Month: March 2014

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March sees UK housing demand outweigh supply

Gap between supply and demand remains extended according to Hometrack

English Terraced HousesFears of a growing housing market bubble have gathered pace this month as demand for homes continues to outstrip supply all across the UK. Although house price rises were recorded at 0.1% less than February 2014, the overall 0.6% rise in market values during March still shows a continued upward trend.

On average, home sellers are achieving 96.2% of the asking price, marking the highest rate seen in over a decade as buyers hunger to buy homes grows stronger. Staggeringly, London property is achieving an incredible 99.3% of the asking price and across every region of the UK, the figure is above 93%. All of this points to further price rises, according to a report recently published by Hometrack with the gap between supply and demand remaining extended, showing no signs of changing in the short term.

Should we be concerned?

Housing developers have stated that whilst more homes are being built, the industry is unlikely to meet government targets in the near future. Industry commentators also state that the sector’s failure to keep up with rising demand could drive prices up to unsustainable levels, triggering the daunting prospect of yet another price crash; leaving new homeowners in negative equity. Westminster is being urged from many quarters to take decisive action to ramp up supply with Government led housing schemes.

At present, the main concern is still London with the capital showing the biggest signs of a property bubble not seen in a generation. Whilst some analysts within the estate agency industry remain calm, others are concerned that any major downward events in London could have a devastating domino effect on the rest of the UK.

Homes and land owners still remain very skeptical and with the markets showing encouraging signs of growth and intense demand, many are still yet to be convinced to sell up and cash in.

Who or what is to blame?

Many have been quick to declare the Government’s Help to Buy scheme as the main culprit however, contrary to this sentiment, Richard Donnell, Director of Research at Hometrack, stated that overall sales supported by Help to Buy are ‘relatively small’ and ‘the real driver of higher house prices is record low mortgage rates and strong demand from first-time buyers and investors who have no property to sell, which is compounding scarcity. With average mortgage rates currently at 3 per cent or lower, compared to over 5 per cent before the downturn, households have seen a significant boost to buying power.’

So it seems apparent that the scale of house price increases in the coming months will depend on whether existing home owners and buyers will bid up the prices of homes, which could then lead to all sorts of inflated values.

However, the good news is, things could soon be about to change and the current mad rush could be down to new legislation about to come into force, which means lenders have to ensure that buyers can not only afford their mortgage repayments now, but also when interest rates eventually start to rise again. A hint of things to come no doubt.

The second half of the year may see a price correction but at present levels of demand, that may still not occur considering cash buyers and investors account for up to two fifths of property sales.

Recent official house price figures released by the Office for National Statistics showed property values rising at 6.8% annually – over five times as fast as the ONS wages measure, which is up by just 1.4%. In the year to January 2014, the average home went up £17,000 to £254,000, while wages rose by just a paltry £417.

Separate figures from the Land Registry recently showed house prices across England and Wales rose by 5.3% in the year to February 2014 but prices in London soared by a whopping 13.8%. With growth figures presently continuing on these levels, many do have reason to be concerned. But one thing is for sure, with demand as it is, it is most certainly a sellers market once again.

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London’s housing market is rocketing – is this good or bad news?

Are we headed for a recovery or a bubble in the capital?

It’s a well known fact that London is streets ahead of the rest of the UK when it comes to property (and land) values. However, since the turn of the year and thanks to the recent massive injection of impetuous into the market via various “help to buy” schemes, London’s property market has gone nuts.

Prices are on a steep climb and property is being snapped up like a bargain crazed gang of shoppers at a Black Friday sale in Walmart. You could say we’ve all lost our minds. So what is going on?

Whether we like it or not, the UK has always had a great lust for property investment and the market in London’s more desirable boroughs is growing at a fast pace. Flat viewings in particular are swamped. It’s actually become the norm to see a single property have over 75 people viewings in a single showing. And they’re not just bored window shoppers; they’re serious buyers as properties are shifting fast!

For many prospective investors, it’s now the standard to have to put in an offer the same day as a viewing to avoid disappointment. You simply cannot rest on your laurels otherwise you will miss out.

Prices are well above their pre-crash levels with some of the most bog standard basement flats selling at a staggering 60-70% higher than values seen just eight years ago in 2006. And why is this happening? Because there’s a major shift on the negotiation stage.

In years past when an asking price was seen as a ceiling price that the vendor was hoping to achieve, prices are now becoming an “offers over” base price point, meaning if you want to get the property, you had better be ready for a bidding war, over and above the asking figure. So what do these signs indicate?

Asking price chart

The property market is on a steep climb

The market is without question on a recovering. What may be more alarming to some is the trajectory. It’s steep, it’s fast and in some places, pretty scary.

One significant sign that we might be headed for a bubble is the fact that the gap between asking prices and agreed prices has practically disappeared.

In years gone by, it’s a well-known fact that estate agents used the basis of high valuations to convince vendors to market their property with them, believing the gains will be greater. Buyers are well aware this goes on everywhere so the tendency was always to submit an initial low-ball offer to see what the reaction will be. In most cases, the end sale figure would be somewhere as a halfway house between the asking and offer price. All pretty standard stuff.

However, that seems to be changing. According to property website Hometrack.co.uk, the gap has reduced to 2%. Buyers have become so hungry to grab property that they want to guarantee the purchase and thus, are forgoing the negotiation stage and submitting close to and at times, above asking price offers. The signs are there that prices are rising so fast that estate agents simply can’t keep up.

But looking close at their data which goes back as far as 2001 also suggest that, housing prices may be about to peak.

Time on market chart

Is this a buyers or sellers market?

The question is an interesting one. Buyers can’t get properties fast enough whilst sellers are getting at times, above asking price offers. So who wins and who loses?

Clearly we are at a crossroads and it is incredible to think that we are at this stage still in the first quarter of 2014, considering the stagnation we had experienced for so long since the post-crash period which dragged on for an age. The sheer pace and acceleration of this recovering is the big worry and to a seasoned investor, appears to be a short run that will run out of steam very soon.

Very few would disagree that UK property prices, and in particular London prices, are way above where they should be. All the stimulus packages introduced this past year have only gone on to exacerbate that problem and the fact is, it doesn’t look like it is going to go away. So smart investors need to see when opportunities arise and take advantage quickly.

This appears to be the case now in London and no doubt, this wave of enthusiasm in property will spread outwards en masse once the property market has matured and the commuter belt areas get their turn of this huge property run.

As a land or property owner, you need to also see the signs when the time is right to sell. The markets are simply different to what they used to be and opportunities have narrowed and time frames are squeezed. It wouldn’t be a surprise to see a slow down or more accurately, a plateau of the property market towards the end of 2014.

When spring and summer kick fully into gear this year, buyers will be cranking up their desire to buy. So this is surely the best time to sell as higher yields will be obtained and if you’re smart, you will sell at the peak of the market.

With a recovery and possible bubble forming at such a rate, you cannot sit back and wait for an opportunity to arise as it may come and go with the blink of an eye. It’s a scary time in the market because anyone holding land or property wants to get the best return they can but with markets rising at such a rate, one never knows where or when that peak will hit. All we can say is; evaluate your situation, know your original purchase value when you had the land and see what your return will be in 2014.

If the gains are good, perhaps your time has finally come to sell and get that long overdue pay back.