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.

CEBR – a well respected economic think tank – have predicted that UK interest rates could say as low as 2% for 5 years.

This contrasts with the money market´s view (as discussed in the post on 5 year fixed rates below) that  interest base rates will rise to around 4% in the next 18 to 24 months.

However, this is not good news for property owners – as it would be accompanied by a ´major re-rating in share and property assets´.  In other words, for interest rates to stay low, there would need to be a major decline in property prices. Would 30% decline be major? May be.

So, perversely, UK property investors must be hoping for higher interest rates as this would signal that the declines in property prices would be less.

Either way, UK property is a weak market and offers that allow you to sell on reasonable terms should be taken.

The pay freeze announced by the current Labour Government will reduce after tax disposable income for over half the working force of the UK. This is because such a large part of the UK workforce is now employed by the Government or a Government organisation.

And, ultimately, property and mortgages are always paid out of post tax disposable income – for which this latest action will be to slowly reduce – and propety prices will therefore have to follow, eventually.

As there is no wage crash, so there will be no accompaning property price crash, just a slow and soft deflation.

Property prices won’t crash but they won’t boom either. Instead they will slowly crumble but with occaisional sunny spells.

The ex Property Secrets team, lay out their forecast for what will happen to property in the developed western markets… and what strategies investors and lenders should consider adopting to minimise their risk.