Rightmove said it forecast last month that prices were within 10% of the bottom of the market, so this substantial fall was consistent with the market bottoming out in the latter part of 2009.
This is given further credence by a chronic lack of new supply both in the resale and new homes markets, which is at odds with both the 1990s UK housing downturn and the current experience of high unsold inventories in the US.
Miles Shipside, commercial director of Rightmove said: “The speed with which prices have declined has been worrying, but it does mean we are potentially reaching the bottom sooner. One of the factors that will help to arrest price falls is a lack of property coming onto the market, resulting in lower inventory levels that align supply more closely with today’s restricted demand.
"The reticence of discretionary sellers to come to market and the relatively low number of forced sellers have seen new listing numbers plummet. Add to this the collapse in the supply of new homes from developers and a massive shift of unsold stock to the lettings market, and the result is a dramatic reduction in the over-supply that has been present since early 2008.”
Rightmove saw 43,416 properties coming to the market in the last month, less than half of the 89,110 properties measured in January 2008. The total number of resale properties advertised on the website has decreased by more than 20% since the peak in May 2008, giving potential buyers a far more restricted choice.
Some unsuccessful sellers have withdrawn until activity improves, and the additional cost of mandatory Home Information Packs
(HIPs) may persuade further homeowners not to market their property. The number of new sellers may face a further decline when new regulations are introduced on April 6.
The new rules mean that estate agents will need to have received the HIP in their office before identifying the property, instead of just ordering one, delaying viewings by several days.
The dwindling level of choice for prospective purchasers is exacerbated by the crisis in the new build industry, with 1000 fewer developments being marketed today compared to this time last year. The question is whether this is a temporary blip in supply levels or a longer-term trend that will help to provide a firmer floor under prices.
Ironically the lettings market is now starting to experience similar over-supply from which the sales market appears to be slowly emerging. As frustrated sellers have chosen to offer their home for rent rather than sale, Rightmove has seen the inventory of properties on its lettings website increase dramatically. While unsold stock has declined from its peak in May
last year, property available to rent has increased by 37%, with around 320,000 homes available for rent on the website.
Miles Shipside said: "Would-be buyers are sniffing that 2009 could be the year of the property deal. The market has plumbed the depths, with agents reporting sales being achieved at a discount of around 25% from peak boom prices. Even though growing
unemployment and an increased number of amateur landlords failing to let will add to the amount of forced sales, the reduction in the number of properties coming to market appears to be aligning supply and demand more quickly than in previous downturns. This will help to establish a price floor, and is being assisted by a potential increase in demand from
improved buyer affordability due to both lower prices and cheaper mortgages.”
Rightmove said it had seen a surge in potential buyer activity since the New Year, generating double the enquiries sent to agents in the same period last year (Total email enquiries 429,560 versus 199,762). While the lowest base rates in history have not fully fed through to mortgage rates, buyers can now buy a lot more property for the same monthly mortgage payment.
This is stirring interest from the previously disenfranchised and disenchanted, and also from investors who are looking for a better home for their cash now that other asset classes are giving poorer returns.
This is only one step on the road to recovery. Restricted lending criteria and continuing economic woes mean that a "bump along the bottom" in both price and volume will extend into 2010, with the recovery timescales in hundreds of local markets governed by their own micro-economics.
However, it does present an opportunity for a relatively small group of decision makers in the Government, Bank of England and lenders to stimulate the market by increasing mortgage lending.
Miles Shipside said: “Households are still being formed, properties are being outgrown, and job-hunters have to relocate to where the jobs are. This pressure of pent-up demand must be vented, as it is stifling people’s lives, whilst the lack of workforce mobility hinders the efficiency of the UK economy. This startling combination of a low volume of sellers and
a high level of enquiries gives a further prompt to policymakers to act sooner, rather than making the well documented longer-term housing supply issues even more pressing.”
For those would-be buyers that are sending the increased volume of enquiries to estate agents, 2009 offers opportunities and challenges. The lack of new sellers meant that over the next few months, Rightmove said we could actually see a rise in the average asking price of properties coming to the market.
Estate agents traditionally compete to build fresh stock levels in the early months of the year, creating upwards pressure on initial asking prices. This would be a mistake in the current market, compounded by some new sellers being less willing to
negotiate on price than those who have been on the market for longer. They will have to compete on price with an existing large rump of forced sellers as well as increasing numbers of new forced sales.
Though it is not guaranteed that the higher level of enquiries will turn into more successful completions, those that have the savings to shop around for better mortgage deals have the advantage of being in a market where there is a combination lower house prices, cheap finance and the likelihood of quality properties in forced sales.
“These buyers should be researching their local market and should be employing tactics to secure the best deal available in their area. In tough times buyers should always look for quality, but also look to pay bottom price. The quality properties in desirable locations will always bounce back first when a recovery happens, and a depressed market is an opportunity to secure a quality home that would normally be out of budget,” said Shipside.
Investors should contact local letting agents and research what properties are renting well and giving a good return on investment. The ideal investment at the moment would be properties that return close to 10%, so that if rents or capital values fall a bit further and take some years to recover, the investment still stacks up financially.
“Those seriously hoping to snap up a quality deal should be lining up a mortgage and a solicitor so that when they do find their dream home, they can react quickly and drive a quick, hard bargain – if you can proceed when most mainstream buyers are unwilling or unable to do so, then you can have the pick of the quality deals from those sellers who are desperate to achieve a sale and willing to negotiate on price. Everyone is aware that it is a buyer’s market, but the best buys will not fall into buyer’s laps – it is vital to be proactive,” Shipside said.
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