House
price forecasts for 2008
Scarcely a day seems to go by at the moment without another new prediction of
doom and gloom for the British housing market. Last month, the International
Monetary Fund informed us that property in Britain could be overvalued by as
much as 50%. Last week, Hometrack, the market analysts, reported prices fell
by 0.1% in October – the first drop in two years – while the Council of
Mortgage Lenders has predicted that next year would see a sharp rise in
repossessions. Even those estate agents who, only six months ago, were
confidently predicting the market would keep going up and up, defying the
laws of gravity, are starting to look distinctly queasy.
Not worried enough yet? Then try logging on to Property Snake (www.propertysnake.co.uk),
a website that describes itself as the “opposite of the property ladder” and
carries details of more than 100,000 properties that have had their prices
reduced, in some cases by as much as 44%. Many of the most dramatic examples
on the site, compiled electronically from various other sources on the web,
may not be what they seem – the result, perhaps, of prices that were input
incorrectly and then corrected, or of comparisons of like with unlike.
Nevertheless, there are some startling genuine examples, such as a
four-bedroom flat in west Hampstead, north London, which went on the market
in August at £1.33m and has been reduced three times over the past few
months – a total drop of 24% – to its current price of £999,950. Or a
four-bedroom semidetached home in Great Dunmow, Essex, which originally went
on sale at £384,000 and in September was cut by 24% to £291,000. Property
Snake’s founder, who insists on remaining anonymous, says he set up the site
in May while looking to buy a house himself. He became convinced the
mainstream indices were presenting an overly bullish view of the market.
“I feel you don’t get the whole picture from them and they do not indicate
what is happening in your area,” he says. “Of course, it is in their
interest to project a positive story.” Not surprisingly, perhaps, several
agents with heavily discounted properties that have appeared on Property
Snake have asked that they be removed.
Property-market doomsayers are not in short supply on the internet. Another
site, Houseprice crash.co.uk,
has seen clouds in the housing crystal ball since it was set up in 2003 by
Jonathan Davis, a financial advisor. After watching in disbelief as prices
have risen month after month, Davis can be forgiven a touch of schadenfreude
that his views might be vindicated. “I believe there will be a 30% to 40%
fall on the national average over four to six years,” he predicts. “Nothing
goes up for 12 years without coming down. In recorded economic history,
there isn’t a single asset that has bubbled, then plateaued.” The scenario
he envisages is familiar enough: lenders pulling back on easy borrowing,
buy-to-let investors selling up en masse, first-time buyers no longer
entering the market, with a downward spiral caused by mass job losses in the
City of London as banks batten down the hatches.
Last week’s Hometrack figures, considered one of the most accurate and
up-to-date indicators of what is going on in the housing market, don’t go
nearly that far. Yet they do provide evidence of a sharp slowdown that,
significantly, appears to be hitting the most affluent areas hardest.
According to its data, the sharpest price falls were in prime central
London, where prices dropped by 0.5% in October. Southwest London and
Hampshire followed close behind with falls of 0.4%; in Oxford-shire and
Cambridgeshire, average prices slipped by 0.3%.
In further indications of a slowdown, Hometrack found the number of buyers
registering with agents last month fell 6.4%, and the number of sales agreed
was down 4.8%. Properties, it said, were changing hands at 94.3% of the
asking price, against 94.8% a month earlier.
Perversely, perhaps, a second set of figures from the Nationwide, also
released last week, showed prices up 1.1% last month – tying with June for
the joint highest rise of the year. But it said this apparent strength
masked what was a clear weakening of market activity, with both inquiries
from new buyers and mortgage approvals falling. “The underlying dynamics of
the market are clearly not as strong as this time last year,” it said.
Many homeowners who have become used to watching the value of their property
rise inexorably upwards over the past few years have been confronted with a
different reality when the time has come to try to cash in those paper
profits. Take Martin and Frances Mace, who put their Grade II-listed,
four-bedroom Georgian house in Buckinghamshire on the market for £2.5m in
May, at a time when the market appeared to be booming still.
Confident that their property, which has a separate two-bedroom flat and a
large barn, would fetch the asking price, the Maces turned down the first
offer of £2.25m. Six weeks ago, however, with no further offers in sight,
they cut the price to £2.25m, but there were still no takers. Now, with
their next project looming – they are building two eco-houses on a site down
the road – they have reduced it to £2m.
“We knew it wouldn’t be easy to sell, because the layout is complicated,”
admits Frances, 50. “But although we realised £2.5m was on the high side, we
didn’t think £2.25m was high. I think it was the timing that was wrong.”
Tim Russ, director of the eponymous estate agency in Beaconsfield,
Buckinghamshire, which regularly tops tables of Britain’s richest towns,
says the problem is largely one of sentiment. “We have noticed that there
are a number of buyers who have withdrawn from searching for property, and
are considering whether now is the right time to commit,” he says.
Despite this short-term lack of confidence, Russ is optimistic that, on his
own patch at least, the market will pick up over time as the underlying
fundamentals reassert themselves. Inflation and unemployment remain low, the
next move for interest rates looks almost certain to be down rather than up,
and Beaconsfield is still a highly attractive place to live.
Commentators from the research departments of the country’s leading estate
agents agree. Liam Bailey, head of research at Knight Frank, which published
its annual forecasts last week, expects prices next year to increase by an
average of 3% – with larger rises in southern England (5%) and Northern
Ireland (6%). By contrast, prices in northern England and Wales will rise by
just 2%.
