House Prices And The Value Of Property
What is the value of a house? A year ago it may have been one figure but today it is very different. I have heard it said that news reports and commentators reporting the fall in values of property are making the market worse but those people were not saying anything when the market was being talked up and news reports were saying that house prices were rising at astonishing rates.
About eight years ago a friend who was saving very hard to buy a property found property prices were rising faster than she could save her deposit. She was a typical first time buyer and those first time buyers are at the heart of the property market. If the first time buyer could not buy then house prices should have stopped rising. The rapidly increasing house prices were leaving more and more first time buyers behind and there was no way an average person could get on the housing ladder.
We then had the era of easy credit with 100% mortgages and self certified mortgages and a surge in buy to let which opened the floodgates and new buyers poured into the house buying, and investing, market.
As I write this I hear the housing minister on the radio talking about helping first time buyers raise their deposits to help them buy a house and a year or two ago we heard the prime minister talking about helping first time buyers but all these plans do not solve the problem. A house price should reflect the market and if nobody can afford a house then that value is overpriced. The government can try to support an unrealistic price but ultimately that is doomed to fail unless they plan to support buyers forever.
The problem with the housing market is that hopes, expectations and easy credit raised prices far beyond the true market value of property. The sudden disappearance of no deposit and low deposit mortgages took a huge chunk of potential buyers out of the market which imediately reduced the numbers of first time buyers who could afford to buy with the obvious result that prices started to slide.
The housing market has to find it’s own level. Until buyers have the required deposits, which is no small matter at current house prices, and they can get mortgages for the property they want to buy, prices will stagnate or fall further. When buyers exceed sellers house prices will begin to rise again but everything suggests that prices will fall further before we get to that more stable position again and perhaps we would all be happier if house prices did remain stagnant for a few years so we could treat houses as homes rather than investments.
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