What a difference a month makes. According to Rightmove’s latest house price index which gives figures for February, the average asking price for property increased by 1.2% compared with a fall of 1.9% in January.
Does this signify a bottoming out for house prices or overoptimism by sellers? Certainly, Rightmove is erring towards the latter.
Miles Shipside, commercial director at Rightmove, says: “Despite 25,000 out of 28,000 potential home movers in our survey saying this is a bad time to sell, many vendors seem to have ignored their fellow home movers’ assessment of market conditions and put prices up.”
He goes on to say that sales are being achieved at around 25% below peak prices yet new sellers are coming onto the market asking an average of only 10% less, and that serious sellers need to set realistic prices.
While I understand the logic behind this view it raises two questions. First, human nature is such that few people will put their properties on the market at a 25% discount unless they are extremely distressed.
Second, what’s the point of talking the market down to this extent? It is in nobody’s interest to see prices fall by a quarter. Furthermore, the wider economy has not taken a 25% hit so why should house prices?
According to some experts the economy will decline by about 4% during this recession so a 10% reduction seems about right to me – that 4% plus another 6% to reflect that the housing market was a little overheated at its peak.
I also estimate that on average the population is about 10% worse off now in terms of income and general standard of living compared with 18 months ago.
Let’s not forget that while most sectors have been affected by the downturn, the majority have not been as badly hit as we have in the mortgage and housing sectors. We all know that property is a sound long-term investment and in a year or so house prices should start to edge up consistently.
In the longer term they will show a healthy increase as they have over the past decade. They may not double in five years as in the past but there should be a reasonable upward trend.
I appreciate that bad news sells newspapers and so the consumer media paints a gloomy picture but it is not in consumers’ interests to join in, nor in ours. There is no official calculation that shows how much house prices will change – it’s all down to market sentiment and a 10% fall during this recession holds as much credence as any other prediction so what’s the point of talking them down further?
There are signs that the housing market is on the road to recovery. Following three successive monthly increases in the Royal Institution for Chartered Surveyors’ new buyer enquiry surveys, RICS asked further questions of its members to determine what is underpinning this pick-up in interest.
Some 71% of chartered surveyors stated that lower house prices were responsible for the growth in enquires while 48% believed that buyers are increasingly convinced that the bottom of the market is in sight.
And 74% of surveyors reported that owner-occupiers are driving the renewed level of interest while 38% indicated that investors are coming back. However, only 23% thought that first-time buyers were a factor.
Interestingly, almost one in 10 res-pondents suggested that overseas buyers were looking for opportunities in the UK residential market, benefiting as they are from currency movements.
Simon Rubinsohn, chief economist at the RICS, says: “Interest from owner-occupiers is likely to persist in the coming months as those with large deposits look to capitalise on the fall in house prices.”
After all, for those looking to climb the housing ladder this spring should be a great time to buy because although they will take a hit on the sale price of their current property this will be more than compensated for by the saving on their new home.
While these positive findings may not be widely reported in the press they are reasons to be cheerful. The employment situation may get worse before it gets better and some people may lose their homes as a result but most will simply tighten their belts to meet their mortgage commitments and cut back in other areas – fewer meals at smart res-taurants and more takeaways for one thing.
It’s interesting that fast-food chains Subway and Kentucky Fried Chicken are planning to grow, with the former planning up to 700 new outlets.
My point is that the housing market has had a tough time of late but let’s not make it even tougher by talking down prices any further. Doing so may secure a sound bite in the consumer press but the downside does not bear thinking about.