The big property question that remains unanswered ....

[Vanessa]

The big property question that remains unanswered ....Anyone interested in the property market, be it through work or investment, are waiting for the signs of “Green Shoots” - the term used to describe a recovery. Yet despite there being a serious economic and property recession, the experts are divided as to when the market will bottom out.

Figures issued by building societies are not helping either. Last month one major firm declared that prices gone up, while another claimed that they had fallen. How can anyone make an informed decision on that?!

The founder of Easy Jet, Sir Stelios Haji-Ioannou is interested in investing in UK property once more, as he feels that the time is now right.

Sir Stelios said: “I am tempted to call the bottom of the property market in London. I don’t own any property in the UK at the moment but now I am looking again at London real estate.”

For overseas investors, the UK market could be looking very attractive at the moment and indeed, if there were enough foreign investors, this could help the property market provided that there are not any surprises coming around the corner to upset the market.

Peter Mackie, the chief executive of PropertyVision, said, “There has been a visible and positive change in sentiment in the prime residential property market, with buyers cherry picking the ‘best of class’. The international buyer is focused on the truly international market, whether it is St James’s, Mayfair, Belgravia or Knightsbridge.

“This had led to a severe restriction of supply, as vendors hold off selling their prime assets at what they perceive to be the nadir of the market.”

The problem is that market in London cannot be used a gauge for the state of the property in the UK, this market is so different to the rest of the country.

Fionnuala Earley, the chief economist of the Nationwide, said: “There is a danger that people who are keen to see the light at the end of the tunnel attach too much importance to one month’s figures.”

The other factor that makes the UK property market interesting to foreign buyers is the low interest rates. An astute investor could get a good deal if they believed that the market had touched the bottom, if prices fall by another ten per cent and interest rates begin to rise a buyer could find themselves in trouble.

Simon Rubinsohn, the chief economist of the Royal Institution of Chartered Surveyors (RICS), said: “Most house price indices suggest that prices have fallen by up to 20pc from their peak. However, many of our members [surveyors and estate agents] calculate independently that the scale of price falls has been even greater – 30pc or more already. We aren’t at the bottom by any stretch.”

With the threat of massive unemployment and rising repossessions, I believe there's still more pain to come.

What do you think of the state of U.K. residential property? Have we reached the bottom yet or are there further falls on the horizon?

[REI]

Everyone wants to discuss the market and trends as if that matters to an investor. A savvy investor knows that they do deals one at a time and they can find good deals in rising and in falling markets. Hence the investor cares about the market direction so they know what the other side is thinking.

The bottom line is determined by the quality of the deals you do and not based on the market direction. There is almost no way to buy 'the market'. You can not easily buy an index or take a view on the market overall. You can do a great deal for a specific property with a specific seller or buyer. That is how real property investors make their money.

John Corey
www.ChelseaPrivateEquity.com/blog

[Vanessa]

You are a man after my own heart on that front John! As you know, Nick and I have always focussed and endorsed cash flow over house prices - every time.

I just think it is an interesting discussion point, based on the fact that the Property Investor News meeting focussed heavily on that there was more pain to come.

At the very least, we need to be aware that we are not going to get any equity release opportunities for a very long time, and factor that into our strategy IF that was ever part of our strategy in the first place.

[Daniel Gladstone]

There is an interesting analysis of the current recessions titled The Banking Crisis - Where are we now?. It is by Peter McGahan, Managing Director of Worldwide FInancial Planning Ltd, and it compares the current recession to previous banking crises, rather than previous recesssions.

It makes for a good read and has some interesting perspectives on asset prices, including property.

Hope you enjoy.

Dan Gladstone
Independent Mortgage Broker

[Louise Goldstein]

I don't think prices are rock bottom yet accross the UK but they may be in London. As you rightly state London is not like the rest of the UK. Investors are looking to pick up a bargain which may mean that the market begins to lift again here before it does accross the country.
Below Market Value Property

[Adrian Standing]

Over the last 18 months, we've seen a steep fall in price for most asset types (property, cars, stocks & shares etc) The media tends to focus on the negative news at the moment but talking to various people in the market, opinion varies wildly.

My local estate agent is selling 3 or 4 houses a week compared to 6 or 7 in 2007 and viewings are up considerably. Major house builders are reporting similar trends - first time buyers emerging, investors looking for deals, foreign buyers seeing value in the UK market

I didn't see it reported in the press recently but used car values went UP last month due to high demand and lack of supply.

