Homes – Are the economic foundations starting to crack?

02 Nov, 2017

 

Do you remember the days just after the European referendum? Papers were filled with commentary debating the future economic and social direction of the UK. Was the economy walking over a cliff? The terms ‘hard’ and ‘soft’ Brexit entered the dictionary shortly afterwards. I remember the general theme of many property commentators was the famous British ‘carry on regardless’ kind of message.  And perhaps a wave of optimism was the right response when the future looked so uncertain. Sat in our homes eighteen months later and we now have some real life experience of unfurling world events, UK economics and even some property trends, so where does that leave us?

 

The one totally consistent (if bumpy) effect has been the devaluation of sterling. Whilst every day tells a new story, the pound is around 11% and 14% lower against the US Dollar and Euro respectively.  So, there have been the predictable effects of these changes that we’ve all noticed (our glass of wine abroad is more expensive, our new smartphone is up in price), and a few slightly more surprising and subtle effects.  The anticipated sell down of share markets really didn’t happen except for a few hours after the vote. In fact, it was good news for all our pension funds that tend to invest in FTSE shares that earn profits overseas as the FTSE galloped ahead. The ‘Trump bump’ kept markets fairly calm across the world as analysts waited for a new era of infrastructure investment and lower Corporate taxation.

 

Moving on to what we can see these days. firstly, we have seen the reappearance of inflation after many years of being subdued.  Our Consumer Prices Index (CPI) reached 3% in September as the weaker pound eventually filtered through to more expensive imports. At the same time, wage growth at 2.1% is no longer keeping pace with inflation meaning that households are being squeezed.  The reasons that wages are not growing in an era of record low unemployment are somewhat above my amateur economics, but people talk about low productivity, the ‘gig’ economy and even the uncertain global environment. Finally, in a tightly packed European field, the British economy has moved from leader to laggard. The rate of GDP growth stayed sluggish at 0.4% in the third quarter of 2017 as all the above factors and plenty of uncertainty eventually took its toll. The economy is slowing, inflation is high and wages are suppressed. It seems today that there is an equal balance between commentators who see storm clouds gathering as those that see sunny days ahead.

 

If we translate these effects into the property market, we can see some trends emerging clearly. Prices kept moving forward in the months after Brexit as buyers continued to chase limited availability of homes to buy.  However, just like a runner that starts a marathon too quickly, things have got harder and harder as time has gone on.  In fact, prices have gone into reverse in London, where perhaps salary multiples are most stretched and Brexit uncertainty weighs most heavily. Sale volumes are down between a quarter and a third as sellers retreat back into their homes and buyers worry about household finances and the costs of servicing debt. Interest rates seemed to have been glued at 0.5% forever, a reduction down to 0.25% last year following the referendum and now back up to 0.5% will see a fifth of mortgagors experience their first rate increase.

 

A sluggish economy will lead to a property market that trades sideways on price with transaction volumes well down as the sheer shortage of homes remains one of society’s biggest issues. I think the chance of a material price drop is real but remote, the scarcity of good property probably provides a natural floor to prices but prepare for stagnant times ahead.Recent announcements to extend the scale and pace of building are welcome, but really are just a start. So what should buyers and sellers do in today’s market?

 

For sellers, it’s back to property basics. Immaculate property presentation, pro active estate agency, great photography and what Savills have termed ‘precision’ pricing.  Anyone trying to sell their property at what we shall euphemistically call a speculative price, can look forward to admiring their ‘For Sale’ sign for many months and a steady diet of price reductions. Sellers looking for real discipline in the process could employ a property consultant to set strategy and overview the process.

As for buyers, well you’ll still be a very popular person in the market, but can you find that dream home? Persistency and determination will be the order of the day and a buying agent, often referred to as a property finder, could be your secret weapon.  Good luck to all parties!

 

If you’re buying or selling and would like your own property consultant to oversee and manage the process to give you the edge,  please feel free to get in touch for a friendly no obligation chat on 01423 788759 or e mail shereefoy@sourceharrogate.co.uk.

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