Nursing those Green Shoots

There are many estate agents who are frankly astounded at the level of activity that we have seen so far this January.  And so are we – not completely, as we know there is strong latent demand hovering around the market.

But our message to buyers is don’t be bounced by over-enthusiastic sales talk.  You have time, but you need to get yourself ready – NOW.

Two critical pieces of evidence provide a strong indication that the bottom of the market in our sector will be reached in 2009. The Nationwide Historic House Price Trends since 1975 shows that the currently falling graph line of Average House Prices will dip sufficiently to break through the trend line in February 2009. After this date the graph line will certainly undershoot the trend until it flattens out. Analysing previous curves at this stage of the cycle shows that they take, on average, about 8 months to flatten having pierced the trend.  This evidence is corroborated by the latest Affordability in UK Housing statistics. These show that average house prices are now moving back into affordable territory. The index rose from 93.1 to 96.1 in the third quarter of last year. It is now likely to be close to 100. This level is significant as 100 points is the average price/affordability ratio since 1958.

 

Two other unknown factors will have an effect on the timing, the first is the reappearance of mortgages and the second is the clearing through the system of forced sales. Invariably at this stage of the cycle both professionals and amateurs alike miss the bottom and only wake up to its existence after it has happened. This is due to market momentum and cautious mortgage valuers continuing to play it safe and down value for longer than is necessary. The other apocryphal piece of evidence that is relevant is the tightening supply of good correctly priced properties in the middle and upper sectors. Most of these properties are owned by discretionary vendors who will not offer their property if they do not like the market conditions. Once the forced sales are cleared through the system this lack of supply of better properties will have a braking affect on further falls in that sector.

 

For these reasons, we believe that the next six months represent the best opportunity for purchasers since the early 1990s. Clearly the trick is to time a purchase just before the curve bottoms out when there will be the most choice. Making this timing coincide with finding the right house means getting into the market now.