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Is the property market crash over?

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In our opinion, no. You’ve no doubt read stories about prices rising over the past few months, so you might be forgiven for assuming this means the worst of the housing market downturn is over and we’re getting back to business as usual. We don’t think that’s true.

The most important thing to understand about this situation is that the behaviour of the property market over the past decade was anything but ‘business as usual’ – so it’s foolish to expect a return to the days of sustained 10% or even 5% annual house price rises. It’s insane that anybody even thinks that’s a desirable situation. If the average cost of a home increases at a rate that heavily outpaces the growth in average earnings, it’s obvious that you’ll soon have a situation where nobody can afford to buy homes any more – only a complete twit would think that’s a good thing.

If you live in a world where the cost of putting a roof over your family’s head is disproportionately high, your quality of life is terrible and you are, to all intents and purposes, little more than a slave to your mortgage lender. Sure, everybody likes the idea of having a nice place to live, but why should one of life’s basic necessities be so costly – the past ten years of booming prices amount to little more than a scam by the banks to make sure more of our money ended up in their shareholder’s pockets. None of us are better off because of it.

But that doesn’t alter the fact that prices have been rising over recent months. The reason for this is simply that at present so few properties are on the market that, even though there are far fewer buyers than a year ago, there are still far more buyers than there are available properties. A handful of buyers with ready funds are pushing up the prices as they try to outbid each other for the few properties which are trickling onto the market.

That’s the important point to understand, these recent price rises are based on a very, very low volume of property sales. Consider the following:

  • Most people aren’t selling homes at the moment, because they’re hoping to sit-out the downturn of the past month, hoping prices will bounce back.
  • Far fewer people are able to buy, because banks have heavily restricted their mortgage lending.
  • Unemployment is at a 15 year high, with no sign of improvement in the near future.
  • The number of homeowners defaulting on their mortgage repayments is at a 12 year high.

So here’s how we see things playing out over the coming months: Homeowners who have been riding out the downturn before they sell will be given confidence by recent reports of price increases. This, combined with a growing number of repossessions as unemployment bites harder will result in a far higher number of properties coming onto the market.

But, since mortgage availability is still tight, the number of buyers will not keep pace with the number of properties on the market – more sellers than buyers simply means prices will have to fall, and distressed sellers (i.e. those who absolutely need to sell their property) will be forced to accept lower prices, which in turn will force discretional sellers (i.e. those who want to sell, but don’t need to) to accept lower prices or take their properties off the market.

It’s easy to see how more properties will come onto the market as we move forward, but very hard to see where more buyers will come from – and remember that we’re talking about qualified buyers, not just those who ‘want’ to buy, but those who are able to get a mortgage of the required value.

Despite the recent price rises, as far as the long-term outlook for the UK property market is concerned, the only way is down.

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