The State Of The Property Market

property market

Back in Spring 2020 property investors were wringing their hands and predicting a huge dive in property values – did it happen?  No.  Instead the stamp duty holiday and people working from home gave the property market a shot in the arm and it rapidly became a rampant sellers’ market.

Most of the people buying were looking for a main residence, rather than a property investment to let, so many buyers were prepared to pay more for a nice home with room to have a home office, so offers above the asking price were commonplace.  Landlords were outbid as they tend to have a more practical approach to property prices.

However, the property market oscillates and after the aggressive sellers’ market, will come a buyers’ market.  We’re on the cusp of this and already Zoopla is reporting searches are down by 33%.  That’s not quite falling off a cliff, but it’s a really steep decline.

Up until recently estate agents had been so busy running from viewing to viewing and processing offers that they hardly had time to follow up ‘interested parties’, who had not yet made up their minds.  Now they’re picking up the phone and getting in touch with people who had expressed interest in a property, but have not yet made a decision.  That means they’re feeling the pinch too.

The influencing factors

What’s caused the switch in the market?

It wasn’t just Brexit.

It wasn’t a large proportion of employees returning to the work environment

It wasn’t Russia invading Ukraine.

It’s a combination of all of these that has led to a rapid rise in inflation.  Reduced capacity for manufacturing has squeezed the economy (due to Covid), followed by the increase in energy prices due to supply and now your average house buyer has drawn in their horns, as they’re less sure of their ability to afford a bigger mortgage as interest rates are rapidly rising.

According to the press, property prices are heading for a drop and nobody wants to buy a property only to find themselves in a negative equity situation.

More people will be keen to sell their property to get it off their hands before prices drop and it’s worth less.

How does this affect the property investor?

At various events I run property investors are anxious about the rising interest rates.  They’re looking at interest rates that have gone from 2% to 6% and see their profits being rapidly eroded.

As people’s income isn’t keeping pace with inflation, increasing rent by a similar amount isn’t practical, many tenants simply can’t afford to pay any more.  Investors are increasingly asking me “How can I continue to make a living in this environment?”

For properties you already own the answer probably isn’t what you’d like to hear – it’s simply to tighten your belt and ride it out.  The interest rates will come down again – but it might take a year or two.

Back in the 1980s interest rates were running at 11-12% for quite a considerable time, topping out at 15%, but they came down – as they always have.

However, if you’re looking at new property purchases there is a better solution – buy properties at lower prices and regain your margin that way.  Lower mortgages and lower repayments.  It does mean you need to be both smart about resourcing potential property purchases and also aggressive in negotiation.

My prediction is that 2023 is going to be challenging, but as we approach 2025 things will be getting back to normal. As Warren Buffet said:

Be fearful when others are greedy and greedy when others are fearful. 

Here is a video on my YouTube Channel discussing this topic.

State of The Property Market 2022

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