Should you prepare for another 10% drop in house prices in 2010/2011?
Brett Alegre-WoodChairman, YPC Group
Hey guys,
The short answer is 'That depends...' Let me explain.
I have been spending the last few weeks looking at the market, speaking with professionals, economists, surveyors, estate agents and as many of my contacts I could before deciding on my thoughts about where the market is heading. There is obviously a lot of talk about prices dropping back down to previous levels and below.
Now I have never been a believer that the prices that dropped 18% actually have increased over the past year by 10%.
I have always believed that they dropped 18% and stayed at or around these figures since then, certainly the house prices that we have been negotiating have shown that prices haven't really increased that much. In fact, some new build developments dropped more like 30%-40% and these have since increase to about 30% below what they were.
Over the past 3 weeks I have met 3 separate Managing Directors of various property related companies and all of them feel the next two years will be:
1) 'up in the air, it could go either way',
2) 'the next 18 months will be tough but then we'll see some positive movement' and finally;
3) 'investors should prepare for a drop of 15%, the media will act as if its a 30% drop and then we'll all look back and call it a 10% drop'.
The Best and Worst Case Scenarios...
It appears that the worse of commentators say worse case is a further drop of 20%, the best case say that prices will rise around 5%. I am working on a 3%-5% drop for the rest of the year.
Lending is by far the biggest problem...
The biggest problem that will limit the price growth is not actually more properties coming onto the market (Supply); it is actually the fact that lenders have to pay back money in April 2011 borrowed through the Bank of England's Special Liquidity Scheme (about ?200billion). This however could be extended by the Bank of England but until this happens lending is expected to be subdued.
Invest long-term and you will be fine...
Regardless of their views over the next 18 months to 2 years, they all agree that things will be much stronger after this. The GDP increases will begin to filter through the economy, the unemployment rate decrease, lending increasing and the many other factors will begin to work for us.
The important thing is not to worry, the property you are buying now, bought over the past 2 years, and will buy the next 2 years will still be well and truly below what it will be worth in the coming years. As long as you have a long term view you'll be fine.
Give the team a call on 0207 812 1255 or directly on their mobiles and they can talk you through about my thoughts of the next 2 years based on all that has happened.
Live with passion,
Brett Alegre-Wood
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