I’ve been receiving several bulletins telling me about the state of the UK property market. The general view is doom and gloom. Prices are going to tank with a vengeance. Apparently we can expect a 25-30% drop sometime over the course of the next year or so.
This is an interesting view of the market. In theory prices ought to be dropping more, but during a recession people dont tend to move around so much so the market is quieter. It’s not that prices drop, they simply stagnate because not much is going on. You have to have an active market for prices to rise. You also have to have an active market for prices to fall. Prices will only fall when interest rates rise. Then the buy-to-let mob will be squeezed, and there will be a rush for the exits. That’s when prices will tank.
Those who want bargains will then sit back and smirk for a couple of years, and then go out and buy. But I’ll let you know when the time is right. We aren’t there yet.
Meanwhile I did promise a couple of weeks back that I would do a quick calculation on the auction index to see whether I thought prices in the real market place (by that I mean where money has changed hands, rather than prices asked) were still above where they should be.
My conclusion is that prices are seen to be too high by the general public, and there is undoubted price resistance.
The index should read somewhere between 11-20 to indicate a normal market. Anything above 20 represents an expensive market. Anything above 30 represents ridiculously high prices which are unaffordable.
The average across the country for July came in at just over 22, so prices are, in general, slightly higher than perhaps they should be in a normal market. Given that we are in a depression prices are too high. Those figures do include an insane figure from the Bristol area of 42.85, and one anomaly in the South of 0.
The most reliable figure is for the North of England where I used the most results. The overall average was 28.36, which is very high. Prices obviously have to come down from these levels.
The lowest reading was in East Anglia where I found a figure of 11.76, which is about where I would expect it to be for the kind of economic situation we are currently in.
If I am right and rents begin to waver and fall by the middle of next year, we will have the scene set for a resumption of house prices drifting down. However, as we have a largely stalled market, I dont think the falls will be great. Prices will only begin to fall seriously when interest rates go up. That could be some time yet as the whole fragile mess of the world banking system is only held in place by low interest rates
Unfortunately low interest rates stifle business, as it becomes uneconomic to lend money; and in a capitalist system, without credit, enterprises dont get off the ground, and economic life just stagnates.
Almost all economies are now managed economies, and they are managed for political not economic ends. That means the mess goes on. That also probably means interest rates will stay low all next year and maybe the year after. We only get a crash when they go up.
Meanwhile, prices in the eurozone seem to be holding, although the euro itself is not. Expect more falls against other currencies as it hits more head winds. The trouble is, Europe is the UK’s biggest trading partner, so any fall in the euro will affect the economic life of the UK, and that will also act as a drag on sterling.
Now isn’t the time to be looking for bargains. They simply aren’t there.