But back to property. I think we are bouncing along the bottom probably for the next 6 months or so. If mortgage availability improves and low interest rates continue, I think we could see a gentle improvement in prices in 2010 provided the banks don't panic and repossess lots of property

Adrian

[Wasim]

Adrian Standing said:

Over the last 18 months, we've seen a steep fall in price for most asset types (property, cars, stocks & shares etc) The media tends to focus on the negative news at the moment but talking to various people in the market, opinion varies wildly.

My local estate agent is selling 3 or 4 houses a week compared to 6 or 7 in 2007 and viewings are up considerably. Major house builders are reporting similar trends - first time buyers emerging, investors looking for deals, foreign buyers seeing value in the UK market

I didn't see it reported in the press recently but used car values went UP last month due to high demand and lack of supply.

But back to property. I think we are bouncing along the bottom probably for the next 6 months or so. If mortgage availability improves and low interest rates continue, I think we could see a gentle improvement in prices in 2010 provided the banks don't panic and repossess lots of property

Adrian

Talking about Car Prices, Ford and VW will be putting their prices up soon according to Sky News.

I was talking to a couple of EAs over the past week and one of them said that they were actually busier with viewiings and the other claimed that they actually sold 13 props last month, he didnt say what this had risen from....needless to say i will be tapping him up for mortgages lol.

Regards

Wasim

[Vanessa]

Buyers start to venture back into the property market
From Times Money 09.04.09

No one is saying that the bottom of the market has been reached, but new-buyer inquiries are at their highest level since 2006.

For homebuyers, the emergence of daffodils, longer hours of sunshine and Easter mean one thing: it is time to get viewing. The downturn has not stopped people window-shopping. On the contrary, new-buyer inquiries in February rose to their highest level since August 2006, according to the Royal Institution for Chartered Surveyors. March figures are expected to show another rise. This enthusiasm has yet to translate into a rise in sales — mortgage lenders have yet to water those “green shoots”, although HSBC’s decision to offer better rates to some customers who have a deposit of only 10 per cent may foreshadow a future rise in sales, particularly to first-time buyers.

Are we at the bottom of the market?

No, although some commentators believe that certain properties have now reached their floor and that average house prices are not far off. Most estimates agree that prices have fallen by about 20 per cent from their peak. Commentators believe that another 5 to 10 per cent drop is realistic. But as Rupert Sweeting, head of Knight Frank’s country house division, says: “No one rings a bell when you reach the bottom.”

Nationwide reported a 0.9 per cent rise in prices in March, a statistic regarded as a blip, especially as Halifax recorded a 1.9 per cent fall for the same month. But it was a blip that may herald an end to the dramatic monthly price falls to which we had grown accustomed and reflects the increased demand for property. “Most of the major house-price surveys have begun to pick up a slight increase in house prices,” says Peter Bolton-King, chief executive of the National Association of Estate Agents. “We have also seen a return of first-time buyers. Most importantly we have seen that the demand for property has held. Rather than having lost faith in property, potential buyers are eagerly looking out for a bargain.”

So, is now a good time to buy?

If you have enough cash to obtain a best-buy mortgage or to buy outright, these indicators may be enough to inspire you to go ahead now, particularly if you are a first-time buyer who has been waiting for price falls. However, if you do not have a big deposit, it is better to wait than take out a mortgage with a high interest rate. Also, prices are expected to “bump around the bottom” for the next couple of years, according to Savills.

There is still room to manoeuvre on price if the seller has not dropped the asking price sufficiently. Bargaining power is still with buyers, although this may change, agents say, when the consensus is that the bottom has been reached.

Who is buying now?

Buyers of prime property may face stiff competition from foreign buyers, who are out in force. Chesterton Humberts made nine top-end sales in Kensington in March — all were to foreigners. David Adams, of Chesterton Humberts, says: “Before calling the bottom I would prefer to see lending improve to a sustainable level to an extent that British residents with reasonable jobs and equity are able to trade homes again.”

Homeowners who need to trade up for lifestyle reasons are inclined to carry on regardless. One of the reasons that spring is the traditional buying season is because families need to move closer to schools in time for the next school year. “Owners have to be in by August or September, and for this, they need to be looking now,” Sweeting says.

Those with lots of capital sitting in savings accounts are also scouting about. “Capital left in the banks is actually being eroded,” Sweeting says, “whereas property is a tangible long-term asset”. First-time buyers are among those most keen to view properties but are not so likely to follow through with an offer.

I want to sell. How hard is it now?

Sellers in a falling market tend to be motivated by one of the three Ds: death, divorce or debt. However, if your price is right, there should be no shortage of buyers. Agents say that properties priced 25 per cent below their peak are shifting — consistent with the extent to which average prices have already dropped and are predicted to fall.

