2012 will be similarly challenging and Rightmove forecasts more of the same in the defining metrics of property supply and buyer demand, resulting in another small rise in nominal average asking prices. However, the key to the success of buyers and sellers in 2012 will be their understanding of how the impact of the credit crunch has fragmented traditional local buyer and seller dynamics into a series of highly complex micro-markets.
Miles Shipside, director of Rightmove explains:
“The market fragmentation caused by the credit crunch means that success in selling now requires a very careful and complex local market analysis. As always it involves location, but the number of mortgage-ready buyers you can attract is now dictated by the type and size of property that you are selling. With all but the most appealing properties, pitching at too high a price and waiting for offers is a route to stagnation. Four years of increasingly dire economic news have also
trained consumers’ brains to look for stand-out value from day one of marketing. Welcome to the complex world of your very own local ‘micro-market’”.
Selling in 2012?
As well as being a marketing channel, estate agents must be a seller’s most trusted advisor, whose expertise will give them the competitive edge needed to attract what buyers there are in their local marketplace. They must advise on what buyers are looking for in terms of accommodation, character, location and price, and whether a seller’s property matches those criteria. In a market where buyers are driven to hunt for value, the surest way to sell a standard-sounding property is to make the price well below the standard. That is a financially painful step for many sellers, and a step that is not possible for those on the borders of negative equity or who need a large deposit to fund their planned move.
Shipside adds: “In the volume market of 2007 an average property at an average price had a good chance of selling. In 2012 average on any count will not be good enough.”
Buying in 2012?
Buyers too need to research and understand the make-up of their target property market. They could face a lack of property choice and high prices, or a glut and what seem to be comparative bargains, all within a few miles. At a macro-level, price and activity variations can be simplistically explained as a difference in market conditions between the north and the south. For example, new seller average asking prices are up by 4.7% year-on-year in the south (East Anglia, South West, South East and London) compared to an average fall of 1.1% in the north (Wales, East Midlands, West Midlands, North West, North and Yorkshire & Humberside). Much more stark contrasts are evident at a micro-level within regions. For example, in the West Midlands, Burton-on-Trent has seen over 10% more new sellers compared to 2010, contributing to their prices being down by 12%.Some thirteen miles away in Tamworth prices are down by just 0.8%, supported by 2% less new sellers than in 2010. In Yorkshire prices in Rotherham are up 2.8% under-pinned by 12% fewer properties coming to market, whereas in Barnsley prices are down by 5.0% as new seller numbers are up by 2%.
Shipside adds: “It is clear that in these turbulent times the UK housing market is made up of many fragmented micro-markets that are performing very differently. Those that are involved in buying or selling next year need to understand their local market dynamics to help them deliver the right recipe for success. That will include gauging under- or over-supply of property types, buyer demographics and mortgage profiling, unemployment concerns and exposure to public sector cuts or the likelihood of external investment”.
In the longer run, the UK will continue to suffer from a shortage of housing. House building numbers are still failing to keep pace with the increase in the number of households, and the shortfall gets worse every year.
Both the government’s new plans to boost house building by easing planning restrictions and the introduction of a mortgage indemnity guarantee scheme have yet to be tested by the market. If the Eurozone economy suffers a major shock and unemployment levels soar, then we may see higher levels of immigration from European workers looking for jobs, putting further pressure on the UK’s housing stock, particularly in London and the South East.
Four years into this downturn it seems certain that it still has some years left to run. The lessons we have learned in recent years about the performance of the property market in difficult times are likely to remain valid in the short to medium term, and have informed our forecasts for 2012.
New sellers’ average asking prices will rise by circa 2%, though this national average will vary in the many local micro-markets. However, inflation-adjusted house prices will continue to fall, or at best stand still, and have now been eroded by 8% in the last 2.
Rightmove expect the number of properties coming to market to be marginally below the 1.24 million recorded in 2011. This anticipated decline reflects the fall-off in sellers coming to market seen by Rightmove in recent months. It means that new seller numbers will be about a third down on the pre-credit crunch levels in 2007.
The shortage of new sellers in some locations, and improving investor yields on rental properties, will help underpin prices and stave off a price collapse except in exceptionally adverse market conditions. Although Rightmove forecast that the number of forced sales will increase due to the economic stress testing home owners’ finances, continued lender forbearance will keep repossessions to below 40,000 and this in turn will limit wider market price falls.
Mortgage availability will remain difficult as lenders continue to rebuild their balance sheets and cherry-pick the most creditworthy borrowers. This practice will continue to discriminate against first-time buyers who are struggling to raise the necessary deposits. A recent Rightmove survey found that of those who intend to buy over the next 12 months just 23% will be purchasing for the first time. This is significantly below the commonly accepted 40% level required for a healthy and active property market. If events in the Eurozone cause another banking and liquidity crisis, then mortgage conditions could become even more difficult. This means that sales transaction numbers could fall back slightly on the low levels achieved in 2011, and remain muted at circa half of their peak levels. While Bank of England base rates are likely to remain at current record lows throughout 2012, some existing borrowers will come to the end of their attractive deals and join those at risk of being forced sellers.
Shipside comments: “We have had a few years of testing the resilience of the bottom of the market, and we seem to have found a base level that represents an uneasy equilibrium between repressed buyer demand and affordability, and what sellers are willing or able to accept. Buyer and seller activity is also impacted by a lack of confidence and there remains a high level of uncertainty overhanging the market due to the ongoing Eurozone crisis. It’s like a high-speed train running along a damaged track, but could the bumps be so severe as to cause another Lehman Brothers-style derailment of the property market? Some potential home-movers are watching in anticipation for the answer before making a decision on a large financial commitment. In the event of a disorderly collapse of the Eurozone then our predictions for 2012 will also be derailed!”.
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