The Start Of A Property Boom?
So why could this be the start of a property boom when much of the economy has suffered so badly in recent times?
After many years of asking, I finally relented and went camping with my mother over the weekend. My wife very sensibly declined and used looking after the dog as a convenient excuse to not come (even though dogs were allowed on this site…). So it was me, my 2 young daughters, and mother who set off to Croyde Bay in Devon (in a 70’s VW camper van for full effect!).
On one level, it was really good, as we did all the things we clever Sapiens say these days – The kids had a digital detox (as did we all as we didn’t take any tablets/gadgets and phones were used sparingly), we got in touch with nature, I even got some surfing in. Thankfully the weather was great and the kids loved it! I do get the appeal as getting out of the modern world for just a few days was really refreshing.
On another level, I now know what it is like to live in a refugee camp… So if we do this again, I think the trick will be to leave the kids with my mum enjoying nature, while Mrs. Campo and myself stay at a nice hotel up the road – win/win.
The Start Of A Property Boom?
It has been a really interesting couple of years for the property market. At the onset of the pandemic people’s concerns were major house-price falls if the pandemic hit the financial sector. But yet house prices went up 8.5% according to the ONS (Office for National Statistics) in 2020. So far in 2021 house prices are up by 10.0% on the same measure. So why such strong growth in this sector when much of the economy has suffered so badly? I believe the answer is the simplest market dynamic of all – Supply and Demand:
Housing Stock Declines 40% since January
- Propertymark (an Estate Agency backed body) has shown that each agency office has just 23 properties to sell at present, which is a 40% decrease since the start of the year.
- Nathan Emerson, Propertymark CEO, said: “Sellers have seen the headlines about the huge demand and are nervous about joining the market and selling quickly with nowhere to go. Firstly, if you are serious about buying in the current market it’s all about being in a position to proceed. Very few people can buy without selling, so having a buyer waiting gives you an edge over those you may be competing with. If you wait to find a property before putting your house on the market, the likelihood is the property will already have been sold by the time you secure an offer. It’s also important to remember that the average time being taken for a sale is around 16 weeks to exchange, that’s 4 months and the likelihood of not finding an onward property in that time is very small.”
Housing market seeing ‘untenable disconnect between supply and demand’: Knight Frank’s Tom Bill, head of UK Research:
- “The ratio of new buyers to new properties listed in the UK last month was 12.7. The figure was last higher in January 2020 (14.6), the first full month of the short-lived ‘Boris bounce’.”
- “The number of new prospective buyers was 42% higher than the five-year average, showing how much demand remains in the system. Meanwhile, the number of instructions to sell was down 28% over the same period, demonstrating how supply and demand headed in opposite directions in July.”
Lastly, e.Surv, one of the largest property surveying groups in the UK also said:
- e.surv director Richard Sexton comments: “In terms of transactions, we can see what a difference twelve months can make. In the first quarter of this year, we saw a 32% increase in transactions over the same period last year. The stamp duty holiday and the desire for more space when working from home clearly spurred many purchasers into action.
So why now are we seeing such a scramble to buy and hence a property boom? For me the answer is threefold:
Firstly, this highlights an issue I have talked about in many updates over the years – we simply haven’t built enough of the ‘right types’ of homes for nearly 30 years. Understandably, developers look to sell the most profitable homes they can, so there is a focus on larger houses and luxury flats, with the affordable home element tagged on to the very minimum of what has to be done. Anyone that has been anywhere near Nine Elms in recent years will understand what I mean by that. As private companies, they are well within their rights to do that, as that is what the rules allow. I truly believe that you won’t see this issue go away until the Government intervenes and creates its own house-building scheme in some fashion. That could be directly, or via a JV with an existing firm. If done correctly, that will be a huge job creator and go some way to resolve this issue, but the scale of the building would need to be epic to have an impact, so are this (or any Govt) so brave? I doubt we’ll see this anytime soon, hence why I think this house price run will carry on for some while.
Secondly, you are now finally starting to see a ‘normal’ level of activity for the first time since 2007. Banks are lending freely with huge amounts of cheap money sloshing around the financial system. Huge structural concerns like The Credit Crunch (2008) Brexit (2016-2020) and Covid (2020-present) are now washing out so that has created a huge amount of pent-up demand as many buyers have been hit but one, some or all of those factors. So as these issues go more into the distance, more people have the confidence and means to buy a property where they may not have been able to previously, contributing to a property boom.
Lastly – Herd mentality. As widely documented elsewhere, once one person starts to do something, everyone else follows, when the logical thing to do is the opposite. A simple example is – you should buy stocks when they are at the lower end of their valuation, but yet many people only buy when prices are on the rise, which then pushes the price higher. That is exactly what you are seeing in the property market right now.
So if you put all these factors together:
- Years of pent up demand
- Credit conditions easing
- Ultra low-interest-rate environment which won’t last forever
- Lack of stock
- God willing, no more gigantic economic shocks on the horizon (with the caveat that they always come as a shock as they are unexpected…)
You can easily see how house prices will carry on upward for some time yet and continue the property boom. London and the South East are still relatively suppressed, so there is a lot of scope for growth there which I feel will carry on for some time unless something changes on those 5 key points I have outlined above.
Therefore my take on it would be – if you can and want to buy, don’t delay, as prices may well just increase from here so you may end up paying more down the line as I can’t see house prices falling anytime soon.
If you would like more information on the likely property boom and the consequences for you, please do not hesitate to contact us.
Money markets all back on the rise again. So while the short-term view (remainder of this year) looks to be no changes from the Bank of England, certainly longer-term higher rates are expected.
Therefore, our default position stands, unless you have any specific needs, we would most likely recommend a longer-term fixed rate if you have a 25% + deposit, but keep it short term or flexible if less than that figure.
In the last week:
3 Month Sterling = flat at 0.069%
2 Year SWAP = up by 0.021% at 0.497%
5 Year SWAP = up by 0.044% to 0.713%
Bank of England Base Rate = Held at 0.10%
2 Year Variable from 0.99%
2 Year Fixed Rates from 0.83%
5 Year Fixed Rates from 0.99%
BTL Rates from 1.19%
The actual rate you will be offered will be dependent on your personal circumstance and deposit level. Please speak to one of our advisers so that they can guide you through this process
Source: Twenty7Tec August 2021
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