Market activity, meanwhile, will go down, with 12% fewer houses expected to
change hands next year. Buyers, convinced the market is heading south, will
demand reductions, whereas owners who would like, but do not need, to sell
will hold firm, leading to an impasse. “People are looking for an excuse not
to buy,” says Bailey. “More than ever, the market is on a knife-edge, but
price falls don’t equal a market crash.”
Forecasts by rivals Savills, due to be unveiled tomorrow, are also expected to
predict some growth, albeit slower, for the year ahead. “The mainstream
market has already slowed in most cases, particularly in the Midlands and
the North,” says Yolande Barnes, head of research. “The only thing that has
been keeping up the average UK figures is the southern part of the country,
particularly London, which we think is driven by equity.”
That may be coming to an end, for the time being, at least, after an expected
fall in City bonuses, which have been a significant factor behind the recent
rises in the upper part of the London property market – and of country
houses. Savills predicts the amount of bonus cash will fall by 60% to £2
billion in the coming year, and says it expects the price of £1m-plus houses
in the capital to drop 3% during the last three months of the year – put
another way, a typical £3m Chelsea townhouse is losing £1,000 in value a
day.
Nevertheless, like Bailey, Barnes expects a soft landing rather than a crash.
“We don’t see falls ahead,” she says. “Nobody is predicting a widespread
recession. For the market to fall the way it did in 1989, there would have
to be a real crisis in household budgets caused by job losses and
recession.”
Ultimately, though, no matter how important such national and regional
forecasts are, each property is different, and the price it changes hands at
will also depend on factors peculiar to it. For those wanting to sell,
success will depend on how attractive their home is to prospective buyers.
“There’s a flight to quality,” says Peter Mackie, a partner at Property
Vision, a buying agency that locates and shortlists country houses for
wealthy buyers. “If a house is perfect, you’ll still get near or at the
asking price, but you won’t get 20% above, as you could earlier this year.
There may be only one or two people fighting over it instead of five.
“If there’s anything wrong with a property – noise, imperfections, things like
that – then it becomes a point for renegotiation.”
And, maybe, if the price is reduced substantially, it will even pop up on
Property Snake.
Additional reporting: Helen Davies
How to sell your home by Christmas
Drop the price
“The market has tightened up and buyers are being more selective,” says Nick
Rudge, a director at Savills in Banbury. “They’ll pay the price for the best
houses, but won’t go for the secondary ones.” He suggests sellers slash
5%-10% off the price of their home if it has been on the market for more
than two months. It’s all about creating a “door-opener” price, says Lulu
Egerton, a director at Strutt & Parker Lane Fox, in Chelsea: “We’re
advising a lot of clients to work the pricing from a different way – from
underneath.” She cites one client who initially asked for £2.2m. On her
advice they dropped to £2.05m, and three days later a sale was agreed at
£2.1m. Not convinced? Then give potential buyers a price range, instead,
says Max Ziff, CEO of Humberts – and ensure you cut your price before others
do: “If prices are coming down, you’re better off leading the reduction to
get to the buyer.”
Find a good agent
“You need an accomplished professional to deal with this market,” says
Egerton. Ziff advises finding out how many of a firm’s agents are qualified
valuers, or Rics-accredited surveyors. Is the website well designed? How
many hits does it get? Do your homework, then establish if the agent who
will conduct viewings is sufficiently knowledgeable about market conditions.
Rebrand
Drab winter is looming. “Take photos now: autumn colours are great,” says
Rudge. If agreeing to cut your price, negotiate a fresh push with the agent
at the same time, says Ziff. “A new brochure, adverts in the paper – see if
you can get it made a property of the week on a website such as Rightmove.”
Make sure people can view it
“Your house has to be accessible,” says Andrew Weir, central London director
of Foxtons. “The estate agent’s issue in winter is daylight hours, so
Saturday mornings and weekday lunchtimes become important.” If the agent
works Sundays, allow potential buyers to come round then as well.
Keep up appearances
Make the bed, clean the windows (to allow what little light there is at this
time of year in) and clear the decks. Get the paintbrush out if necessary,
and don’t ignore the garden. “Plant winter pansies to give a bit of colour,
clear leaves, make sure lights are on if it’s a murky day, and light the
fire if it’s chilly,” says Serena Webber, director of Browns, an agency in
Cranleigh, Surrey.
Be ready to go
“Make sure you’ve got somewhere to move to,” advises Weir. “Your typical
preChristmas buyer wants to do the deal and move quickly.” If you’re in a
chain, find a short let. Line up lawyers, organise a home information pack
if you need one, and make sure your finance is in place. “Having your ducks
in a row makes all the difference,” says Lindsay Cuthill, head of Savills,
Fulham. “It’s amazing how many people want to sell in a hurry, then don’t
have their paperwork ready.” If you are able to complete within a certain
timeframe, it will mark you out as a serious seller – and that attracts
serious buyers. “The closer you get to Christmas, you lose the
window-shoppers and end up with people who are intent on moving,” says Weir.
If you are also buying, you will be able to take advantage of the deals out
there. So don’t be disheartened. As Weir, who completed on December 22 last
year, says, “Now is a good time to move.”
Lucy Denyer
