Assetz® News - A little bit of realism goes a long way

A little bit of realism goes a long way

23rd June 2008 |

The latest figures on house prices from property website Rightmove.com might on first glance appear to show a continuing tale of gloom, as the average asking price has dipped 1.2 per cent from £242,500 to £239,564.

But the truth, it seems, is more subtle. For those looking to invest in property, the prices asked of them have been somewhat unrealistic, according to the site's commercial director Miles Shipside. Commenting on the figures, he said that despite recent falls in transactions new sellers had still been asking "record prices". He added: "It was a mad state of affairs that defied the laws of economics."

Now, he said, this has changed: "Thankfully, new sellers are now taking some proactive steps to price more realistically from the outset to attract increasingly hard-pressed buyers."

As Rightmove noted that there are now 15 properties per buyer, it might seem a good time to buy, particularly for those who have the cash means and are therefore not hamstrung by the restrictions on buy-to-let mortgages or other borrowing caused by the credit crunch.

One question many will ask is how long the drop in prices will go on before those investing see prices rise again. A clue may have emerged in a poll of homebuyers by another property website, Propertyfinder.com. This site revealed that 65 per cent believed the current dip in prices will be a phenomenon lasting one or two years, with 33 per cent tipping the former duration and 32 per cent the latter. Despite some of the dire predictions of huge drops in house prices, only one in five of those polled said these would exceed a 15 to 20 per cent fall, less than the 26 per cent that foresaw a correction of only five to ten per cent.

Perhaps most significantly, the expectation of the majority (53 per cent) is that prices will recover sufficiently once the market bottoms out to be back above their peak 2007 levels five years from now. Commenting on this finding, Propertyfinder.com's content editor Michael O' Flynn said it was a sensible view, given the experience of the past. He stated: "This view is borne out by historic evidence - house prices have fallen on very few occasions in the past and the market has always recovered and made good the losses."

On this basis, the arrival of a more realistic pricing situation could make now and the near future a worthwhile time for property investors who understand the long-term nature of investment, with its inevitable cycles, peaks and troughs. If we are now entering a period of realistic pricing - which could bring about the necessary adjustment required to increase the volume of sale activity - this will mean the wide availability of cheaper property. Based on the past evidence to which Mr O' Flynn referred, those investing at such prices for the long-term will in time benefit from doing so as the market bounces back.