|Steady Demand Supports Recovery|
Edward D'Arc's Derek Fletcher gives his view of Chiswick's property market
It has been an incredibly busy and successful eight months since the opening of Edward d’Arc’s new offices in Turnham Green Terrace, coinciding as it turned out, with a quite dramatic revival in the fortunes of Chiswick’s property market. Yet just a few months into 2010, with the snow hardly melted, it seems almost impossible not to open a newspaper without being bombarded with comment, most of it contradictory and nearly all of it speculative, regarding which direction the property market is heading this year!
The rapid rise in property prices during the latter half of 2009 was undoubtedly nothing short of meteoric, and we saw property values return to levels not far short of those seen at the peak of the market. It is worth remembering that house prices fell steadily from mid 2007 as demand faltered and confidence evaporated. This was the result of numerous factors; the collapse of Northern Rock as the ‘buy to let’ market finally ran out of steam; repercussions from the ‘sub-prime’ debacle in America; affordability factors, particularly affecting first time buyers who had seen property prices rise above incomes continually for one of the longest periods in history; House Price Earnings Ratios (HPER) at levels not seen since the 80’s crash. All this culminating with the near collapse of the worlds banking system, with the demise of Lehman Brothers in October 2008 and the virtual privatisation of both The Royal Bank of Scotland and Lloyds. It was hardly surprising therefore that by the end of 2008 house prices hit rock bottom, down 15% - 25% from levels at the peak just 18 months earlier!
Yet it should also be remembered that it was precisely lower house prices, and the resulting increase in affordability, that kick started the property market again early in 2009. Buyers were able to take advantage of a reduction in differentials, the gap between selling and buying, when ‘trading up’, enabling them to purchase properties previously thought beyond their budget. This was particularly true when taking into account mortgage interest rates at the lowest level since records began. Although demand was still relatively weak during 2009 compared to levels seen at the peak, (the Council of Mortgage Lenders figures indicating ‘buy to let’ borrowing down 73% compared to ’07), the real issue last year was supply remained even weaker.
ELEMENT OF CAUTION
To try and understand the factors behind this weakness in supply we cannot ignore the inevitable consequences of 15 years of a ‘buy to let’ market swallowing up a considerable amount of the housing stock away from the sales market. It’s not that long ago you could drive down any road in Chiswick and hardly ever see a ‘To Let’ agents board amongst the forest of ‘For Sale’ boards, today the reverse is often true! Fears of unemployment may be easing but we are by no means out of the worst economic downturn in 60 years and uncertainty over the inevitable rise in mortgage interest rates and taxes has led to an element of caution over taking on more debt to finance a new house purchase. Add to this the fact that New House Building ‘starts’ are at their lowest levels for almost 70 years, it is difficult to see any possible easing on the supply side of the equation in the immediate future.
PEAK OF THE MARKET
So, with house prices today back to levels seen at the peak of the market, questions are inevitably being asked whether or not current price levels can be sustained, or are we in for a possible ‘double dip’ scenario as some so called ‘experts’ have suggested.
DIFFICULT TO IMAGINE
The reality is that I find it difficult to imagine house prices falling back significantly from current levels unless there is a marked increase in supply. As pointed out, I think this unlikely in the near to medium term. At the same time, however, I do not believe demand will increase significantly either. Previous buoyant housing markets have often seen demand return as a direct result of a period of wage inflation, so it may be some time before demand returns to levels sufficient to push house prices up any further.
My biggest fear, however, is that with house sale transaction volumes likely to remain low throughout 2010 and early into next year, many Estate Agents will fall into the trap of overvaluing property in their pursuit for instructions, and the need to achieve corporate style sales targets, thus destroying any ‘green shoots’ of a recovery we may be seeing. We are already starting to see levels of some property exceed demand in certain areas of the local market for the first time in a number of years, indeed not since the peak!
If you are considering moving in the near future then it is now more important than ever to get sound, independent advice based on experience and expertise gained from over 25 years in the local Chiswick market. To get the latest up to date information on how the current market conditions may affect you, feel free to give me a call at Edward d’Arc - we’ll be delighted to help.
Derek Fletcher - Edward D'Arc
March 10, 2010