As part of our regular communication pieces, we thought it would be nice to hear from some of the managers who invest our clients’ money. We try to pick topical or educational matters which we think our clients will find interesting and informative.
The first blog is by Ed Monk, Ed joined Fidelity in 2016 following a 13-year career in newspaper journalism, most recently as Investment Editor at The Daily Telegraph. He was previously News Editor and Personal Finance Editor for Thisismoney.co.uk, the money channel for Mail Online and has contributed articles to the Daily Mail.
Slow Motion house price correction.
Unlike the stock market, where a change in mood and the direction of prices can be sudden, it takes far longer for sentiment in the property market to turn around.
Part of the reason for that is that property transactions take a long time, which is not the case for much more liquid assets like shares. The lengthy house-buying process requires prices not to swing about in the short term, and they tend not to.
How we view property, particularly over the past 20 years or more, also contributes to the stickiness of house prices. Sellers have become used to not ever having to cope with a fall in their property’s value, so they simply won’t agree to sell for anything other than a healthy capital gain.
But is that about to change?
Rightmove, the property listing website, today published its latest house price index which confirmed the first fall in prices in the South East of England since 2011. Unlike most other house price data, the Rightmove figures record asking prices listed by sellers on its website. It is a snapshot of seller sentiment.
I don’t wish to overblow the numbers - the average asking price for the whole of the UK was 0.8% higher in April than a year before, and seven out of 11 regions posted their highest ever asking price. The fall in the South East was only 0.1%.
Yet it should still give us pause for thought. Not since the dark days of the financial crisis, with the economy on life support and a double-dip recession a real possibility, have house sellers in the well-heeled South East deemed it necessary to give way in property negotiations.
Asking prices in London, which is regarded as a separate region, have already been falling and this appears to be spreading now to the wider South East. There’s a theory that, rather than being a separate market from the rest of the UK, London property instead tends to forerun the rest of the country.
You can see this effect if you consider the way prices have risen over the years, starting from London.
As the global appeal of the richest London neighbourhoods drove prices there sky-high, residents cashed-in and moved to less established areas. Sellers from Kensington, say, moved to Putney or Islington, where the process was repeated and sellers in those places shipped out to Brixton or Walthamstow. Or to satellites of the London market such as Brighton or Oxford, and on and on it went.
We could now be seeing that process beginning to work in reverse. A slow-motion correction.
For those who have simply bought a property to live in, this should be of no concern. Among these people, the only real benefit of fast rising prices comes to those downsizing or moving to a less desirable area. For everyone else, what you gain by selling you then lose by having to pay more when you buy.
The real pain of falling house prices falls on those who have purchased investment properties in addition to their home.
So far, the pain has been limited. Yet the slow-moving nature of housing market sentiment suggests that, now sellers have become more negative, more widespread falls will follow.
You can read more from Ed, and find more opinions by following the link.