Graham Phelps gives his views on the 2011 property market.
By Graham Phelps, GR Phelps Property Marketing, www.grphelps.com
In 2008, the Times newspaper predicted the UK housing market would not recover until 2011. Are they about to be proved right or wrong?
According to the Guardian, over the whole of 2010, the number of properties on the market increased by 24% while demand fell by 7%. But demand slumped by 18% during the second half of the year as concerns about the impact of cuts in public spending hit home, wiping out the modest price increases seen at the start of the year. During the second half of the year, supply also dropped as sellers became reluctant to put their homes on the market when prices were falling.
Before I examine the views of the experts, let us consider some of the factors that influence or trigger house price movements. The top four are:
1. Interest rates
2. Mortgage ‘availability’
3. Surplus or shortage of properties on the market
4. The ‘feel good factor’
Here you can be your own pundit:
Do you think Interest rates will rise in in first half of 2011, if so by how much?
a) 0.25% b) 0.5% c) 1% or more
Do you think mortgages will be easier to get, with lower deposits, during 2011
a) Yes b) No c) Unchanged
Do you think that 2011 will see
a) More properties than buyers or
b) More buyers than properties
Will the economy feature an improvement or decline in the ‘feel good factor’?
a) Yes b) no
Well, I suspect that your answers will be similar to mine and highlight that 2011 will see interest rates rise, probably by at least 1% and possibly more (3%?) by the end of the year. Also, whilst mortgage availability may not improve the general shortage of buyers will keep house prices fairly static and dropping in some areas. 2011 will see an increase in ‘must sell’ properties where the owner discounts the price to achieve a sale. This has already started in fact. This will be true across all price bands in all areas.
The trend towards ‘reluctant’ tenants and landlords will continue. First time buyers are probably not going to get their first step on the housing ladder during 2011.
The elusive ‘feel-good’ factor is unlikely to be around too much during 2011 either, maybe making a brief appearance for the Royal wedding. Otherwise, employment is expected to rise and economic news to be more on the gloomy side. Wage rates are not expected to rise either and in many cases fall in real terms.
We are already seeing more institutional property investors looking at buying larger portfolios and investment properties. Many equity stocks are still overpriced and property looks like a ‘once-in-a-decade’ opportunity for investment properties. I predict in the London and SE markets, where most of these investors are looking to buy, prices will creep up on these properties due to demand. These areas are often excellent long-term investments but bargains are hard to find. Valuation will continue to be difficult.
There is also likely to be an increase of repossessions (according to the debt advice website www.freedebtadvice-uk.com ) coming on the market, although these are unlikely to be bargains or easy to find – not labelled but there are some specialist sites that list these properties.
At the same time, many property and buy-to-let investors, over stretched during the boom years of easy finance, may be facing cash-flow problems when interest rates creep up.
What the experts say
This is based on the Bank of England holding interest rates and pumping more money into the economic system, both of which are far from certain.
RICS believe that property prices will fall between 2% to 5% during 2011, with the North/South divide being an important factor. As always, location is everything.
Many of the big lenders and financial journalists are taking the ‘About the same but maybe a price drop’ line. They are naturally cautious and also do not want to scare the horses. Few can see the volume of transactions improving, and some getting worse as banks pull up the drawbridge as the economic conditions tighten. (Remember that old joke about banks and umbrellas).
Whilst statistics prove little, they can still be interesting. The overall trend in 2010 is still down with some experts predicting that we have a long way to go yet, with possibly 20% or more still to come off house prices before the end of 2012.
Hometrack also predicts a 2% or more drop, but also highlight some interesting trends in the market. Sellers are finding it much longer to sell a property and subsequently dropping prices by more than 5% whilst being advertised. During the last few month’s sellers have been achieving around 90% of asking price, the lowest for ten years.
Estate agent trends
With all this uncertainty and lower market activity, further changes to the estate agent market are also likely during 2011.
The reduction in newspaper and other forms of advertising, which started in 2009 is likely to continue. No doubt the larger national chains, or at least those not weighed down with debt, will try and assert their size to maintain market share. However, with the Internet increasing it’s dominance in property search (over 80% now find property online) many agents will be asking whether they need to be on the High Street. Larger branch chains might consider closing some branches that overlap and local independents move to a ‘virtual office’ approach.
In the portal world, Rightmove’s dominant position shows signs of weakening to the likes of www.zoopla.co.uk , www.findaproperty.co.uk and www.home.co.uk gaining significant market share during 2010. Google property may also become a factor during 2011.
As one leading estate agent comments: “The Internet has totally transformed the market and I see this continuing to have a major impact into 2011 and beyond.”
Following the OFT report into estate agency in February 2010, encouraging ‘new models’ of property sales, there is likely to be more innovation during 2011. This will include new tools for estate agents and lower-priced services for private home sellers, with either lower commission or other a fixed-fee service models.
As we know, house prices fell by an average of 1.6% in 2010. This would have been lower if it was not for the surge in buyers and shortage of sellers earlier in the year. For 2011, most likely, expect house prices to fall, property finance harder to get and properties to take longer to sell. A good time to buy possibly, but location is more important than ever and valuing property will be more subjective. The search for ‘bargains’ particularly in London and the South East may create a ‘bubble’ effect in these areas. Longer term, some areas of the UK may not recover from this market slump for some time, certainly not in 2011.
UK property prices will either hold up or drop by a smaller a percentage (depending on your view), but only if the number of properties on the market continues about the same. An increase in properties with no subsequent improvement in buyers or further economic bad news will force prices down further. On the other hand…
GR Phelps Property Marketing
The UK’s Internet Property Marketing Specialists