If you're not willing to cut your price dramatically, you'd better be able to rent out your property or sit out the fall in the market.
I've written many articles about how wrong economic forecasters have been at predicting house prices. Even the ones who have managed to call the market right and at the right time have been inconsistent. I'm yet to find one that has got it right reliably often.
But, you can't say these things are impossible to predict at all times, because there are some times when they are very much easier to call. We've been in a rare situation for the past year or so whereby all the vast array of current data and data patterns, from every source, about every aspect of the UK economy, the global economy, and the UK's property market, have been pointing viciously downwards. There have been no contradictions.
The latest figures
RICS - the body for chartered property surveyors - reported today figures collected from 203 of its surveyors across the country. They have found that new buyer enquiries increased for the third month in a row. Yet they also found house prices still fell.
More importantly, completed sales aren't growing with increasing enquiries, staying flat at under 10 per surveyor in the last three months. (That figure comes from surveyors in England and Wales only.) That means sales are down 67% from a high of 30 in January 2007. That is the lowest number of completed sales since the RICS survey began in 1978.
What's more, this is all despite big rate cuts beginning back in October, which should have stimulated interest.
Finally, the number of properties for sale (the `stock') continues to decrease as more people turn to the rental market. Stocks were just a shade under 50% higher in March 2008. Lower stocks should mean higher prices, but they're not.
The vast majority of surveyors are still reporting falling prices. In a hint of positive news, the number reporting falling prices is veeery slowly decreasing. Now, 75% of the surveyors are reporting falls compared to 95% at the worst period in April 2008. Most of the remaining 25% are reporting no change, on average.
I must mention for completeness the one-off rise in property prices that Halifax recently reported, in contrast to Nationwide's report of a fall. However, one rise doesn't mean the longer-term trend has turned.
The rest of the economic and property data, along with consumer and business confidence, continues to point aggressively downwards. Rising unemployment and unemployment fears, lender concerns about negative equity, and buyer confidence are just some of the factors that continue to push prices down lower.
There are three trends to watch to see if they continue:
- Increasing numbers of buyer enquiries
- Decreasing stocks for sale
- Declining numbers of surveyors reporting falls
If these continue, we may see a bottom to the market at the end of this year (although I'm cautious about making predictions as we re-enter normal times).
However the two key facts of the matter are that prices are still falling despite those three trends and few sellers can get rid of their properties. The proportion of completed sales to the stock of unsold property is around 13%, hovering around its lowest level since December 1992. With the vast majority of data still totally negative, I have no doubt that prices will be lower in 12 months' time.
Sellers need to reduce their prices
Most buyers and sellers feel the same, but only the buyers are using that opinion rationally, and that's why so few are managing to sell their properties.
It's a buyer's market, yet they're not buying much. Here are some key points for sellers:
- Buyers are certain prices will fall a lot further. They're not willing, therefore, to buy at what appears to be today's prices - which means it's over-priced.
- If properties are priced correctly, they will sell. Therefore they are not priced correctly.
- Sellers need to realise that if they don't start thinking about tomorrow's price as today's price, they're going to struggle to sell. Barring unusual local reasons, most sellers should make big cuts to their asking price now.
- Sellers should not price high and invite lower offers. Clearly most buyers are just waiting on the estate agents' books for the prices to fall further. The best selling strategy is to knock off a big chunk from the offer price to what you really think it'll sell for and accept no offers. This will greatly increase the interest in your property, and the serious buyers will accept a fair deal.
- Lenders will start lending again if they see negative equity as a lower risk. Prospective buyers will have a greater chance of getting a mortgage if you've taken into account the fact that tomorrow's price is actually today's.
How much should you knock off?
How much you reduce your price by depends, to an extent, on regional factors. The few properties that sellers have sold in recent months have done so at a price around 15%-18% lower than at the peak in 2007, on average. Most buyers will be thinking of another year of falls. Therefore pricing your property at around 30% below the peak will work for most sellers.
Many buyers will be unaware of regional differences, so you may find it hard to get as many enquiries if you reduce it by significantly less than 30% for regional reasons. (Parts of the North West, South West, South East and London are such places.) On the other hand, if prices have fallen faster in your area you might get away with just a 30% cut.
What's the flipside for buyers?
Buyers are right to wait for sellers to get real. I would expect a big discount of at least 30% off from the peak, on average. You could also approach sellers who've lowered prices a few times, even if they're not low enough yet, and make an offer. Many people selling in a falling market will be desperate. Make a very low offer of, say, 45% below the peak, and see if the seller gives in. You can always increase your offer later.
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