly caused by the higher interest rates as you say. The problem with the interest rates though is that the mortgage lenders also got in on the act, and whereas before they would only lend a percentage of the value of the property based on ones ability to repay etc. etc. they moved to lending 100% of the price and in some cases when prices were rising rapidly over 100% so that your closing costs, stamp duty and new furniture were also covered. Of course a lot of people were sucked in but eventually spit out when the market finally turned and they could not sell their homes because they were then valued at 10-20% less than the outstanding mortgage value. They were in effect prisoners in their own homes. Even if they tried to walk away and “let the bank take it” as the expression goes they were still personally liable for the difference between what they owed and the new lower value plus the cleaning up costs of the bank or financial institution. IMHO this same scenario is currently being played out in the US. Regards T.