mooves

There has and still is a great deal of conjecture over where house prices are heading. There are two camps of thinking. The first one includes the doom merchants, who see a hard landing and a sizeable correction of 20%. These include merchant banks (such as Deutsche) and specialist market analyst companies such as Capital Economics. This camp points to house prices to earnings ratios being for to high, compared to long term averages. The other camp see a soft landing approach and a period of zero or marginal growth. These tend to include property experts, high street clearing banks such as Nationwide and many estate agents. Their 'gut' feel analysis is based on the fact that there is a stable economy, historically low inflation & interest rates, combined with low unemployment. According to this group, this combination of factors means that the overall affordability (that is mortgage payments) is far greater than it was in the last crash of the early 1990's.

The optimists as they can be called, also include those who point out that regional disparities must be taken into account, when reviewing the market. This does have some relevance. Taking the North East there is greater affordability. Certain areas of the market held up reasonably well in 2005 and initial signs in 2006 would seem that for at least the early part of the year there will be good activity . However, the latter is seasonal and therefore expected at this time of the year. Some corrections have occurred already, but there is one key thing that should not be overlooked in what is really a stagnant market, and that is unrealistic expectations. The average period that a property now sits on the market prior to offer is in excess of twelve weeks. It is also now taking anywhere from 20 to 30 viewing before an 'acceptable' offer is agreed on. This indicates two things, firstly buyers are now in generally in a position of strength. There will be usual seasonal fluctuations such as in early spring where those sellers making a head start can turn their property quicker, but in general there is plentiful stock entering the market. apart from period properties in prime locations such as Gosforth. Secondly, unless flexible in pricing then the seller will find that their property will stick.

One just has to look at the local market to see great disparities in property prices within areas. Some homeowners are still lost in prior year's increases. A close friend who owns some investment properties in South Tyneside disappointed that prices were only expected to climb by 2% in 2005. This was very good considering a property that I owned in a good rental area in Newcastle was on the market for 6 months and lost 10% of its value since October 2004. Another friend who also bought at the height of the boom, looked like making a tidy profit on discounted purchase, was horrified when this same fact was intimated to them a few months. This short term investor will have discount heavily to sell, because the property was not in a an 'up and coming' area but was effected the buying frenzy of 2003 / 2004.

One should always being balanced when looking at indicators, whether national or local. But what is even more dangerous is to take an outlook based on 'gut' feel. At mooves, we believe that we are by no means 'out of the woods' from a correction in market prices. This uncertainty could last for more that another 12 to 18 months! With unrealism still in the air, caution is still the sensible way. The long term is always certain, but the short term is certainly not.

The current rally at the start of 2006 in terms of both activity and prices is a 'micro period' adjustment. There has been some pent up pressure from the non-activity in 2005, together with longer offer to completion periods (up on average by 4 weeks to an average timescale of 12 to 14 weeks). More importantly, the price increases are in central London, where the market has been depressed for over 3 years. Additionally, high city Christmas bonuses have boosted prices in prime property. This is not the case for the rest of the UK apart from N.Ireland and certain areas of Scotland. Hence, the North of England prices are static or have slightly declined.

It is expected that after this rally then prices will either remain static or drop slightly for the remainder of the year. However, if this increases remains for any longer then the spectre of a correction can never be discounted.

A letter from Estate Agent on the 17 March 2006 in Money Week highlights what is exactly driving the current upturn in the market and how things could rapidly change - for the worse.