House prices in the UK – and London in particular – are back to record levels.
Earlier in the year, this led to a buying frenzy. As a potential househunter, I’ve been keeping a close eye on the market in London.
In spring and summer, I noticed a few cases where deals were quickly agreed, only for them to collapse – with the property then going back on the market at an even higher price.
But now it seems as though the boot is on the other foot. Surveys first suggested that prices were dipping a few weeks ago.
Now the pace seems to be picking up…
Buyers are losing their enthusiasm
The Royal Institution of Chartered Surveyors (Rics) publishes a report on the property market that looks at what surveyors (the people who check your house for hidden faults) are thinking.
It’s a useful survey, including both hard numbers and quotes from individuals. In October, a lot more surveyors saw demand for property fall than saw it rise. The most downbeat of all were in London – nearly two-thirds of surveyors are reporting a drop in buyers.
Anecdotal evidence from individual surveyors confirms the impression. One London surveyor observed that the “post-holiday slowdown continues as year-end approaches and confidence drops… response from potential buyers has definitely slackened”.
It’s a similar story in other parts of the UK. For instance, in the southwest, one surveyor reports that the “general level of enquiries [is] down on all fronts”. Another in the southeast notes that there are “few buyers”.
Simon Rubinsohn, Rics’ chief economist, notes that overall people are “becoming a little more cautious about making a purchase”. And politics is having an impact (perhaps all the talk of a ‘mansion tax’). “An increasing awareness of the approaching general election also appears to be contributing to the softer market”.
Prices are starting to fall
Because buyers are no longer putting in offers, prices – both in London and in the UK as a whole – have started to fall. While some indices still show prices going up, most now have prices declining.
According to Halifax, house prices for the whole of the UK fell by 0.4% in October. Completed sales have fallen to their lowest level in a year. Rightmove registered an even bigger fall – it thinks that national asking prices fell by 1.7% from October to November.
Because it is based on completed sales, the Land Registry’s house price index is usually the last to reflect a change in the trend. However, even its most recent report showed prices falling by 0.2% nationally. London prices fell even further, going down by 0.7%. That was the first decline since May 2013.
What’s more, the Land Registry also showed a drop in the number of completed sales. Clearly, buyers are much less enthusiastic than they were.
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So what’s going to happen?
Even with the recent news, few experts are willing to stick their necks out and say that there is going to be an absolute fall in prices. Trends in house prices take a long time to shift. For obvious reasons, no one wants to call the top of the market too early, only to look foolish while prices carry on rising.
Indeed, while I believe prices have been in bubble territory for a ridiculously long time, at the same time I’m kicking myself that I didn’t bid just a bit more for a basement flat in one part of London that I came close to buying in the spring. Given what’s happened to prices in that area, I should have got into the market much earlier.
However, the mood now seems to have turned. As Matthew Pointon of Capital Economics puts it, “subdued demand suggests house price gains will continue to decelerate, with London expected to see a particularly rapid slowdown”.
Jonathan Hopper, of property search firm Garrington, thinks “the market is likely to stumble rather than stride into the New Year”. He notes that “concerns over global economic uncertainty and instability are likely to weigh heavily on consumer confidence”.
Think tank CEBR is the most downbeat. Not only does it think that UK prices will fall, but it notes that “the London housing market is being hit by a double whammy of reduced domestic and overseas demand”. Overall, it expects prices in the capital to fall by a whopping 8.5% in 2015.
My guess is that even if buyers were willing to pay the huge prices that sellers are demanding, the banks aren’t keen to lend them the money to do so. But equally, most sellers don’t absolutely have to sell – so because they refuse to cut prices, few sales are going through.
But my guess is that come the new year, many people who didn’t cash on the madness of the spring and early summer could have a rude shock, as prices could end up falling by a significant amount.
Of course, not everyone agrees with me. We’ve just got our band of property market experts together for our annual MoneyWeek magazine property roundtable.
You can read their take on the housing market for 2015 and beyond in the next issue, out tomorrow. If you’re not already a subscriber, now’s a good time to give us a try – get your first four issues free here.
Oh and if you’re looking for opportunities for next year, you might be interested in the eMoneyShow’s set of live webcasts with various investing and trading experts. You can register for the webcasts – which start on 18 November and are available until 10 December – for free here.