What is bringing uncertainty to the housing market and talk of house price correction in Dunstable, Leighton Buzzard and the rest of the UK ?
It has been an interesting time recently if you took the time as I have to sit back and digest what is happening in both the local property market and the UK market.
For 27 years I worked for Architects mostly in London and started in a small 12 staff practice to a company that at one point employed approximately 200 staff. In all that time I have witnessed and felt the effects of the highs and lows of the property/construction industry on a number of occasions. One thing I did learn is that if there is a potential for a slowdown it is the biggest of big ticket items that people stop buying first. It’s not holidays, cars or eating out, but buying or moving house. You might test drive many cars before you commit to buying, but a house purchase is often done on a 20 minute viewing that then takes many months to complete. If you are a little unsure what the future holds in the next 6-12 months this is where you first decide to reign in your spending. Working for Architects you were often the first profession to feel the slowdown and strangely the last to feel the uplift.
There is a long list of reasons for people taking a breather from a property market that was racing away for the last 2-3 years: Brexit, Referendums, Elections, Stamp Duty changes, extra taxes on landlords all leading us to the current situation.
The number of available properties is lower than it has been for years so you would think buyers would be fighting over them, but instead the number of buyers has also reduced. Whereas 8-12 months ago the price a property was marketed for sale at was usually the price you had to make offers above the opposite is now happening and offers below the guide price are being accepted.
Since 2009 house prices in the UK have continued to rise to new highs allowing many investors to buy and either resell to make a quick profit after some cosmetic work or rent the property which after 18-24 months has grown so much in value that they have been able to re-mortgage and extract the capital gain to use for a deposit on another property. This has al been very well for the last 5-6 years, but many of these investors forget or have never been in the situation where house prices can also fall and they need to be aware of the current signals in the housing market.
So what are these indicators ?
As the house prices increase at a rate that far outstrips that of salaries the affordability calculation of buyers becomes more difficult as the deposit required continues to increase. This in turn reduces the number of new buyers which has a knock on effect for other properties.
We are seeing the market beginning to stagnate, in fact I suspect that if we look at the numbers we will see that the housing market started to slow significantly in the 2nd half of this year, but the warnings have been there since last Autumn.
The number of houses coming to market has slowed significantly which you would expect to mean that this would push prices up instead we have also seen the number of buyers reducing. Where 8-12 months ago a guide price on a house was the starting price and offers were made above this we are now seeing offers below this figure becoming more common.
There will always be those who have to sell, who in order to do so will need to drop the price. According to Zoopla, there are more than 30 towns and cities in the UK where more than 40% of sellers have cut their asking price. In Stockport, Chesterfield, Huddersfield, Doncaster and Wigan more than 45% have done so.
It was recently announced that a study by the National Association of Estate Agents found that in May 77% of homes sold for below the asking price.
There were 3 consecutive months of falling house prices in the spring until June where there was a 1.1% rise wiping out those loses. If this is a return to growth is something we can only wait to see.
We have seen house prices falling in London for the last 18 months and the trend in London does tend to ripple out across the country and they are still struggling.
Mortgages are still very affordable and many don’t know what it is like to be in a market of rising mortgage interest rates which can wipe out the small profit some investors are making. Even those who have bought houses to live in during the last 3-4 years have only known very low rates. We have heard the phrase ‘JAM’ ( Just About Managing). This also relates to some home owners who would be in serious trouble should interest rates start to rise. Only in last months Monetary Policy Committee meeting at the Bank of England 3 members voted to raise interest rates. This was seen as a warning to households that a rate rise could soon be on the cards.
Two separate academics from the London School of Economics have recently warned that a 'correction' is due - and it could get ugly. There has been speculation that this could mean price drops of the magnitude of the last great house price crash in 2008 and 2009 - where prices fell almost 40%.
There is no guarantee that the so called ‘experts of economics’ are right, but there are enough warning signs at the moment to proceed with extreme caution on your next purchase.
Daniel Bourke is the owner of Belvoir Lettings Dunstable and in his previous career in Architecture he was an Associate in a leading London Architectural practice