If you look in any newspaper today you will see doom and gloom in connection with the property market, you will a whole selection of guides, surveys and indexes which tell us what we all know – the property market is struggling badly. But are there any other guides to look at? Is there anywhere that we can get the bottom line on the UK property market?
More and more people are starting to look at the property auction market which has also been hit, with attendances down but properties still flowing through on a regular basis. There is a feeling that what is now left at the auctions is a hard core of property investors who are looking to grab a bargain and factor in declines for the future, catching good value properties at the same time. But should we be taking much notice of this hot bed of property investment or should we be looking at the ‘real’ property market?
Many people actually believe that the various property auction houses around the UK offer the best indication of what is happening at the base level of the UK housing market. This is where there is no froth, where investors will not pay over the odds and while in the good times the quality of property may well err on the low side, in the current slowdown we are seeing all kinds of properties up for grabs.
If you take a look at the latest figures from the likes of the Nationwide and Halifax (bell weathers of the UK property market) you will see that house prices have fallen but over 12% in the last 12 months while a look at the Land Registry figures will show a fall of just under 5%. However, the underlying figures at various property auctions around the UK are even more shocking, but do they indicate the bottom of the property market fall or supply and demand issues not present in the overall market?
A quick glimpse at the overall figures for the UK property auction sector shows that auction sales have fallen by 42% over the last 12 months and now total in the region of £302 million. While this does not mean that prices have fallen 42% it is showing a steeper fall in property sales than the wider market. Though some of this can be explained away by the fact that non-investment led property buyers have been staying away from the auctions, does a fall of 42% mean that we are nearing the bottom of the market?
While there could be something behind these figures it is also worth remembering that some investors will have been hit by the credit crunch and seen their buying power slashed over recent times. However, perhaps a more telling figure is the fact that for the first time in 6 months we have seen the percentage of properties sold, against the number put up for auction, top 60%. This would seem to indicate that prices may well have fallen further in the property auction sector but there is interest from professional investors, some of whom will be looking to ‘flip’ a new purchase as and when the market picks up.
Flipping is a term used when an investor takes advantage of a particular opportunity to acquire an investment at a rock bottom price – in affect a distressed sale. The investors will then look to ‘flip’ the property almost immediately and make a short term gain on the investment. While highly risky if you get your timing wrong or pay over the odds, many people have made big money out of this practice.
While it would be a little foolish to call the bottom of the market on a couple of figures, the change in perception at the property auction houses and the fact many have now got their cheque books out again is very encouraging. What we need to see now is a consolidation in auction property prices and then hopefully we will start to see property values move slowly higher. This would not only give great comfort to investors in the property auction market but any opportunity to inject confidence into the wider property sector would be embraced by all.
The risks of property auctions
On a side note it is worth highlighting the fact that property auctions are not a way to make easy money even though there is the potential to grab a number of bargains. You need to study the sale books before you start bidding for property, you need to be aware of the area and you need to have a general feel for the property market, both now and the signs for the future. Many people have had their fingers burnt in a big way investing via the property auction market route so you really do need to have your wits about you.
While the headlines are always taken by the likes of Nationwide and Halifax when it comes to the performance of the UK property market, it could be argued that the real investment moves are happening underneath the surface at the many property auction houses across the UK. These are environments where the froth of the wider market is taken off and we are down to the bare bones of the property.
However, it must be noted that property auctions have tended to attract a certain class of property and may not offer an accurate perspective on the wider property market. Distressed sales repossessions and properties which nobody wants, are generally regarded as the food of the property auctions but this is not always the case and they have changed over the last 20 years.
In truth there will be no one figure which denotes the bottom of the housing market as it will be more of a cumulative affect. However, the fact that property investors are now starting to dust down their cheque books again does offer at least a modicum of hope.