House prices have risen every month for the past 9 months, with annual growth of over 10% and average prices at an all-time high as demand has continued to surge in the face of a lack of properties available for sale. The property market has essentially become detached from economic reality. But things are starting to change. And it’s a good thing.
This current trajectory of price growth hasn’t been since the pre 2007 global financial crisis, so a gradual levelling out is exactly what the market needs.
With the back drop of unprecedented political, social and economic crises it has been quite incredible that the property market has sustained such strong levels of performance for so long. And this wasn’t just a UK trend, it’s been global. The pandemic delivered some unforeseen demand drivers such as a requirement for more space, more time in our homes and greater savings due to a lack of things to actually spend money on (ie holidays / travel / restaurants). This, together with economic stimulus and industry tax breaks has propelled the property market forward to the levels we now see today. But, the pressure of the wider economic and political landscape is starting to have an impact. And as long as that impact is felt gradually and moderately, it is very welcome.
So what’s actually happening, and what might happen?
Price increases are not exclusive to the property market. Inflation hit a 30 year high of 7% in March, potentially going to 8% in April, with the costs in food and energy soaring. Inflation was already a problem post-pandemic and this has been exacerbated by the War in Ukraine. There is a clear cost of living crisis for everyone to see and there is simply no way that basic wages can keep up in ‘real terms’. This economic shift has led to a drop in consumer confidence; people will have less money to spend and will also be more inclined to sit on their savings even as they see the value of their saving reduce. These behaviour changes will likely mean a fall in demand and / or aspiration to move home. Furthermore, higher inflation is generally brought under control using higher interest rates, meaning mortgage payments will be higher. Now, the Government is reluctant to act too swiftly here as they will be concerned about slowing economic growth and with interest rates at already relative historic lows the real affect on the housing market and mortgage affordability will likely be minimal to moderate.
The lack of available properties for sale, fuelled by the reluctance of home owners to put their property on the market until they have found what they want to buy has also been a key factor in driving up house prices as many buyers compete for fewer properties. However, this trend is starting to shift downward with properties staying on the market for longer and less active buyers per property for sale. This trend will hopefully boost available properties available at any one time which will further ease the pressure on house prices.
So, what to do if you’re a homeowner wanting to move?
Be realistic and vigilant. It is proven that overvalued homes take longer to sell, and in fact sell for less money than if it was priced correctly in the first place because once a property has been on the market for more than 4-6 weeks it becomes stale and buyers conclude that there must be an issue with it. The approach of overvaluing may have had some short term success in the last 12 months when the market was booming and buyer competition was red hot, but in todays’ climate you want to ensure your home is listed at fair market level or even strategically just below to generate as much interest as possible from a smaller buyer pool which now has more choice in the market place.
You also want to ensure your Agent is properly incentivised to get the best price possible, in the quickest time possible. Any property sale commission structure where the Agent is paid more for achieving you a higher price ensures that both you and the agent have perfectly aligned goals. For example, a structure whereby an Agent gets paid say 1% for achieving a sale price of £300,000 but gets paid 1.5% for achieving a sales price of £315,000 ensures your goals and objectives are fully aligned. Also bare in mind that a low fee agent has very little incentive to get your property sold quickly and the service standards through the journey are likely to be poor, leading to unnecessary stress.
You may also want to ensure that the individual agent actually selling your home is properly incentivised to do so and in the quickest time possible. For example, knowing that the individual agent receives a high % of the commission that’s paid to the Agency means that both the Agency and the Agent will be fully aligned to achieving your objectives as a seller.
Act quickly. Time kills deals and unfortunately we are in a property market where it can take months and months to actually complete on a sale or purchase. The first thing you need to is ready your property for sale, and be prepared to go to market even if you haven’t found what you’re looking for. Having a confirmed sale puts you in the strongest possible position as a buyer, as the seller knows you’re proceedable. And even if you haven’t found what you’re looking for – you can just fall into an open chain whilst you continue to search. The sheer act of homeowners not putting their home on the market until they find what they want is what has lead to there being such a shortage in homes for sale – it’s a self-fulfilling prophecy.
Don’t wait for a drop in prices, it may never come. And if you’re a homeowner it will affect the value of your home just as as much as it will affect value of the property you’re buying so your net gain is likely to be zero. Predicting perfect times to buy and sell is near impossible, and what is more important than saving a few quid is that you find the home you love.
We also need to accept that the market is the market. No one can fully control and predict it but our actions need to somewhat reflect what’s happening around us. With the current market outlook and with what is happening on a macro level we are likely to see a rebalancing of the market in 2022-2023 which should mean a moderate downward trend in house prices, reflected by a moderate downward trend in buyer demand. And given where we’ve been for the last 12 months; growing at unsustainable levels – this is not a bad thing.
If you’d like to find out more about the state of the property and advice on selling your home, contact our friendly team today.