March 2011

Never before have the sectors of the market behaved so differently. The disconnection between mass market and non mass market is almost complete and this black and white theme is accentuated by the huge gulf between ordinary and best of type.

This Spring, the polarization, that became obvious last year, is still the market’s main feature but is never referred to in the statistics that make the headlines. Leader writers like “prices up” or “prices down”, nothing more intricate really does it for a national headline which is so influential on the public mood. Sentiment is therefore quite negative at the moment but there is a market that is well worth engaging with.

A very modest number of good properties are now launching into this subdued market. Towards the end of last year the balance between supply and demand had swung in favour of the buyer, however now that most of the “best of type properties” that are correctly priced have sold, there is a shortage of these. So whilst there is now greater general choice and some softening of vendors expectations, “best of type” is hard to find at sensible prices.

This time last year I predicted that the new stock arriving on the market in the Spring and Summer would not turn into the avalanche that some expected. As it turned out the quantity of new arrivals were modest and with the quick absorbtion during last autumn of virtually all the new “best of type” stock that was correctly priced, vendors and agents of this type of stock remain bullish and prices firm. Prices for everything else remain very soft. With large discrepancies on pricing appearing there is some confusion amongst the public as to what correct house prices really are. Last year, when a good example of a particular type of property came to the market, at a price that appears to be fair value, it sold well. I expect this to continue to be the case this year.

Internationally the UK still looks a safe haven and a good value one at that. This factor, along with a successful Project Merlin and a dose of inflation may well prevent the predicted double dip occurring. Certainly the number of Australian and Singaporean clients for whom Stacks as a group are acting at the moment bear this out.

There are within the market always a number of small or amateur developers who specialise in refurbishing country houses or converting barns and selling them on. These forced sellers have been under great pressure, most have already succumbed, but there are still some that will have to sell this year. At the same time it is worth remembering that the majority of vendors of quality property in rural area are discretionary rather than compulsory, if they do not like the look of the market or prices they will not offer their property. This has a braking effect on declining prices and will probably be the ratchet that prevents prices for quality property falling back again.

The word “quality” really is the nub of this matter. The vast majority of the property that makes up the statistics we read so much about in the press is ordinary. It is easy, after constantly reading stories in the press, either boom or doom, to think that these generalised commentaries apply to all property. They do not and they are particularly inappropriate for more valuable rural property. My clients do not want ordinary, they want quality and the small but important sector of the market represented by “best of type” properties is not going perform in the quite same way as the rest. There are three principal reasons for this. The supply is very finite; these are almost invariably discretionary purchases and, as I have said previously, often discretionary sales. For these reasons average house prices, whilst a useful barometer of a trend, are less relevant than people think when assessing a rural property, particularly as these rural properties not only by definition represent a tiny proportion of the total housing stock but also represent an even smaller proportion of the total number of transactions in a given period because they are traded less frequently than urban properties.

Analysing statistical evidence is important provided it is not applied too rigorously to non standard properties. This is just what is happening in some sectors of the mortgage market where more and more mortgage applications are being assessed by computers rather than experienced local valuers. The result can be that properties outside the statistical norm are being disadvantaged. It is therefore very important to establish, when applying for a mortgage, who is actually going to value the property and whether they have the appropriate experience and local knowledge in that market sector. Getting this properly organised before it is too late is key.

An equally important part of my job is assessing the vendor. My clients are not buying a generality, rather a specific property and the price at which that property can be purchased depends as much on the vendor and their circumstances than anything else. It is vital to bear in mind at all times when approaching a property that there are three variable figures: the price at which the property can be bought, the amount that it is worth and the sum that the agent is asking. These three figures are very rarely the same. It is imortant therefore to establish, before we bid, the exact situation of the vendor and ascertain whether they have to sell or would merely like to sell. At the same time I need to know whether my clients purchase decision is based on price or value. Looking purely at the price of a property can be misleading; the value of a property is much more than its’ financial cost, it is the wellbeing it brings to the purchaser and their family over many years. Essentially the property should be a home first and an investment second.

The effect of these factors on my market depends on area and asking price. Different sections are performing in very different ways. Better properties in the middle and upper end of the market in this area are selling well when correctly priced. By contrast properties that are dull, ordinary, blemished or overpriced are not selling at all, or at large discounts. In the middle and upper sectors of the market in this area, the majority of vendors are discretionary; their reason for selling a good house is often a lifestyle decision rather than financial compulsion. Many of these vendors still remain uncertain whether current market conditions are right for their sale. Agents, faced with an acute shortage of turnover, are occasionally answering this question by resorting to fanciful valuations for prospective vendors in order to win instructions.

One consequence is that some new stock is coming the market overpriced at a time when the market is particularly price sensitive resulting in disappointed vendors and confused purchasers.  A second consequence is that an increasing amount of prime property is being offered privately off market. A third consequence is that much more stock is being offered “To Let” if it fails to sell rather than having the price reduced to a sensible level. The overall effect on the public is one of confusion.

In conclusion, a hangover of blemished property and a dearth of prime property is making it difficult for amateurs to read the market and for estate agents to accurately establish values. This presents an unusual opportunity for buyers, they are in a stronger negotiating position than they have been for some time, but if they want “best of type” they will need to pay a fair price, no one is giving good property away yet, even in the West Country.

Gideon Sumption MRICS

March 2011