Spring in Supply?

Where do property values go next?

The third and fourth quarters of 2009 and first quarter (to date) of 2010 have seen some considerable recovery in house prices. Market supply is low, borrowing is cheap (if you can get it) and the returns from other investments are poor. The amount of house purchases made without mortgages certainly points to investor interest.

2010 looks set to be a year of opposing forces that could make for considerable uncertainty in the housing market. Certainly a quick recovery to 2007 values seems unlikely.

Exerting upward pressure on prices will be the following key factors:

  • Equity buyers will continue to chase limited genuinely good stock.
  • Lending remains relatively cheap and it seems likely that the MPC will attempt to keep base rates low throughout 2010. The still faltering economy will prove stronger drivers than inflation fears.
  • Even with the recent price rises, the market is down considerably from its peak presenting buying opportunities.
  • Severely diminished output of new build housing means housing supply will take many years to recover to government targets.
  • Overseas investors are cashing in on the strength of their currencies relative to the £. Some are now also seeking better value away from Central London and the South East.
  • There is a belief that the worst of the market fall is behind us.
  • Popular locations and sought after properties remain in demand.

So, there are certainly continuing factors that could put upward pressure on house prices factors throughout 2010. This, however, is not the whole story. There are a number of factors which point to the recent price rises being a temporary (at least in part) bounce on the path to a much more subdued 2010 and slow recovery thereafter. These are:

  • Lending, while cheap, is still difficult to access for many potential house buyers. The number of mortgage products remains relatively low.
  • FSA review likely to crack down heavily on interest only loans.
  • The recent price rises have been driven by activity at the upper end of the market and in an environment of very low volume.
  • The economic climate remains fundamentally poor and confidence is low among much of the population.
  • Further job cuts in both public and private sector are a distinct possibility during 2010.
  • There remains a large overhang of unsold stock in much of the market. A re-pricing of this will be required if sales are to be secured.
  • Recent price rises could see a flood of properties hitting the market in 2010 as “accidental landlords” seize the opportunity to sell.
  • Return of stamp duty from £125k will hit first time buyers.
  • Election years always bring uncertainty and 2010 certainly does.

Taking these positive and negative factors into consideration, what lies in store for residential property for the rest of 2010?

Some, if not most, of the recent prices rises are a temporary bounce albeit a perfectly rational reaction to a number of the positive factors previously discussed occurring at the right time for purchasers. These gains will be largely wiped out going into 2010 with prices bumping along at late 2008, early 2009 levels for much of 2010. Properties bought at the right price now will certainly represent a good medium to long-term call and as always there will be exceptional properties and market sectors which will continue to perform despite the economic situation. Increased supply, re-pricing of stock and a fragile economic situation are likely to lead to a very flat 2010.

This picture is certainly not all “doom and gloom” as 2010 will prove to be a good buying opportunity in perhaps the best “buyers market” for 10-15 years.

The main question concerns supply or lack of it.  Will there or won’t there be good new property coming to the market this Spring?  It depends where you are – some agents are reporting plenty of valuations and lots of instructions.  But then – they always have!

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