There is no doubt that the UK property market has been supported by ever-increasing demand and relatively low stock levels. This has been a characteristic of many buoyant property markets around the world although there are signs that the wave of pent-up demand in the UK is beginning to weaken. If this is the case, what does this suggest about the short to medium term direction of the UK real estate sector?
Whether or not you agree with the array of property investors in the UK who have been pushing markets higher and higher, and those who have been holding off selling their investments, we are starting to see some changes in the UK.
Pent-up demand begins to weaken
If you look at the last few years of the UK property market you will see that pent-up demand, for an array of political and non-political reasons, has been behind the phenomenal rise in UK property prices. Many individuals sought to ride this wave of pent-up demand with the intention of squeezing the last pound out of their investment and banking a large profit. However, what will happen now that we have seen signs of weakness in the market?
Quote from PropertyForum.com : “The UK property market is in effect two very separate markets with London and the rest of the UK often showing different levels of performance. We would be very interested to learn your opinion of the UK market at the moment and the prospects for the medium to long term.”
At this moment in time it is unclear whether the reduction in pent-up demand is a change in the UK property cycle or whether indeed it is down to the time of year and the recent floods which have caused havoc. Opinion is currently split for the reason in reduced demand for UK property and indeed whether this is a turning point, or just a short-term correction before pent-up demand begins to build again.
Will this influence potential sellers?
Perhaps the main problem for the UK property market is the fact that sellers who have been hanging on for the best price, often ignoring the opinions of experts that some property prices have moved too far ahead, may start to rush for the exit. There is speculation that those who have been holding on until the “top of the market” may well now start to filter their properties onto the market. This relatively slow increase in housing stock for sale is likely to increase dramatically if there is further evidence that the UK property market has topped out.
This is one of the major problems with buoyant markets because everybody waits for the top of the market (often following the crowd) and when it turns it is a rush to the exit with the last person left to knock off the light. We are not quite at this situation in the UK but if the economy was to take wobble, interest rates were to rise in the short term then these would be further reasons to bank a profit after the phenomenal performance of late.
There is no doubt that overbought and oversold positions in the UK property market are directly related to the availability of stock. It is common knowledge that many investors have been holding out for the best price for their UK property, looking to call the top of the market, and indeed we may have reached this point.
The main problem is that as more and more sellers come round to the opinion that the market has topped in the short term this relatively small trickle of properties to the market will very soon grow into a wave. This is when prices will come under pressure and sellers will accept offers under the perceived fair value price which will cause disruption, confusion and place the power back in the hands of those buying property.