Price reality hits house sellers

By Fergal Barry-Murphy. Published on May 27, 2008 This post currently has no comments.

There can be no denying that the housing market slump is now in full swing. This means some tough months ahead for homeowners, but for anyone in the position to buy, properties are significantly cheaper than they were a year ago.

It is difficult to accurately assess how much prices have fallen by as much depends on the location, the type of property and other factors. However, there is a general consensus that many properties have fallen in the region of 10%, although others point to decreases of up to 20%.

Houses

Even with these significant decreases in prices, estate agencies are finding it very difficult to shift properties. In fact, many agents are reporting 60% more properties on their books compared with 12 months ago. It truly is a buyer’s market and for the first time in a long time, there are some bargains to be found in the property market.

This trend is a reflection of what is happening on a wider scale globally. Other European countries that experienced a property boom in the past decade, such as the Republic of Ireland and Spain, have also seen significant falls in the value of properties in the last year.

For the average home owner, or investors with property portfolios, this fact provides scant comfort. The worst hit are those who bought in the last couple of years and are now experiencing negative equity. But, because of the boom, most owners’ properties are still worth significantly more than when they first bought them.

Even for those who have incurred losses, there is light at the end of the tunnel. Property prices inevitably rise again eventually so in the long run property can still still represent a good investment. If you are in a position where you have to sell for whatever reason, then you could be in a difficult situation and have to settle for significantly less than you would like for your property in order to sell it.

As mentioned, buyers are now calling the shots when it comes to property transactions, and supply is significantly outstripping demand for a number of reasons. House repossessions and the number of people needing to sell is up, while economic factors and increasingly strict lending conditions mean that there are relatively few buyers. In addition, many would-be buyers are taking a ‘wait and see’ approach in case property prices plummet even further.

In fact, the Council of Mortgage Lenders has predicted mortgage lending of just above £50bn this year, which is just half of the 2007 total.

Thankfully, it is not all doom and gloom at this juncture. While the cost of credit has risen, this has been offset by some degree cuts in Bank of England rates, and there are no significant interest rate rises expected in the near future.

Also, the consensus is that while many British homeowners are feeling the pinch, the vast majority are keeping up with repayments.

There is little doubt that now is not a good time to sell. It would seem that the best advice for property owners is to sit tight and wait for the storm to pass. It is widely accepted that 2008 is going to be a tough year all round, but we see could signs of recovery by the end of 2009. An expected easing of today’s harsh economic conditions, and the fact that properties are becoming affordable for many people who were previously out-priced, could see the current imbalance being redressed over the next couple of years.

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