The total number of mortgages fell by 81,000 in the first six months of the year, according to figures released today by the Council of Mortgage Lenders, reducing the total number from 11,822,000 in the second half of 2007 to 11,741,000 in the first half of 2008.

As you can see form the chart above, or this interactive chart, the drop was the largest ever recorded and only the third since the inception of the figures in 1971. The previous two declines being for 18,000 in the second half of 2004 and 14,000 in the second half of 2007.

The unprecedented back-to-back declines between July 2007 and June 2008 make it the first ever decline over a twelve month period in the whole 37-year history of the figures, reducing the number of mortgages by 95,000 from the 2007 H1 peak of 11,836,000.

Not Just a Mortgage Drought

There is a lot of chatter about a mortgage drought and that is why prices have fallen so fast. If mortgages can’t be obtained, people can’t buy. No buyers means falling prices. True enough. Certainly criteria are tighter and mortgages are fewer and farther between.

But a reduction in new mortgagors, there are still some new mortgages being written, is not the only event taking place.

There are two other ways to reduce the number of mortgages in existence:

1. Mortgage ending because the homeowner has finally paid it off;
2. Properties being repossessed.

It is these two things, combined with the dearth of new property buying blood, that suggests to me that the Secular Bear in Homeownership theory, which I proposed in “Sell Now! Why You Don’t Want to be a Homeowner” (”Sell Now!”) in October 2006, is becoming a reality.

The theory suggested that the country was at, or very close to, saturation homeownership. That is that the multi-generation expansion of homeownership was about to got into reverse as the annual number of new people becoming homeowners would be less than those ceasing to be homeowners.

Looking at the chart above, published in “Sell Now!”, you can see clearly how the growth in mortgage numbers peaked in 1989 and then started a downward trend. A succession of lower highs and lower lows. Certainly not a trend indicative of a housing market promising to take prices ever upward. No, it suggested that there were other underlying trends at play. Long term, generational, secular trends.

Those trends, include demographics, debt, employment and inflation.

The precedent setting mortgage numbers from the CML tell me that it has started, that a “Secular Bear in Homeownership is under way“.

The Slow Change in Homeowner-Think

Whilst I believe a secular bear in homeownership has commenced, most will doubt it. When any secular trend changes, everyone continues to think in the old ways. People still want to get on the property ladder because, despite reversals, property prices always go up. It is this “it-has-always-been-that-way” thinking which, inevitably, is why secular trends change.

Secular trends are generational, usually lasting 16 to 24 years. Because of this the direction of that trend becomes ingrained in the collective mindset. Things have happened this way since I can remember, ergo they always happen that way. It is that very way of thinking that causes things to go to the extreme and the secular trend change.

A secular bear in homeownership also spells problems for property prices. In fact the two of them can re-enforce each other, alternating between being cause and effect.

What all this means for the level of homeownership, number of mortgages and property prices longer term is something that requires a lot more detail than this post can offer. Which is why a brand new research report is being written, which will be free to download as always.

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