The residential sector is booming at the moment, with prices rising and gazumping back in vogue. The bulls have charged to the foreground and are forecasting the good times to prevail for some time to come.
Market sentiment has certainly caught most people by surprise. It was expected that the market would slow dramatically over the summer months due to COVID-19 and there are a lot of red faces amongst the analysts and commentators.
As for prices rising, Nationwide has reported that they rose by 2% in August and Zoopla advised that the number of sales that month was 76% above their five-year average.
The last major falls in property prices were in 1989 and 2007, and the market at those times was a bubble waiting to burst. This time, things are different with reasonable interest rates and prices, whilst relatively high to income, are not unaffordable for most people.
The lockdown has created a situation where, if you are not furloughed or directly impacted financially, your financial ability to buy a home is not greatly impaired.
Nevertheless, viewing restrictions and the inability to relocate has limited the number of properties being listed for sale. As you might expect, the number of investors looking for buy-to-let opportunities hasn’t diminished so the basic laws of supply and demand kick in; limited supply of properties and increased demand resulting in rising prices.
With interest rates relatively low, there are few forced sales at this time and those selling and afford to inflate their asking price and see who is prepared to pay it. To date, it is evident that lots of people are prepared to pay what it takes to get the property of their choice.
Going forward, as the current economic malaise deepens there may before more forced sales that result in more supply coming on the market. However, whether this will cause prices to fall remains to be seen as interest rates will remain low and banks are under no undue pressure to strengthen their balance sheets by prematurely calling in loans (which happened in 2007).
So in summary, the bulls can expect the market to run a lot longer and the bears (there are always bears around, good and bad times) can’t believe what they are seeing.
Stagnation, rising or falling prices – the jury is out over what will happen over the short to medium term. However, that has always been the case with the property market as it will of its own and unfortunately does not always comply with what the ‘experts’ think or want.
A common view is that the current boom will peter out and there is likely to be a period of stagnation before the market decides which way it wants to head. Longer-term, the market will continue to perform well as the ongoing housing shortage creates more demand than supply.
The good news for investors is that rental demand is likely to remain strong, especially at the lower end of the market as people downsize and seek cheaper accommodation. There is always a silver lining…