Looking back, the most extraordinary aspect of the 2007 market was the speed with which sentiment altered; record price growth in the summer led almost straight into the negative winter market. Such a dramatic turnaround caused great uncertainty.
Conditions today are better suited to buyers rather than sellers, but this will still play out differently in all the micro-markets that make up the whole market. We expect data on house prices during the year to deviate quite markedly between the various sectors, geographical regions and types of property. In times such as this, categories of victims, survivors and predators tend to emerge. Those who have over exposed themselves will need to sell quickly and become the victims. The survivors will be tightening their belts and adopting the mindset of the ‘defensive consumer’. This, largely mass market sector, is where the greatest percentage of people will opt to stay where they are to weather a perceived storm; which is why transaction volumes are expected to be so low. Predators take the form of cash rich, chain free buyers who are choosing to buy rather than needing to buy. They are interested in doing business with any victims and will look to negotiate aggressively.
Whilst buyers in all sectors are being highly selective and wary about price, there is a noticeable difference between those making a discretionary or preference purchase, and those ‘needs based’ buyers who are moving because they have to. Quite understandably the former are more inclined to sit it out (unless they can find a victim), but the latter seem as keen as ever for the right opportunity. In January Garrington experienced a significant increase in client enquiries (twice the number from same period 2007). These have predominantly been from families needing to move for the typical reasons of having more children; school selection; vocational shifts; marriages and deaths.
January is a notoriously difficult month to talk about market trend – so here’s a summary of factors likely to affect the first 6 months of 2008.
Interest Rates: Further falls are widely predicted, nevertheless the pinch of higher rates will still be felt by 2 million homeowners whose fixed rate deals expire this year.
City Bonus Payments: Although some bonuses this year are being paid as restricted stock which cannot be traded for a period of time, contrary to popular perception total payments have increased by 30% to a record £14 billion. Much of this is certain to find its way into the housing market.
Supply: Increasing rapidly in London but still very low in the shires and regions. There is always a time lag and whatever happens in London is felt in the regions soon afterwards. The numbers of country homes being marketed for sale is therefore likely to increase in the Spring.
Demand: Plenty there for quality property but only at ‘a price’
Activity Levels: Total annual transactions predicted to be 15-20% lower than average. Greater turnover can be expected in the second half of year than in the first.
Prices: Vendors and agents have been setting plenty of ambitious asking prices in January. The market is incredibly price sensitive so these properties are not shifting.
Confidence: Still low but improving with each week
Behind all the headlines and statistical noise I believe the markets Garrington operates in have entered a period of consolidation and will still show marginal growth across the year. International buyers will continue to affect demand and therefore prices in the prime markets. In broad terms, the more special the property the more underpinned is its value. Houses in the super prime sector can be expected to continue showing reasonable growth as overseas buyers from countries untouched by the international credit crunch continue to enter the market.
The quality of clients Garrington is fortunate to represent is well recognised and our agent contacts are keener than ever to offer us early opportunities under current conditions. A fluctuating market place produces greater scope to haggle over prices, which means valuing is set to become even more of an art than a science. Accurate advice is fundamental to any successful purchase – but even more so at this stage in the cycle. We will be encouraging clients to concentrate on doing good deals on good properties and to walk away if either isn’t convincing.
It will inevitably be a much less buoyant or active market, however the fundamentals still look reasonably positive, which means the threat comes down to sentiment. Personally I think we can remain quietly confident about 2008 and should try to remember how much our homes have increased in value over the last few years. Be realistic. Let’s not allow the scaremongers to cause panic. Living on a small, popular and increasingly overcrowded island has many disadvantages, but it does mean demand exceeds supply in most areas and that in the long term property values are underpinned.
PHIL SPENCER
Chief Executive
6th February 2008
www.garrington.co.uk
2008-02-06