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Property market upswing? - Samuel Wagner, Bidprop.co.uk

Property market upswing?

I hate to be the bearer of bad news but I think the upswing in the housing market is going to be short lived. Sure, all the indicators say that house prices are going up but this is actually due to a lack of supply. Transactions are still half of what they were two years ago. With too many people chasing too few properties, which is especially true for London, prices will inevitably go up. When the recession started to hit, home builders slowed down the construction on sites so as to delay completion. Many would be sellers have postpone putting their house up as they felt ‘it can only go up from here’. What is more, with interest rates at historic lows with no signs of an increase anytime soon, few are having to sell out of desperation.

The auction market usually foretells what is going to happen in the mainstream housing market. After seeing an increase earlier this year, auction prices have already started to go back down again. The average property sold at auction in August achieved 70 per cent of what would have been achieved through an estate agent whereas earlier this year, auction properties were achieving 90 per cent.

Mortgages also continue to be a problem. Although interest rates are low, banks are also lending at much lower multiples and are requiring large deposits. There has been an increase in lending activity in the last few months, but we are far from the multiples of 2007, which is naturally going to cap house prices. Increasing unemployment and the next to inevitable increase in interest rates over the next 24 month will further reduce affordability.

Banks have been reluctant to repossess properties. Not only is there political pressure for them not to do so but banks know that in a housing slump, they are unlikely to get a good price for the property and have been reluctant to foreclose on developers and individuals alike, ‘better hold off and wait until prices rise’. However, I would expect that some banks to take the view with the recent change in market conditions, banks may see it as the best opportunity to sell for some time to come. Similarly, cash strapped home owners may see the recent rise in house prices and the increase in mortgage payments (as many tracker deals come to an end) as their chance to part with a mortgage that is only going to increase.

Once the market does see more stock – something that is pretty much inevitable – the market is going to adjust downwards and at best be flat for some time to come. Predictions for a ‘W’ shaped recovery are becoming more widespread and property consultants are calling the current rally ‘Irrational’.

That said, the property market is going to recover. We are just not there yet.

Samuel Wagner

Samuel Wagner is the director of BidProp, a new online property auction website that works with professional sellers to accelerate the sale of residential properties in Greater London.

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