Here is the good news: the housing market is going to recover. And now the bad news: that recovery is not going to happen in the next 12 months.
Some pundits predict two years, some longer, but one thing looks likely: this autumn and next spring will see prices dipping and homes becoming harder to sell against a backdrop of public spending cuts, tax rises and a continued mortgage famine.
Don’t take my word for it. Ask the growing number of sellers trying to make their homes stand out and sell quickly in a market that is now characterised by too many houses on sale and too few buyers.
Stephen Squires is a retired farmer whose eight-bedroom modern-styled farmhouse near Okehampton in Devon has been on sale for two years through several estate agents. He is now advertising it online (www.tepilo.com, £1.5m) and is offering a £20,000 cash reward to anyone who introduces him to a buyer.
“I don’t want to spend another winter here, so it’s become urgent. We have had several people interested, but they’ve got the usual problem and say: ‘We can’t sell our current house’. So I’m trying something new to see if that works,” explains Stephen, who ran a marketing business in London before heading for the country.
Terry Jennings, an IT businessman, is pursuing a different initiative to sell his listed house in Buckinghamshire (£895,000, Cesare & Co: 01442 827000; www.cesare.co.uk) If a buyer pays the full price he will give them his 36-year-old Triumph TR6 – free.
“The house has been on sale for only a few weeks, but we recognise the state of the market. We’ve got to do something different to create some publicity,” Terry says.
In Nottinghamshire the seller of a modest four-bedroom house is offering a brand new Ford KA, or a discount of the same amount (about £8,000), to anyone who pays the £239,950 asking price (William H Brown: 01777 704248; www.sequencehome.co.uk)
Meanwhile, the new homes market is adopting similar strategies. Linden Homes is offering buyers the chance to have a free conservatory worth £10,000 when they buy in a development at Chinnor in Oxfordshire. And David Wilson Homes is including an annual rail and London underground pass, worth £4,760, for commuters buying flats at its Moove development in Banbury.
Most sellers, of course, adopt more orthodox marketing positions through estate agents’ windows and advertisements in the local papers, but there is growing concern that anyone selling now has to be quick before economic alarm bells ring.
Within the property industry the buzz is of nasty journalists talking down the market with tabloid tales about the twin spectres of public spending cuts and tax rises. But estate agents blaming the media should perhaps look closer to home, for their own colleagues are producing gloomy figures.
Firstly, there are the house price indices. In the spring, all seven major indices, including Rightmove and Hometrack, which rely on estate agents’ data, were showing monthly rises.
Now only two, the Land Registry and the Halifax Building Society, show even the smallest monthly price growth.
“You don’t need to be a fortune-teller to predict what cards a seller can play. Unless their property is a bit of a rarity, the only cards left read ‘chop the price’ or ‘spruce up the presentation’,” Miles Shipside, a director at Rightmove, says. His own index, based on homes on sale, shows asking prices have already dropped more than two per cent since early July.
Secondly, there are forecasts from estate agents’ own research departments. These are almost unanimous in ruling out a crash, but expect gentle falls this autumn and in 2011.
Savills has consistently been an accurate forecaster. It now says mainstream house prices will end 2010 some 2.5 per cent lower than in January with another one per cent fall expected next year. The company’s director of residential research, Lucian Cook, originally expected prices to grow in 2011. However, he admits his change of mind is due to property sales that are now running 20 per cent below even the miserly volume seen last year.
“Transaction levels have been lower despite a slight improvement in the availability of mortgage finance. This reflects faltering consumer confidence seriously undermined by the Coalition government’s policy of austerity measures,” he says.
Another leading estate agency, Knight Frank, agrees but blames over-optimistic sellers for making things worse. “The main complaint of agents is that houses are set to enter the autumn market between five and 10 per cent overpriced. With ‘asking-to-achieved’ prices currently at 95 per cent, the implication of this is that prices are likely to fall back by about five per cent before the year end,” Liam Bailey, the firm’s head of research, says.
He warns that with a combination of a higher volume of homes for sale, weak demand on the back of government spending cuts, rising taxes and weak income growth, the short-term outlook for the market is more challenging than it has been for 18 months.
Colin McKenzie runs C M Property Search, a buying service seeking out homes for busy clients and negotiating the price on their behalf. His advice to sellers who have failed to find a buyer over the summer is simple: cut your asking price by a fifth at least in a bid to draw new interest.
