Property asking prices - people are STILL holding out

Max_Headroom_3

In my area (SW) there's a popular housing estate (not sure why, other than it's the only big "modern" estate in the immediate area, started about 10 years ago and still building, or they were...)

Anyway, when I first bought I looked at a typical 2 bed tiny terraced starter home but quickly dismissed it as too small (they are tiny) plus I didn't want to live on a new tightly packed estate (wisely as it turns out, lots of problems with gangs of kids up there now). I bought an older larger three bed place in a less popular area instead.

But I've always watched the price of these as the local property benchmark, simply because there is a lot of them, and they're all the same.

They rose to £150K in the mid 2000's and stuck there, asking prices hovering around the £150-£155K for the last two or three years. Bear in mind these are starter homes in an area where a good managerial wage for someone starting out in their early/mid 20's is about £20K, so even with a 10% deposit they're about 7x a good salary. Lots bought by BTL dreamers of late though I believe.

I reckon (have always reckoned) these places are realistically worth about £100K to be affordable to the sort of people that should be able to afford them (young families, first time buyers etc) which is a reasonable deposit and then 3.5x a £25K salary (or combined lower salaries in the case of a couple).

Out of interest I just had a look on Rightmove and found about five for sale, every single one asking £150K+!

Just goes to show, despite all the media and all the reports of the financial problems, lack of available credit and achieved house prices dropping, sellers just refuse to accept their properties are worth less than they were.

I don't think we'll start to see the real price drops until these sellers are forced to start visibly dropping their prices in order to create the opportunity for a sale. At the moment people must be looking at what they can borrow and what the asking prices are and just not bothering in which case no sale and no resultant price drop data.

I see it like an avalanche. It's just starting to slide, but it's not until it really picks up some momentum that it'll pick up any real weight and speed.

StevieJ

If these people have not dropped the prices so far do you really think they are going to drop them with interest rates falling and liquidity being introduced into the market?

Max_Headroom_3

If they need to sell and can't then dropping the price will be the one and only route open to them.

ad9898_3

StevieJ wrote: »

If these people have not dropped the prices so far do you really think they are going to drop them with interest rates falling and liquidity being introduced into the market?

Yes I think they probably will, housing market corrections usually take number of years, most people have only woken upto the problems in the last few months, this is only the beginning, I wouldn't expect mass price drops of 30% at this time, it will be a trickle over a number of months and years and before we know it, it will be 'wow remember what this house was worth in 2007'.

We aren't even technically in a recession yet and prices have fallen over 13% on average. Interest rates are fairly irrelevent these days, Natonwide and Lloyds tighten their lending criteria again yesterday and that was after our great leader saved the world.

The market has changed, it IS different this time, not only has sentiment changed by the buying public, which have got mountains of unsecured debt, the banks are not lending to anyone who can scribble a signature anymore.

blisk

Max_Headroom wrote: »

Out of interest I just had a look on Rightmove and found about five for sale, every single one asking £150K+!

Theyre going to be holding out for LONG time.

Somethings got to give.

This is the new reality: Buy-to-lets worst hit

People don't want to mention the word Negative Equity !
It's a sign of failure.

carolt

I think one difference this time is the internet and people's knowledge through the house price websites of exactly what similar houses in their street fetched a year or two ago. They now regard that as the 'price', and anything less as a loss, even though of course most bought it for far less.

In that sense, this will make prices far 'stickier'. That said, in reverse, once one is sold through desperation - in cases of unemployment, death or divorce, for example - that will mark the new 'price' in the minds of would-be buyers, and there is no way would-be vendors will be able to get above that.

Sadly, it may take mass unemployment to - forcibly- open the floodgates.

domcastro

Are we at 2005 prices?

Cannon_Fodder

'Trying' to get the market moving again, is not the same as 6x, 7x, 8x salary and 100%+ mortgages appearing.

Prices were a direct consequence of that level of lending. Correction is inevitable.

Even the Govt had to backtrack just yesterday, to clarify that they did not mean "go back to 2007" as going all the way back to the height of irresponsible lending.

So there will be NO quick "back to normal" liquidity scenario.

Of course people will resist reducing prices - as the BTL element is quite prominent even more so, with lots of interest only/100% probably- but as each forced sale occurs the foundations for their hopes will be eroded, and then the tide will turn and it will be those who can accept the biggest hit/hurt that will lead the prices down.

Those too slow to react will be left high and dry on the rocky shores of Negative Equity.

imo.

chucky

StevieJ wrote: »

If these people have not dropped the prices so far do you really think they are going to drop them with interest rates falling and liquidity being introduced into the market?

as long as they can maintain themselves for the next six months they will not need to drop prices.

as Carol says if unemployment comes along it may be a different story...

Cannon_Fodder

domcastro wrote: »

Are we at 2005 prices?

Depends on whose figures you use, obviously, but;

"The average UK home now costs £172,108, around the same level as in January 2006."

http://thescotsman.scotsman.com/latestnews/Average-house-price-falls-to.4576212.jp

GDB2222

There are bound to be many forced or semi-forced sellers amongst BTL-ers soon. All the houses/flats that were bought for capital appreciation (where the rent does not cover the mortgage) are in that category. Even where the owner can afford easily to cover the shortfall, these properties are unattractive as an investment. There's therefore a huge overhang of properties waiting to sell into any firmness in the market.

Couple that with the fact that a high proportion of the properties sold in the last 5 years were to BTL-ers. So, they have gone from the buy side of the equation to the sell side, and it seems there will continue to be many sellers for every buyer.

There will be BTL buyers eventually, but they will be looking for absolute bargains. I will eventually come back into the market, but only if I can get a rental yield of at least 10% and preferably 15%.