Agents warn sellers not to take expectations that the market may be at or close to the bottom as a sign that they can start upping their asking price. David Smith, a senior partner at Dreweatt Neate, says: “Increasing your asking price simply on the back of one set of data would be extremely misguided. The state of the economy, rising unemployment and very weak consumer confidence mean asking prices won’t be rising for some time.”

For sellers worried about the social ignominy of a For Sale board going up in a downturn, off-market is the preferred option. Ask your agent about how to sell privately.

Is the availability of mortgages improving?

Not for those who have deposits worth less than 25 per cent of the property, unless you are a financially stable high-net worth borrower, in which case you can expect preferential terms from some banks on loans worth up to £2 million.

HSBC’s new 4.99 per cent on loans worth up to 90 per cent is competitive but is reserved for its Premier and Plus current account holders. Melanie Bien, director of the mortgage broker Savills Private Finance, says: “If you need a higher LTV (loan-to-value), it is still a struggle. Lenders are also quick to reject applications for what appear to be the softest of reasons, underlining their reluctance.”

Those with big deposits and clean credit histories need not feel so unloved, she says. “There is no issue if you have a significant deposit and clean credit history. The best deals are for those with 40 per cent to put down. But some lenders, such as RBS and First Direct, have reduced rates for those with a 25 per cent deposit.”

What deal should I take?

Brokers are currently recommending longer-term fixes. As Bien says: “There is a strong possibility that if you opt for a two-year deal, you will be coming to the end just as interest rates are rising.”

[Kevin Wright]

On a lighter note prompted by Vanessa's original comment....

someone once said beware that the light at the end of the tunnel is not the headlight of the train fast approaching!!

[Vanessa]

Interesting article from BBC News via Twitter.

Home values 'down 28% from peak'

Calling the bottom of the housing market is "premature" the CEBR says.

UK property prices will have fallen by 28% from their peak before the market downturn ends, the Centre for Economics and Business Research (CEBR) has said.

The economists' group predicted prices would reach their trough early next year, but said there was little chance of real price growth until 2013.

Prices peaked in the third quarter of 2007 and have slid sharply since then.

Average prices would rise to £170,000 by the end of 2013, from a predicted £144,000 at the end of 2009, it said.

'Premature'

The CEBR added that improved conditions in the housing market suggested that property prices only had about a further 8% left to fall.

But it warned that a "sluggish recovery" in the real economy meant prices would only rise by 6% during 2010 and 2011.

It predicted the average cost of a home would rise by only 3.1% between the final three months of 2009 and the final quarter of 2010, with a further 2.5% increase the following year.

The gloomy forecast came despite an anticipated increase in mortgage approvals, and improvement in credit conditions.

Worsening conditions in the labour market and the wider economy seem likely to counter-balance historically low interest rates and slowly improving credit conditions

Also released last week, figures from the Nationwide suggested house prices in the UK fell by 0.4% in April, reversing some of the rise seen in March.

The building society's figures suggest that the pace of decline in house prices slowed, but the typical home still cost 15% less than a year ago.

However calling the bottom of the market was "slightly premature" said the one of the CEBR report's authors, Benjamin Williamson.

"Worsening conditions in the labour market and the wider economy seem likely to counter-balance historically low interest rates and slowly improving credit conditions," he added.

And managing economist at the CEBR, Ben Read, added that house prices were "likely to remain in the doldrums for some time as what is likely to be a slow recovery in the real economy translates into weak wage growth and stubbornly high unemployment - factors that will put a fairly heavy lid on house price inflation."

The downturn in the building of new houses over the past 18 months could lead to "significant" undersupply in the medium term, he added, which may trigger stronger growth in house prices towards 2012 or 2013.

[REI]

I wonder why anyone calls a rise of ~3% a year for 2 years gloomy. If inflation is lower than 3% it would mean that property is providing a real return. Even if inflation was higher 3% a year is not a bad thing.

Granted the context of growth rates of 10% to 20% a year makes a 3% gain seem tiny. If someone is getting 3% a year and they are leveraged 4 to 1 (25% down) then the cash on cash return looks pretty good given the 3% increase in the market.

John Corey
www.ChelseaPrivateEquity.com/blog

[Roberta Ward]

"green shoots" is going to be one of the next most annoying property sayings of the year I think, along with 'credit crunch" and ' bottoming out' of the market. aaarrgghhh!
Im bored with it already. The media drive you nuts latching on to the latest thing.
John is right, whilst its interesting to know what people are being told what to think, its better to think for yourself. Trends are the only thing of real importance ( and cash flow of course!)

