We all know that the media are fond of doom and gloom stories.
Apparently it helps them to sell papers because we reputedly prefer bad news to good!
But one of the doom and gloom stories that has appeared repeatedly this year is how much house prices are dropping by. The latest figures from the Land Registry say that house prices are now 4.8% lower than they were this time last year. Much more attention, however, has been paid to recent figures published by Halifax that suggest they are down even more, as much as 10.9%.
But is your house really worth that much less?
Here's an interesting opinion on the matter, by our Mortgage Matron's friend in the property business...
There are some circumstances that have not been discussed much in relation to house prices. To read the press, you'd think that it's all over for the housing market, and that the general uncertainty over the stability of the banking system means that the only way is down.
But like the stock market, or indeed any market, what people say—and how many people believe them—can have the effect of a self fulfilling prophecy. Let's take a look at the situation from three different angles which, as far as I can see, not many people are currently discussing.
1. The only people selling at the moment are those who really have to.
And by the very nature of the fact that they have to sell right now, they are more willing to lower the price of their house than maybe you or I who are not forced to sell in a hurry.
There is an argument that if the various media had not gone on and on about the fact that they thought house prices were going to fall this year, that actually they may not have fallen by that much!
It seems that all of us are very influenced by what the media say. As early as September of last year there were reports that mortgages were going to be really hard to get and therefore people weren’t going to be able to sell their house and buy a new one with a new mortgage. The reports said that interest rates would ‘soar’ and that ‘house prices were going to plummet’.
2. The only people buying are those that can't wait.
Of course if you were waiting to buy a house, the predictions of falling house prices were great to begin with—especially for first time buyers especially, many of whom were delighted by the thought of actually being able to get on the housing ladder.
But as talk of the downturn continued, buyers with no time pressure began to think: “Let’s not buy a house yet, let’s wait a bit and see if house prices really do come down”.
As people begin to cotton on to the strategy of waiting for the market to bottom out, this takes a huge number of buyers out of the market. So all of a sudden there is less demand for house purchases. Fewer people trying to buy each house means that the seller, instead of seeing people compete to meet or exceed the asking price, instead sees people wanting to pay less—so house prices start coming down.
This then becomes a self fulfilling prophecy: those who are still buying think they are on to a good thing; the media says that prices are coming down so you make the most of it and put in lower and lower offers.
3. The third angle to this is that most sellers want top dollar for their houses and because they think or see house prices are coming down, they decide not to put their house on the market yet
This brings me back to where we started—the people who don’t have to sell their houses, who would have done a year ago because they want to find a bigger property or just fancied a change, now aren’t selling. The people selling are the people who are relocating or have just got divorced or have other life circumstances that mean they have to sell now. These people are forced to take the lower offers because they cannot afford to wait until things get better.
So the picture we have of current house sale prices are nearly all from those people who have to sell. No, the figures are not lying—but they are also not representative of the population as a whole.
As things pick up—as they surely must do, be it in a year or three years—look to see a surge of houses going on the market as everyone who would ideally like to move, but is holding off doing so, puts their houses back on the market.
(And as this happens, watch the media trumpet the news and the pendulum swing back again!)