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UK Housing Market: Sellers Forced to Cut Asking Prices

By: Nadeem_Walayat

Since my May 2011 analysis, further research into the reasons for the differences in asking prices against valuations between areas has revealed the following possible explanations that are just as valid for most UK cities as they are for Sheffield:

Sellers

Grossly over valued properties will fail to sell, thus sellers risk chasing the market ever lower remaining just out of reach of   buyer interest. Therefore sellers need to get multiple valuations to get a more   realistic price and if their property fails to attract any interest to not delay   in cutting their asking price by a significant margin i.e. in steps of 10% so as to attract buyer   interest. Else you risk wishing you had cut earlier and thus obtained a higher   final sale price.

read full article at source here: http://www.marketoracle.co.uk/Article29357.html

Buyers

Given that the average asking price is estimated at 16% above valuations, It seriously pays for Buyers to do their own research, look at what similar previous properties actually   sold for in the area you are targeting. If a house looks fairly priced compared   against others in the area then ensure that there is not a reason why it differs   in price, which may be due to issues such as the property is leasehold instead   of freehold, or that there is an issue for instance with flooding.

  • Population Growth and Decline– Some areas of the city are witnessing falling or stagnant populations, which usually effects the mid range properties of an area rather than those at the higher or lower end, such as the East and the South of the City, which results in those seeking to sell properties over inflating asking prices as they compare general price trends across the city against their own properties expectations. The effect can be as serious as making the difference between 50% price increase over 10 years and zero increase or even a price fall.
  • Local Schools Changing Performance – House prices can be effected in both directions if the local schools improve or decline in performance over time, which may fail to register with home sellers as their children may have grown up many years ago.
  • Rivers – Up until June 2007 when Sheffield was hit with the Great Flood, many Sheffielders had never taken the issue of flooding seriously, however that no longer applies where the path of Sheffield’s many rivers has negatively impacted on house prices that are deemed to be at risk of flooding and therefore likely to incur difficulty in insuring, which effects both affluent and the poorer areas equally, where a matter of a 100 metres can effect similar houses to the difference of as much as 25% in price as well as resulting in greater supply on the market as these flood risk housing is more likely to remain on the market for far longer than properties elsewhere. The same holds true for all of the UK’s major cities that are built on canal and river water ways.
  • New Houses – New housing stock usually from the low to middle price range areas of the city are unlikely to appreciate much during the first 10 years. Which can result in over valuations by sellers as they price their houses in terms of how average properties in their area’s have appreciated.
  • Cluster of Valuations – Over valuations and realistic valuations tend to cluster by area’s because   home sellers tend to look at what price others in an area are also selling for and therefore price according to the competition.
  • Competing Estate Agents – There may be greater competition in overvalued areas between estate agents for   business therefore a tendency to give properties higher valuations so as to   secure business and shut out other agents, then a few months down the road when   properties have failed to sell ask clients to cut asking prices.
  • Crime Rates – Even a  few bad crime stories of shootings and killings can have a significant and lasting effect on buyer demand for an area as well as the longer-term trends for crimes such as burglaries.
  • Social Housing – Areas with more social housing will tend to see less appreciation in house prices, which may not be reflected in asking prices.
  • No or Negative Equity – Home owners trapped into no or negative equity properties will find it difficult to price their properties at a level that the market will bear. Those most likely to be in negative equity will have many of the contributing factors as listed above and be unwilling to accept less than their outstanding debt.
  • National Events Skewing Seller Expectations – One off national events can impact on Seller expectations such as is with the case of the Olympics in London, which has resulted in an estimated 10% inflation in asking prices even allowing for rising selling prices. The question mark is will London Sellers still be pricing in an Olympics premium after the Olympics? Meanwhile they can enjoy the boost for another year.
  • Public Sector Recession – Just as the Olympics are boosting London, so is the public sector recession as a consequence of 500,000 planned job losses to depress areas where public sector works tend to reside and that impacts harder on Northern UK cities such as Sheffield, Liverpool, Newcastle than Southern cities. Therefore Sellers in cities such as Sheffield may not be taking into account the consequents of a contracting public sector which will hit those areas of the city that rely more heavily on the public sector for employment i.e. the middle income bracket areas, hence expectations for sharply higher supply could result in a very wide margin of difference between seller expectations and what the market is prepared to pay.
  • Artificially Low Interest Rates – The current rate of inflation is 5% whilst the base interest rate is 0.5%. This results in low seller financing costs for mortgages and therefore reluctance for Sellers to market their properties in line with market demand. However sellers are playing a dangerous game as once interest rates do start to rise then they will see sharply higher debt financing costs, especially as market interest rates will move ahead of the base interest rate as well as coupled with less buyer interest as they are also similarly squeezed in terms of what they will be able to afford.

The net effect of the prevalence of over valued asking prices is for an ever increasing supply of property that will further put downward pressure on house prices especially in specific areas of cities, this is reflected in official statistics which show that 70% of properties  on the market have failed to sell this year hence sellers starting to cut asking prices.

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