House price falls predicted… but are they really?

publication date: Jun 9, 2016
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author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

House price falls predicted… but are they really?

I see one of my jobs as making sure any headlines about property prices and rents are correct.

Latest headlines from the media
Here are three headlines you’ve probably already read today in the news:

Surveyors predict house price falls” - BBC 

"Surveyors predict first house price fall since 2012"Financial Times

House prices forecast to fall for the first time since 2012” - The Telegraph 

Meanwhile, the Independent’s property section concentrates on Chelsea… no, not the local property market but:

RHS Chelsea Flower Show 2016: show garden highlights” - The Independent 

Well at least one of the main papers didn’t bite!

Download the full RICS report

 

Why is it being reported that house price falls are expected?
One of my most trusted and respected resources for information on what is happening in the property market is the monthly RICS Survey and it’s their latest report that has fuelled these headlines.

However, what they have actually said is NOT - as the headlines suggest - that house prices will fall. What they have actually pointed out is that there was unprecedented demand prior to April due to the stamp duty changes and this, together with the uncertainty of Brexit is, understandably, causing confidence to fall.

Read - How to Analyse a Buy to Let

 

Extra government taxes
In this case the government imposed an extra 3% stamp duty on second home owners (including many investors) from 1st April 2016. This caused the biggest rush on buying since before the credit crunch, with more properties being sold in March, so it’s no surprise that, after this artificial increase in demand, the number of buyers has dropped off a bit for now.

Read - First Time Buyer Quick Guide

Confidence
If people think prices will go up, they will rush to buy; if they think there is a chance of prices falling, buyers hold back, sellers who need to sell panic and lo and behold, house prices tend to fall.

And it’s these two trends that RICS are alluding to in their report. Here’s what they have actually said:
April showed a decline in demand following the rush to purchase buy-to-let and second properties in the run up to the introduction of an additional stamp duty layer on April 1st. However, anecdotal evidence from contributors suggests that uncertainty relating to the referendum is also influencing buyers, and was probably partly responsible for the fall off in enquiries in certain areas.”

Download the full RICS report

RICS actually forecast a 6% rise for the second half of the year
“The sharp rise in activity prior to the tax change led to a 2.9% jump in prices in March alone (based on the ONS index), bringing the annual change to 9%. RICS data suggests that growth (in annual terms) will remain around this level in the months ahead before momentum eases in the second half of the year and we maintain our forecast for 6% growth in 2016 (Q4 on Q4).”

And finally their surveyors’ report:
“While the near term outlook for prices has softened significantly, a net balance of 54% of contributors still expect prices to be higher 12 months from now than they are today.”

Read - First Time Buyer Legals

Conclusion
Naughty, naughty media then. They are not predicting a FALL, they are predicting a slowdown in the rate of house price growth. That’s completely different!

Download the full RICS report


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