Buyers are drying up, sellers are cutting house prices – and five other reasons why prices are dropping
A house price crash is notoriously difficult to predict. At the time, we all merrily carry on buying and selling, oblivious to the fact that disaster is lurking just around the corner. It’s only after the fact that we can see the glaring signs that change was coming.
The signs are there, however, if you look closely, and should be ringing alarm bells for us all.
1. Prices are massively inflated
House prices have reached a record of 7.6 times earnings, which has pushed them out of reach of a huge number of buyers. In some parts of the country, they have hit more than ten times average earnings, and there comes a time when there’s nobody left who can afford to buy.
2. Sellers are cutting their asking prices
A third of properties on the market at the moment are discounted by an average of £25,000. This is an indication of two things – neither of them good. Either sellers were too optimistic and prices are not rising as fast or as far as they expected. Alternatively, they were fairly priced, and the market price of a home is dropping through the floor.
3. Prices are actually falling
Prices have fallen over the past month, and the past three months. There’s an argument that things always slow up before a general election, but it’s hardly a great sign.
In the pricier parts of London, the falls are even more marked. Prices here peaked some time ago, and in many cases have dropped significantly since.
4. People are avoiding putting their home on the market
The property market is driven by sentiment: when people are confident and enthusiastic about future price rises they will buy and sell – and when they are worried and uncertain they stay well away. Typically each surveyor tends to see 60 properties on sale per month – last month it was less than 44. With fewer and fewer properties for sale, there’s a risk the market will stagnate.
5. Buyers are drying up
The number of buyers registering with estate agents is falling too. In March, the number of buyers per branch dropped to 397 – down from 425 in February. It means that despite the fact that there are very few homes for sale – sellers are still struggling.
6. Homes are spending longer on the market
In London in particular, homes are struggling to sell. A detached home in London will spend an average of 196 days on the market before it sells – that’s 37 days more than in February of last year. There are still some corners of the country where properties are selling faster, but there’s a risk that as buyers dry up, the market could stagnate nationwide.
7. Sentiment has got worse
We are naturally inclined to feel confident in the value of our own home, but our confidence in property values has taken a big hit in the past couple of years. Currently 58% expect the average property price to rise in the next 12 months – compared to 72% who were anticipating rises this time two years ago. Among those expecting rises, there has also been a marked increase in those expecting rises to be modest.
Of course, the housing market is not a simple thing to predict: it’s more of an art than a science. The signs are worrying, and we could see lack of affordability and declining sentiment push the market down. However, on the flip side, we could see it protected by lack of supply and low interest rates.