November 2009 Comment
What’s in store for 2010?
Quarters 2 and 3 of 2009 saw some considerable recovery in house prices according to the main building society indices. Market supply is low, borrowing is cheap (if you can get it) and the returns from other investments are poor. The amount of house purchases made without mortgages certainly points to investor interest.
2010, then, looks set to be a year of opposing forces.
Exerting upward pressure on prices will be the following key factors:
- Equity buyers chasing limited good stock.
- Lending remains relatively cheap.
- Market is down considerably from its peak presenting buying opportunities.
- Severely diminished output of new build housing.
- Overseas investors are cashing in on the strength of their currencies relative to the £.
- There is a belief that the worst of the market fall is behind us.
- Popular locations and sought after properties remain in demand.
So, there are certainly continuing factors which could put upward pressure on house prices factors into 2010. This, however, is not the whole story. There are a number of factors which point to the recent price rises being a temporary (at least in part) bounce on the path to a much more subdued 2010 and slow recovery thereafter. These are:
- Lending, while cheap, is still difficult to access for many.
- FSA review likely to crack down on interest only loans.
- Recent price rises have been driven by activity at the upper end of the market.
- The economic climate remains fundamentally poor.
- Further job cuts in both public and private sector are a distinct possibility.
- Large overhang of unsold stock in much of the market.
- Recent price rises could see a flood of properties hitting the market in 2010 as “accidental landlords” seize the opportunity to sell.
- Return of stamp duty from £125k will hit first time buyers.
- Election years always bring uncertainty and 2010 will certainly do so.
With these factors, both positive and negative in mind, what lies in store for residential property in 2010?
On balance, I believe increased supply, re-pricing of stock and a fragile economic situation are likely to lead to some further falls in early 2010 and a fairly flat remainder of 2010.
This picture is certainly not all “doom and gloom” as 2010 will prove to be a good buying opportunity in perhaps the best “buyers market” for 10-15 years. In Edinburgh & The Lothians the shortage of good quality family homes in the right areas will continue to protect these from the worst price falls, new build flats will continue to perform worst as investors favour traditional properties in prime locations over new build, homes in sought after commuter towns and villages will attract attention if correctly priced, as many now are and country houses will continue to represent good value compared to the rest of the UK.
