Rightmove's July house price index - how to determine what's going on!
It comes as no surprise as I write this, being a central London estate agent, that the recent Rightmove price index shows a drop in house prices for the fifth month in a row. However slight the drop, it’s the transaction numbers which really tell the story – down by 75,000 compared to June. When transactions are down, prices often come off the top and less sales are agreed resulting in more stock available for buyers to choose from.
Is this a bad thing?The simple answer is no, if you’re a buyer, and yes, if you’re a seller looking to sell at the very top because your house was once worth more. Often when the market changes we have a period of transition. Sellers still think they can get the price they were quoted months before, or what the “same” house down the street sold for recently. Buyers, on the other hand, have more time, choice and are more cautious, offering less than they would have a few months ago. This often leads to much fewer transactions whilst sellers are slowly educated, normally via the media, on the reality that the price that once was, is no more. At least for now, as history has proved!
The more general UK news is something that I, and many agents like myself, have been dealing with the last 12-18 months in central London. As we know, it all happens in the capital first then the ripple effect hits the rest of the UK.
So, who is selling?Only those who are motivated – in London, our research has proven to be one of the four D’s; death, debt, divorce, and developers, all of which stipulate a reason to sell. Death is the lowest % of the four, closely followed by debt, as interest rates are still so low compared to historic levels, many sellers are not feeling the pinch. Developers are the highest % as they have a product brought to the market to sell, investors will want their money back and they will want to keep their record of delivering sales for the future. Another group contributing to the numbers of recent sellers are buy-to-let landlords, who are looking at recent increased taxation on the whole rent rather than the profit received.
Why buy now?Buyers have a great opportunity to buy in a calm and considered way, with more stock to choose from as well as finding some sellers, who are motivated to move, willing to consider lower offers than before. This depends on area and circumstance, but certainly in central London, sellers have realised (after a year long education) if they want to sell they have to consider sensible offers. Buyers also have the opportunity to view more places, getting a better feel for value without feeling pressured in having to make a bid immediately. I often say people can spend more time buying a television than the amount of time they spend inside the home they are buying, one of the biggest purchases they are ever likely to make.
Recently, we have seen an increase in buyers who have their own property to sell making offers. Normally in central London this is rare, more so in the last 15 years, as buyers have often decided to keep their property as a buy-to-let and then purchase again chain free. However, the additional stamp duty put paid to many thinking about doing so and consequently I would expect to see more of these buyers coming to the table. One benefit for buyers with something to sell when buying at a higher price is they can often make up any drop from the sale of their home by negotiating a similar % discount on the property further up the chain, making a greater saving overall.
Over the next year, after this period of transition, I forecast that we will see transactions in central London start to increase, and overtime this will spread across the rest of the UK. In the meantime, it’s reasonable to expect a lesser number of transactions nationwide whilst buyers and sellers re-educate themselves.