When Jon Hunt, founder of Foxtons, sold the UK arm of the business for £390m earlier this year, it looked like the canny property entrepreneur had sold at just the right time.
With most commentators a good deal more downbeat on the prospects for British property this year, it seemed that Hunt had made the right move in getting out of the UK.
Only trouble is, he decided to focus on building his business in the US instead.
Whoops…
Foxtons in the US is now thinking about going into Chapter 11 bankruptcy, after axing 350 of its 380 staff and “winding up sales and rentals in New York and New Jersey,” reports James Quinn in The Telegraph.
“There comes a point when you can’t stand in the way of a hurricane, and it is a property hurricane we are facing,” said a company spokesman. “The company no longer has the liquidity to operate as a going concern.”
So America will be rid of the plague of yellow-green minis that so blights the west of London. But Foxtons won’t be the only casualty, not by a long shot. US new-home sales fell by 8.3% on the month in August (the most on record), and by 21.2% on last year. The median sales price has fallen 7.5% to $225,700, and is now down 14% on its March peak.
Investment bank JP Morgan reckons that sales will fall by more than half from their peak, and won’t bottom out until well into next year.
Hmm. 14% in less than six months. Just goes to show how fast things can collapse when they really get going, doesn’t it?
Meanwhile, here in the UK, Britannia Building Society warned that mortgage lending is still going to be tough, regardless of any rate cuts the Bank of England may throw into the mix - although “getting some liquidity back into the market would help.” Nevertheless, chief executive Neville Richardson says everything’s going to be just fine. After all, even if property prices stop rising, they can never ever fall - or that‘s how it seems to the property pundits, at least.
Mr Richardson reckons a house price crash is unlikely because the ‘fundamentals’ of the economy remain strong. As the bulls in America used to do up until a few short weeks ago, he singled out low unemployment as a key factor.
Regular Money Morning readers will be familiar with what I’m going to say next, but for the benefit of new subscribers, let me trot through it one more time.
People don’t lose their jobs until companies get into trouble. Companies don’t get into trouble until their business turns down. So, to take the Foxtons example, first house sales and then prices collapse, the company stops making money, and finally it sacks everyone and has to shut down.
So unemployment doesn’t start to rise until everything else has gone wrong, basically. It’s what economists like to call a ‘lagging’ indicator. In other words, by the time employment turns down, you’re already well aware that things have gone pear-shaped.
So strong employment at the start of a credit crisis means nothing. Everyone in the States kept talking about sound economic fundamentals too - and then the August jobs report came out, and revealed that 4,000 people had lost their jobs, rather than the 100,000 or so gain that economists had been expecting.
Anyway – in next week’s issue of MoneyWeek, you can read all about our latest property Round Table, which caused something of a stir in the office as the bulls and bears squared up to each other. And meanwhile, in this week’s issue, out today, we take a look at whether Asia can really take up the baton of world economic growth from America – or whether it just won’t be that simple.
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source-Money Morning