Monday, 14 April 2008

Squeezing out the cash

The bubble is about to eat its own children. As house prices crash and sales volumes collapse, around a third of estate agents - some 4,000 businesses - are likely to close.

That is quite a crash. It might also explain why estate agents are so detested. Perhaps, they understood all along that the housing bubble could not last. Therefore, the optimal strategy was to squeeze as much cash out of hapless home sellers; the quicker the better, and by any means necessary.

Now, it is all over and it is time to move on.


Anonymous said...

So sad.

Anonymous said...


Do you have any stats to quantify how much the estate agents bilked out of homedebtors? It would be interesting to see an estimated hourly wage seeing as they are doing a job that requires no higher skill set than flipping burgers.


Alice Cook said...


I have some data on the number of home sales. However, I remember that while sales numbers have been growing for a while, they never actually reached the same volumes as back in the 1989 bubble.

I have always been amazed at how many estate agents opened up. Every high street in London seems to have about half a dozen. For many of them, I reckon even during the height of the bubble, few of them were making much money.


Anonymous said...


Are you familiar with the idea of prices being overstated by a small "float"? It was especially relevant in the dot-com boom. Works like this:

- At any point in time, the only shares available to buy are ones where the holder has instructed his broker to sell. Those available shares are called a "float"
- Floats are usually about 10-15% of total outstanding shares (I don't have good stats). In the dot-com era often it was only 5%
- If only 5% are available to buy, then there is adverse selection by which they are bought by the most optimistic 5% of buyers demand
- Therefore the price rises, but only BECAUSE there is short supply

Now this is the kicker:
ALL shares in the company are valued as if EVERYBODY could get the most OPTIMISTIC 5% of demand.

Inevitable results?
- People like to hold their "appreciating" stock, reducing the float further
- Whenever someone sells,there's a frenzy to get such an asset
- Bubble.

Inevitable end-game?
- Everybody who tries to get out at the same time realises the optimistic 5% of buyers can only afford 5% of the shares at those prices.
- Crash.

Now overlay that with UK demographics of ageing asset-rich baby boomers looking to all cash out at the same time.

Then tell me how people can reconcile it with a late-2008 recovery where housing and stocks can remain high.