Market Comment –August 2010

The market, having waded through the dead ground between an election and an austerity budget, found some momentum last month but has now gone onnholiday. Following the election, the many vendors that had been holding off marketing their properties have now launched them. A consequence is that the balance between supply and demand, that has for the past 18 months favoured the seller, is now swinging in favour of the buyer. There is now greater choice but prices that were softening are now holding because of the marked increase in confidence since the budget.

Whether this new stock will turn into an avalanche is hard to predict but we think it will not. Hitherto the shortage of quality, correctly priced stock has maintained pressure on prices. Now with large discrepancies on pricing appearing there is some confusion amongst the public as to what correct house prices really are. Recent evidence is that where a good example of a particular type of property comes to the market at a price that appears to be fair value it sells well.

Carnage in Europe makes the UK look a safe haven and a good value one at that. This factor, along with a prudent budget and a dose of inflation may well prevent the predicted double dip occurring. At the same time it is worth remembering that the majority of vendors of quality property are discretionary rather than compulsory, if they do not like the look of the market or prices they will not offer their property. This has a braking effect on declining prices and will probably be the ratchet that prevents prices for quality property falling back again.

The word “quality” really is the nub of this matter. The vast majority of the property that makes up the statistics we read so much about in the press is ordinary. It is easy, after constantly reading stories in the press, either boom or doom, to think that these generalised commentaries apply to all property. They do not and they are particularly inappropriate for more valuable rural property.

My clients do not want ordinary, they want quality and the small but important sector of the market represented by “best of type” properties is not going perform in the quite same way as the rest. There are three principal reasons for this. The supply is very finite; these are almost invariably discretionary purchases and, as I have said previously, often discretionary sales.

For these reasons average house prices, whilst a useful barometer of a trend, are less relevant than people think when assessing a rural property, particularly as these rural properties not only by definition represent a tiny proportion of the total housing stock but also represent an even smaller proportion of the total number of transactions in a given period because they are traded less frequently than urban properties.

Analysing statistical evidence is important provided it is not applied too rigorously to non standard properties. This is just what is happening in some sectors of the mortgage market where more and more mortgage applications are being assessed by computers rather than experienced local valuers. The result can be that properties outside the statistical norm are being disadvantaged. It is therefore very important to establish, when applying for a mortgage, who is actually going to value the property and whether they have the appropriate experience and local knowledge in that market sector. Getting this properly organised before it is too late is key.

An equally important part of my job is assessing the vendor. My clients are not buying a generality, rather a specific property and the price at which that property can be purchased depends as much on the vendor and their circumstances than anything else. It is vital to bear in mind at all times when approaching a property that there are three variable figures: the price at which the property can be bought, the amount that it is worth and the sum that the agent is asking. These three figures are very rarely the same.

As a consequence, it is vital to establish, before we bid, the exact situation of the vendor and ascertain whether they have to sell or would merely like to sell. At the same time I need to establish whether my clients purchase decision is based on price or value. Looking purely at the price of a property can be misleading; the value of a property is much more than its’ financial cost, it is the wellbeing it brings to the purchaser and their family over many years. Essentially the property should be a home first and an investment second.

The effect of these factors on my market depends on area and asking price. Different sections are performing in very different ways. Better properties in the middle and upper end of the market in this area are selling well when correctly priced. By contrast properties that are dull, ordinary, blemished or overpriced are not selling at all, or at large discounts.

In the middle and upper sectors of the market in this area, the majority of vendors are discretionary; their reason for selling a good house is often a lifestyle decision rather than financial compulsion. Many of these vendors still remain uncertain whether current market conditions are right for their sale.

Agents, faced with an acute shortage of turnover, are occasionally answering this question by resorting to fanciful valuations for prospective vendors in order to win instructions. The result is that some new stock is coming the market overpriced at a time when the market is particularly price sensitive. The result is counterproductive with disappointed vendors and confused purchasers.

Conversely there are within the market always a number of small or amateur developers who specialise in refurbishing country houses or converting barns and selling them on. These forced sellers have been under great pressure, a number have already succumbed, but there are still some that will have to sell this year.

In conclusion, an increase of supply and a hangover of blemished property is softening prices and making it difficult for amateurs to read the market and for professionals to accurately establish values. This presents an unusual opportunity for buyers, they now have more choice and have a stronger negotiating position than they have had for nearly two years. 

Gideon Sumption MRICS 

August 2010