Date Published 13 May 2008
House sellers have finally recognised that a decade of rising prices has come to an end. With average asking prices rising below the level of wage inflation and Bank of England interest rates of 5% compared to 5.75% a year ago, buyers with cash or reasonable deposits are now able to get more home for their money. On average across the country the length of time a property stays on the market has risen as well, from 82 days to 85 days over the last month, by far the highest measured for this time of year. Sellers will thus need to set their initial competing price competitively, and also be prepared to negotiate. First time buyer affordability has been boosted by property prices falling over the last month. The change in seller behavior indicates a speedier market recovery could be feasible with coordinated action by all relevant stakeholders, including the Government, the Bank of England, lenders, sellers and agents to improve buyer affordability by reacting more quickly to the new market conditions.
With Bexley's annual asking price growth down to 1.1%, and average earnings growing at 3.7%, buyers with their financing in place will find that their purchasing power has now improved over the last 12 months. This ongoing improvement in buyer affordability is key to market recovery. Buyers who have saved through the winter and are now emerging to enter the spring market will find there are deals to be had. It's a buyers' market, but only if that buyer is buying for cash or can put down a good deposit.
It could be a good time to trade up in the market. Likewise, sellers would be smart to look for buyers with a short chain, as there is more chance of longer chains falling apart with mortgages more difficult to obtain. To reiterate without the driver of rising unemployment and significant levels of forced sales, the most likely outcome is market stagnation with depressed sales volumes as opposed to substantial price falls. Neither a crash nor the current stagnation is a palatable or politically acceptable outcome. Unless the anticipated steps to be taken by the Bank of England are effective, potential buyers will be impotent to the seduction of lower asking prices, unless they are cash-rich. While this month's reduction in interest rates by the Bank of England was welcomed, its limited influence on potential buyers' mortgage rates shows that on its own, it is not enough. Rather than talking or finger-pointing, immediate action is needed to improve mortgage liquidity and enable lenders to raise funds. Re-opening the money markets so that the interbank lending rate falls closer in line with base rates would give a further, and much needed, boost to affordability and sentiment.
In spite of challenging market conditions, sales have not ground to a halt, and deals are still being done. The market therefore has the potential to recover confidence if the right conditions are put in place. The slowdown is a natural market reaction to prices that we knew were overheated, though it has been magnified with the added major complication of the credit crunch.