Property Market Update May 2014

After the Easter holiday, May has been a month punctuated by various bank holidays, local holidays and public sector holidays, seriously affecting the ability to settle house sales or arrange mortgage finance or find property buyers who weren’t away to the coast for the weekend.  In spite of this, the property market continues to build apace and reports in the Press about the property market in the past month have varied somewhere between celebratory and apocalyptic. So is the housing market hurtling towards the edge of another steep cliff or are reports of impending property armageddon coming from a London-obsessed Press who can’t see beyond the boundaries of the Home Counties? And what are we seeing happening on the ground in your area? Read on to find out!

Are we heading for a disastrous property bubble?

There have been a number of articles in the press this month regarding the possibility of a housing bubble. Talk centres around house price growth now being in double digits. Mark Carney, Governor of the Bank of England,  has gone on record to say that a housing boom represents the biggest risk to Britains economic recovery – So is this a danger for us in Scotland? Well, yes and no.

In reality, double digit house price growth may be something that is being experienced in the London market but in Scotland, as a whole, the price rise in the last year actually stands at 0.8%. So talk of a bubble is very much a London-centric issue. Nevertheless, the Scotsman reports that average house prices in Scotland are approaching the peak levels seen before the recession.

According to a report by property group LSL, the average house price is just 2.4% below the level seen in April 2008. This is of course is good news but it is important to remember when dealing with these averages that property remains a local concern with big regional variations. Drilling-down to different areas shows a more varied picture. For example, in Midlothian prices have actually dropped 10.8% annually but in Edinburgh the average house price rose by 1% annually.

The danger for us, in Scotland, is that interest rates might be adjusted to counter run-away house prices in the south of England where, with prices rising by 1% in Scotland, there isn’t the same need.

Is there a chance that interest rates may rise earlier than anticipated?

According to a report released in May by the HomeOwners Alliance, 34% of homeowners are worried about an interest rate rise:

Previously the Bank of England had talked of leaving interest rates at the current 0.5% until at least summer 2015. However, the Financial Times reported this month that the Bank of England may be closer to an earlier-than-expected increase, on the back of data that the economic recovery is gathering strength.

Although an earlier than previously planned rate may be a possibility, the members unanimously voted to keep rates on hold and it is likely that it would take some time for any change in opinion and votes to gather pace. Mark Carney, the Governor of the Bank of England, has also indicated that the Bank is unlikely to use interest rate rises as a means to control the housing market.  Instead, an articles on the BBC website covers ten possible ways that the housing market can be cooled in the event that this is needed:

There have been indications that it would be more likely that the Help to Buy scheme could be limited or changed. I have already commented on the fact that I didn’t think that the Help to Buy scheme was necessary, that it seemed perhaps to help the wrong people and that it was more likely to cause an unsustainable bubble when the market was already starting to recover to some semblance of good health all by itself, so there is no need to go back into that!

ESPC quarterly figures show continued positive trends in Edinburgh and the Lothians

The latest report by the Edinburgh Solicitors Property Centre (ESPC) report shows a number of positive trends including growth in the number of homes coming onto the market compared to the same time last year, a 39% rise in the number of homes sold annually and also a rise in the average house price. Within Edinburgh, over half of homes sold are now achieving home report valuation which is a significant rise on last year.

What are we seeing happening in the local market?

We’ve long been mentioning a lack of supply to the market, with property sellers either not having the confidence or desire to sell their properties in the same quantities as property buyers are snapping them up.

The last couple of months have been a bit of a reversal of that trend, but it’s hard to know whether the fact that the number of new properties coming to the market (listings) is outstripping the number of property sales is down to the fact that a growing proportion of people are wanting to put their property on the market or whether the lack of available stock is hurting our ability to sell properties.

In context, our number of sales for May, is already equivalent to 40% of the total number of properties that we have available for sale. At this rate, we would run-out of properties to sell in just over two months.

Of course, property prices in most parts of Scotland are still not at the level that we saw at the peak of the market in 2007 and 2008. It is entirely possible that, whilst buyers may be in a good position compared to 2008, with increasingly affordable mortgages available, some sellers are not so fortunate and are sitting in negative equity, unable or unwilling to move.

I would suggest that we are still seeing a serious lack of supply and that, at some point, property sellers will realise that the market is healthy, that it’s a good time to be selling and that they will start returning to the market in higher numbers. In the meantime though, it is most likely a lack of new properties coming to the market that will be driving prices upwards, incredibly sharply in some hotly-contested geographic areas and house type sectors (particularly family homes in decent school catchment areas) rather than any other underlying factors.

If last year is anything to go by, the market will actually pick-up rather than slow-down as we come into summer, bucking the trends that we have seen in years gone by, so there is still time for sellers to realise that now is the best time there has been in several years to sell their current properties and move home. We will of course report next month on whether we are seeing this happening or whether there is still some room for improvement here!

Meantime, we hope that you have a wonderful June and that, if you enjoy a bit of football, you enjoy the World Cup…our money is on Argentina, for what it’s worth…you heard it here first!


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