Roberta

web:http://www.mypropertymentor.co.uk
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Twitter: http://twitter.com/RobertaWard
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REI said:

I wonder why anyone calls a rise of ~3% a year for 2 years gloomy. If inflation is lower than 3% it would mean that property is providing a real return. Even if inflation was higher 3% a year is not a bad thing.

Granted the context of growth rates of 10% to 20% a year makes a 3% gain seem tiny. If someone is getting 3% a year and they are leveraged 4 to 1 (25% down) then the cash on cash return looks pretty good given the 3% increase in the market.

John Corey
www.ChelseaPrivateEquity.com/blog

[Vanessa]

Some more "green shoots" for you Roberta! Yes, I agree it is an annoying and over-used phrase ....

From theguardian.co.uk via @zoopla on Twitter.

In Millionaire's Row, estate agends scent first signs of life in th...

You would think that property developer John Wischhusen might be feeling just a little bit nervous as he gives a guided tour of his pride and joy in Poole.

After all, he invested many hundreds of thousands of pounds building a super-cool single storey house – bungalow gives the wrong impression – just at a time when the housing market plunged into freefall.

But Wischhusen is confident that someone, a footballer, an actor, a Russian billionaire, is about to fall in love with his house, even though it will set them back an eye-watering £3.5m or thereabouts.

"I feel we are going to get a sale very soon. The market has begun to move and this is the sort of place someone will fall in love with. You can't say who. We've had young people look at it, we've had more elderly people. You can't stereotype. It will go at around that price."

Earlier this year stories emerged that even here in the über-wealthy Dorset neighbourhood of Sandbanks the credit crunch had hit. There were tales of houses and flats being repossessed and tycoons fleeing. It is true that some homes were repossessed and one or two local developers found themselves, relatively speaking, on their uppers. But a trip to Sandbanks now tells a different story.

New figures yesterday suggested the end may be in sight for the housing market downturn nationally, but analysts at the Centre for Economics and Business Research said there would be little price growth until 2013 and property prices may have a further 8% to fall.

In Sandbanks, it seems the market is beginning to move significantly. Estate agents Tailor Made is "ridiculously busy". Adrian Dunford, a partner, said: "It's true that 2008 was a washout but it suddenly became busy again in December."

It does not appear to be estate agent bluster. While the Guardian was in the Tailor Made office, phones were constantly ringing with calls from potential buyers.

Dunford believes that the super-rich did pause last year to see just how bad the recession was going to be but are jumping back into property now. He also believes that at the lower end, which here means half a million plus, people with cash in the bank are deciding to invest in holiday homes and lets, partly because the interest is so poor if their cash sits in a bank.

Where the market does remain "soft", according to Dunford, is the mid-market – £1m to £2.5m – the sort of homes bought with a mortgage. Those people are still finding it difficult to get a mortgage or are unwilling to take on a big one because they are worried about their jobs.

Of course, even here there remain credit crunch victims. Phil Anders admits having to sell his fabulous house designed by architects Huf Haus – black walnut floors, views of a nature reserve, cinema room, wine cellar – after his cafe chain took a hit and he needed to free up some money.

"We love this house but need to sell it. There are only two of us here now so it's too big as well." The house was on the market for just under £4m but has been cut to £3,595,000 for a quick sale.

Dunford's brother, Robert, shows the Guardian around other "super-houses" as they are known in these parts. (They usually weed out time-wasters by seeing if they ask about underfloor heating in the garage: genuine buyers need to make sure their vintage cars will be kept cosy).

This one is yours for a mere £3,250,000. With its glass stairs and Mediterranean-style terraces, it is considered to be a bit more "waggish" than the Huf Haus. The Russian pop star Valeriya, who has sold more than 100m albums, has looked around and may make an offer.

On the tip of Sandbanks, looking out to Brownsea Island, builders are finishing a Russian billionaire's holiday pad. He bought the plot and house for £5m, had the old place knocked down and is spending another £5m on a new house. "I've met him a couple of times," said neighbour, Paul Lang, "He seems a nice chap. I think he's something in oil and gas."

Lang, who made his money out of publishing, bought his house for £4.1m three years ago. He has got it on the market again for around £6m. For that you also have planning permission to knock it down and, like the Russian next door, oversee the building of a new glistening three-storey glass-fronted super-house with enough room for a helipad. Lang is confident he will sell quickly. "This is a unique spot. It's recession-proof."

Robert Dunford is confident that Sandbanks is not just an isolated case – that homes in other areas will begin to shift. "I like to think as the confidence grows it will filter through to the rest of the country. I think the starter end of the market will also move because the interest rates are so low. I think people should be optimistic."