11th March '08 - House prices crash - a good time to buy?
House prices in London have fallen by an average of £28,000 in the past month, as the capital sets the pace of an accelerating property downturn, according to a new survey.
The survey reveals that prices have tumbled by £20,000 a week in affluent Kensington and Chelsea, and by more than £10,000 a week in inner-city Hackney.
The Royal Institution of Chartered Surveyors (RICS) said that 22.2 per cent more of its members reported a fall rather than a rise in house prices.
It was the third consecutive negative balance from the survey, which is seen as a good signal of the direction of house prices, and the worst result since July 2005.
The sharpest falls in prices were reported in East Anglia and the West Midlands, however, London failed to see a decline.
Although RICS said that tight supply conditions were continuing to support the market, the stock of unsold property rose at its highest pace since May 2003.
Surveyor confidence in house prices has now reached its lowest level since April 2003 as demand has continued to fall, with new instructions to sell dropping for the fifth month in a row. This can be a concern for those who are relying on the equity in their property to help them with debt.
Demand has also been heavily influenced by the expectation that prices will continue to rise quickly. When the big annual rises fail to materialise, significant falls are inevitable.
Official figures show that the price of homes at completion have risen by 0.3 per cent in September 2007, taking the annual rate of inflation down to 10.8 per cent from 11.3 per cent in August. That left the average cost of a home in the UK at £220,111.
Terraced houses suffered a drop in price on average over the month, while prices for flats rose strongly and the cost of detached houses was little-changed.
The UK house price plunge is being blamed on higher borrowing costs and greater financial uncertainty.
The drop has been also accelerated by the winter seasonal slowdown, combined with first-time sellers trying to avoid the home information packs (HIPs) legislation.
However, while many sellers who have listed this month have priced below the market to try to sell, it would wrong to assume or speculate that prices will continue to fall based on one month's statistics from a quiet December.
New listings are typically very low at this time of year so the artificial wave of low-end sellers has really distorted the average prices of new properties coming on to the market.
But because inflation and wage growth is low, people's mortgage and debt is being reduced far more slowly than was the case in the 1970s and 1980s. This means that mortgage repayments will be swallowing a significant proportion of people's incomes far into the future, stopping them from selling for a profit.
Perhaps now is a good time for first-time buyers, but there is no telling when the market will ease up and any hasty purchases could lead to you actually losing money and equity. On the other hand, investors could be in for a bargain.
The author of this article is Heather Ale, who draws on extensive journalistic experience to write on specialist finance matters. She has worked across the world and is a leading writer in her field.
This article does not represent ‘financial advice’ as each person's individual requirements will be unique to their specific needs. If there is something in the article which you wish to rely on, please check those details with the person/company with whom you arrange financial services or debt management plans.
The views in this article represent those of the author and not those of Netbasic Limited.
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