The Market For Homes An Alternative View
Never has the "House Market" been more in the news than it is now. But so far all the articles I have seen are about houses as a financial investment and whether prices will go up or down. Generally the slant on these articles seems to be it is bad news for prices to go down and good news for them to go up. Certainly there are many in the market to make money one way or another but perhaps many commentators miss the fact that this is a market mostly for homes for families and individuals. This is not a straightforward commodity market. It therefore seems to me that most buyers want a suitable home first and foremost with the secondary hope that it might appreciate in value somewhat over their lifetimes. Long term social trends in this country with smaller, different and more regularly changing family units would tend to suggest a move over time towards more households. Similarly increasing longevity and immigration would seem logically to add through time to housing need. So my feeling is that subject to fluctuations here and there the probable long view is that houses should appreciate in value.
If that is right buyers and sellers alike should not lose confidence in the market but respond sensibly to what seems to be happening in the short term. Currently in the short term the house market looks to be becoming a little smaller with fewer transactions taking place - and to have changed from the rampant sellers market of the last few years to a buyers one - where what pressure there is on prices is downwards.
In this scenario if you start looking at the market from the "home" perspective things look a bit different and more encouraging than perhaps most current commentators are saying. For example newcomers to the market will gain should prices fall. Again if someone owns a property and wants a bigger one - things get better if prices drop. Say prices drop 5% and your were intending selling at say £150 k and buying at about £250k your sale price drops by £7500 but your purchase price drops by £12500 - so you gain - and the higher up the scale you are the more you gain. Usually people trading up are doing so to accommodate the arrival of new member of the family - they are not moving just to make money. Losers in a market where prices are falling would be people trading down - but these tend to be older people who have been in their house a long time and whose mortgages are paid off. So the loss here is generally a paper one anyway as opposed to an actual loss of cash.
Possibly the only real losers may be those who buy with a large mortgage and have to move or sell at a time outwith their control when prices are falling. They may have just bought - then lost their job or have to move job forcing them to sell. This group would suffer on a price fall - but how many homeowners come into this category - probably not very many.
My feeling is that long term prospects remain good in this market, but care must be taken because of the short term buyers market we are in. The short term difficulties are causing delayed sales and creating English like chains where deals are not finalised till the last minute. For sellers that mean selling before you buy and even being prepared to take temporary accommodation before completing your purchase. It also means being patient in the sales process and completely sensible on prices. For buyers it means not paying too much now and also not buying in the hope that a quick sale on can deliver a profit in no time - that will not happen. It means leaving a little spare in the budget to cope with mortgage costs maybe rising. Finally It also means being prepared to see your new property as first a suitable home for you and your family now and only over time a financial investment.
D H Borrowman, Managing Partner, Caesar and Howie.
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