Property Crumble

UK Property Stocks Mar 2010 source RICS, Property Crumble

UK Property stocks are on the rise as this months graph shows.

Currently, the average stock per surveyor is around 67 and you can see that the last trigger point for a property price crash was in late 2008 when property stocks reached 90 per surveyor.

Therefore, we have a long way to go until a sharp price in UK property prices is triggered – but we should expect further increases in stocks over the next 12 months as the number of new instructions is increasing faster than the number of new buyer enquiries.

The risks between a property crumble, property price stumble or all out property price crash are fairly evenly balanced, with the property crumble the most likely scenario, but all three being realistic possibilities.

Either way, the forecasting commentary from house price economists is turning more and more negative.

Pretty much as predicted, the supply of property in the UK market has continued to increase according the the latest RICS survey, and no, the expected buyers have not materialised.

On an anecdotal level, I counted 21 For Sale boards – many of them new – on my way into work this morning and only 1 Sold sign (and that was sold before Christmas anyway).

Latest mortgage figures show that there has been no significant increase in lending – so, not surprisingly, buyers are not able to bid up prices and the property chains are collapsing.

We’ll provide more analysis shortly on the latest supply figures, but April is traditionally the best month for UK property sales and hence a weak April bodes for further price falls during 2010.

UK Property Prices - Slowly Sliding?

Nationwide’s index reported a modest increase in UK property prices in the February to March 2010 period.

At the same time, the US Schiller index reported weak US property prices amid growing consumer confidence.

The UK’s chancellor also announce an attempt to reflate the UK property bubble by suspending stamp duty for first time buyers on properties up to £250,000.

So what is happening?

Firstly, property prices are not collapsing or falling significantly (as per the index) however, the  number of mortgage approvals is still very low and there are clear suggestions that only the ‘best in the road’ properties are selling with all other less attractive options unable to obtain a buyer.

This flight to quality means that the indices will in effect compare the prices of the weaker properties (which sold in a strong market) with the stronger properties which are still selling in a weak market (unlike their weaker cousins).

What do we mean by weak property?

Well, simply properties that need work doing to them – or lack basics such as double glazing or where the wiring is a bit old, or it may simply by that the stronger properties are being sold with display furniture from the developer and so forth.

All of these subtleties are lost by the indices and explain why the indices don’t drop as much as it feels they ought to in a weak market. Or, why the indices don’t manage to reflect the real experience of property buyers and sellers.

Secondly, the US is reporting, at the end of march, more positive news on consumer confidence with an expecting increase in employment – however, the US property price forecasts remain on the slightly negative side.

This suggests that we could see growing consumer confidence coupled with stagnant or weak house prices. And, if the much anticipated inflationary pressures get stoked in either the UK or US, then house prices will fall in real terms.