Property Price Market Update Feb 2009

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Since January the main topic of property price conversation seems to be: “are buyers coming back?” or “have property prices bottomed out?”. As ever neither of these questions are really that useful, or actually possible to answer.

So what is happening to property prices? It’s all about supply and demand. 2008 saw an unprecedented fall in property prices, but this wasn’t the major issue as property prices are relative, so the only real losers long term are those trading down or forced to sell.

The real issue for 2008 was firstly the speed of the decline, but secondly the fall in the number of transactions. Indeed, the last time we sold so few homes was back in 1974! (source: Nationwide).

So for 2009, the only real question should be what will happen to supply and demand and the level of transactions? The answer is as follows:

This is likely to fall for 2009 as the excess stock for sale from 2008 is either rented, taken off the market, or the seller reduces the price so it sells. Both Rightmove and NAEA are recording the number of properties for sale declining already and this will continue throughout 2009, especially with developers dropping new builds from 240,000 per year to an estimated 84,000!

This is likely to increase from 2008, with property investors already bagging bargains at 30% plus below even today’s low value as desperate sellers try to avoid repossession or just have to move home.

People have already worked out that trading up for those wanting to stay in their next property for 10+ years makes financial sense, if they have the deposit and job security to gain a good mortgage offer. Even first time buyers are fed up of trying to second guess the market, and as they see properties they like ‘disappear’ from the market and choice drying up, they are starting to realise to secure the property they want, they might as well buy now.

However, this supply and demand pattern won’t apply to every area, or every property. Property prices tend to work like a ‘ripple’ effect. Areas such as Wales whose property prices carried on climbing when everywhere else was starting to stagnate are likely to be one of the last to recover, while areas such as London and the East Midlands may well recover more quickly.

Property types also play their part. In some areas, even in London, where there is an oversupply versus demand, for example, some city centre apartments, then prices will continue dropping. Where, for example, period properties in great locations are short in supply, their prices will stabilise and if buyers are competing, may even increase.

But, don’t get too excited! Even with the Halifax affordability ratio at an estimated 4.42 in February 2009; nearly matching the long-term average of 4.0 and the Nationwide reporting the average mortgage only taking 14% of people’s salary, lenders are still being far too cautious with borrowers.

The best we can hope for over the coming months is for supply to keep falling and demand to keep rising until they match. For this to happen, we still desperately need lending to move to at least 90% LTV . Currently, in our view, lenders were not cautious enough and are now being too cautious. So the message from us is “come on lenders, you got us into this mess, now start competing for good long term borrowers making sensible buying decisions!”

For more market commentary on a national or local level:-
Contact Kate Faulkner on 07974 750562 or 0845 838 1763. To read more about Kate, please visit ABOUT US, see Kate on video and for media appearances, contact:

Sylvia Tidy-Harris
STH Management                    
Tel  +44 (0) 1530 263221
Mob  +44 (0) 7970 646872

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