“Three or four months ago, with boundless optimism, your agent suggested an asking price. Since then not only have the prime buyers passed you by, but mortgages have become harder to secure and confidence has fallen away. Corner your agent. Discuss reducing the guide price by 20 per cent or more,” Colin urges.
Some vendors have taken his advice already. Zoopla.co.uk, a website marketing homes and monitoring their sales volumes and prices, says a third of the properties it advertises have cut asking prices. Another online service, propertysnake.co.uk, monitors rival property websites for reductions. It says that more than 215,000 homes currently on sale in the UK have lowered their prices by anything from two to 50 per cent.
But there are less pessimistic voices in the market and some estate agents say that certain areas are bucking the trend.
“Central London prices have slowed to a standstill in recent months and have stabilised at around 11 per cent below their 2007 peak. We are forecasting price growth of five per cent this year followed by three per cent in 2011,” Andrew Stanford of Cluttons explains.
“Don’t assume national statistics apply to the area and market level you’re trying to buy in. Always research locally,” is the advice of Nicola Oddy of Stacks, a buying agency in Cornwall, where many prices are remaining buoyant.
Interestingly, the Council for Mortgage Lenders says its previously pessimistic forecast of growing numbers of owners facing arrears and possible repossession is now not too bleak. “More people with short-term financial difficulties are able to get back on their feet,” a spokesman says.
So when will the storm be over? When can we start taking a more positive view of the property market?
Most analysts say 2012 will see some small growth in house prices in most regions of the UK. By then the strongest austerity measures will have been introduced and the London Olympics may produce a feel-good factor.
And when the turnaround really does occur, it may strike with a vengeance and even return to the large-scale price appreciation so commonplace before the credit crunch.
Research by Savills suggests that an inflation-adjusted rise of 40 per cent in house prices will occur by the end of the coming decade, as a buoyant UK encourages migrants and first-time buyers to get on the ladder again and push demand ahead of supply. So what goes around, comes around. The problem is, it may take some time.
TIPS FOR AUTUMN BUYERS AND SELLERS
For buyers
- Get your mortgage agreed as quickly as you can. It makes you look like a serious buyer and will give you an edge if there are rival bidders for the same home.
- Do your research. Use websites, visit during the day and night, make your own price comparisons with other homes on sale in the area.
- Make sure you present your offer clearly. List details of any chain, your mortgage status, solicitor’s details and moving deadlines.
For sellers
- Presentation counts. Rectify “barriers to purchase” such as unkempt paintwork or dodgy windows to deter low offers.
- Be realistic about pricing. Study recent sales of similar homes nearby and make sure your price is low enough to ensure many viewings – that’s key for a sale.
- The kitchen is the heart. Most buyers say this is a key room, so improve it before selling, but keep its style and quality in line with the rest of the house.
Telegraph
Most of us are still shaking the summer sand from our shoes but estate agents are already in autumn mode, with one question dominating all others: will house prices defy the wider economic malaise of 25 per cent spending cuts and imminent tax rises?
The prospects do not look good. The Rightmove, Nationwide and Hometrack price indices all show small falls over late summer, and the Royal Institution of Chartered Surveyors’ latest measure of sentiment in the industry suggests most estate agents believe prices are now falling.
London’s prices remain relatively strong, but falls are being recorded in almost every other part of England. A survey out this week shows a 3 per cent drop in prices in Scotland over the past three months.
The key forecasters, Savills and Knight Frank estate agents, predict prices will dip further by Christmas, and the house builder Bovis is warning of a “fragile” housing market with confidence sapped by a spectre of unemployment, spending cuts and tax hikes.
The worst problem remains a chronic shortage of mortgages. Santander, one of the biggest lenders, says 1.1m home owners tried but failed to sell in the past 12 months; most were frustrated by prospective buyers who were unable to secure a mortgage.
As a result of all this, many estate agents want sellers to cut their asking prices. Most autumn house sales are in September and October, after which vendors and buyers put plans on hold until the new year. That means there are just eight weeks to do the deal – exactly what Tracy and David Bliss want to do with their Somerset home.
They have cut the price tag of their four-bedroom converted barn at Holton from £895,000 to £800,000. They transformed the wreck into a home 10 years ago and at the height of the market hoped it would eventually sell at £1.2m – but not now.
“We put it on sale at £895,000 at the time of the general election but we’re anxious to sell rapidly and our agent (Palmer Snell, 01935 814531) has advised a price change. We hope people can see through the economic gloom,” Tracy says.
“We’ve painted the interior in neutral colours and we’re part of an open-house weekend in September when people can see the place for themselves,” she says. The couple, both recently retired, had many visitors before the summer but no offers as buyers were either unable to secure a mortgage or have been ultra-picky.
And with a glut of homes on sale – an estate agent typically has 55 properties on the market now, compared with 43 a month ago – buyers can afford to pick and choose.
“There are just over 900,000 homes for sale at present. New stock is being added at the rate of 4,500 a day,” says Henry Pryor of Housingexpert.net. “June’s and July’s sales were up by roughly 10,000 a month on 2009 but were still half what they were in 2006 and 2007.” He says the imbalance of stock on sale over the number of buyers registered with estate agents means there is only an 8 per cent chance of a vendor successfully selling their property in the next month.
Estate agents are particularly worried that buyers will be deterred by wider economic uncertainties and cuts in public spending. There are no official numbers stating how many homes are bought by public-sector staff but Savills says the figure is at least 15 per cent. Some areas are more vulnerable than others: in the North of England the figure is 24 per cent and in the South-west it is 23 per cent.
The key to kick-starting the market this autumn is to get more first-time buyers; this is particularly hard, with most lenders requiring deposits of £40,000 or more. Until far more first-timers enter the market to purchase the smaller homes of existing owners wanting to move, the lowest rungs of the property ladder will remain missing.
The Home Builders Federation (HBF) says first-time-buyer numbers in England and Wales are at a 35-year low. Those who succeed often have financial help from their parents but the HBF says the average age of an “unassisted” first-time buyer is now 37.
University lecturer Elisabetta Barone recently bought her first apartment at a scheme in Wembley, north-west London, built by the developer Quintain. Barone has lived in London for many years but can only now, at 39, afford to buy. She paid £211,000 for the property but even with that budget, she had to compromise on location.
“I’d been house-sitting for a friend in the Docklands but wanted to find somewhere for myself that was new and affordable. Despite falling prices in Canary Wharf, it was still too expensive for me,” she says.
But while estate agents are pessimistic about the short-term prospects, most of the property industry thinks the basic shortage of supply compared with demand will, in the much longer term, see prices go up.
Savills says that by next summer, the growth of the past 18 months will have reversed, leaving house prices at the same levels as in late 2008, some 15 per cent off peak values. But then prices will rise over a sustained period from late 2012 with 3 per cent annual growth. So by summer 2014, they will be back to the pre-recession highs.
The firm believes the only way that forecast will not come true will be if there is a sudden surge in new homes built to meet latent demand – and that is highly unlikely.
The Government’s new planning system – which has involved abolishing plans known as “regional spatial strategies” (RSS), scrapping housing targets and giving local communities a veto over new schemes – is already accused of worsening the housing shortage.
One prominent builder, Cala Homes, is asking the High Court to review the Government’s actions because they leave what the firm calls a “policy vacuum”. A 2,000-home Cala scheme in Winchester was recently turned down for planning permission, after years of preparation, because the strategic local plan had been scrapped days earlier.
This may be just the tip of the iceberg; the National Housing Federation claims plans for 85,000 homes in England have been dropped since the Government came to office.
“The uncertainty created by abolishing RSSs cannot be overstated. It’s going to take nine months before they’re replaced, if they are, and in the interim, almost nothing will happen. Even if new plans come into place, the delay will have set building rates back years,” says Andrew Thomson of BNP Paribas, which funds new housing.
So in the long term, we return to the old story – a growing population outstripping house-building levels. In the immediate future, however, the autumn skies are darkening. House prices, like leaves, are expected to fall in the coming months.
Top Tips For Sellers
* Get ahead of the price curve – a small reduction today may mean less of a drastic (and painful) reduction later.
* Photography is key – make sure the agent’s photographs are good and the best image leads the agent’s website and written details. This doesn’t have to be the front of the property, but could be a breathtaking view, a stunning kitchen or fabulous garden.
* Ensure your property is on with a proactive agent known to work hard.
* It’s obvious, but first-viewing impressions count: mow the lawn, polish brasswork, clean windows, clear clutter inside and complete any outstanding DIY jobs.
Top Tips For Buyers
* Don’t assume national house-price trends apply everywhere – carry out your own research on the internet and in the area where you are planning to buy.
* Make sure you have all of your finances in order and retain a good solicitor so you can act quickly when the right property presents itself.
* Present your offer seriously – show your finance, timescales and intentions to sellers, who will be reassured by your openness.
Source: Connells estate agency
Independent
