It's really interesting to read all the comments and observations about the housing market in 2022. In Plymouth and indeed the rest of the country there are those who seem to latch onto anything that might mean that the housing market weakens and they can perhaps 'bag a bargain'. But will that really happen and will property prices collapse in Plymouth this year?
Having looked at every reason for the local and indeed National market to fail (insert rolling eye emoji here!!), it is obvious that if you read too many reports you can probably state a case for most outcomes. Here's what I think.
What do key industry reports suggest may happen?
I've had a look at the key points from key industry players and the more sensible reports suggest property inflation was running at more than 3-4% in the last quarter of 2021 rather than the double digit growth many in the industry have been talking about.
RICS (although as an estate agent I often find the Chartered Surveyors Institute market comments a little out of touch with those at the coalface of the housing market), state that buyer demand has steadied while instructions remain thin on the ground - 'House price growth decelerates somewhat but remains firm right across the UK'.
A fellow surveyors report from e.surv states that this is the new normal for house price growth - 'House price growth is clearly in retreat in headline terms but there is little evidence of prices stagnating or falling. Indeed, regionally, there are substantial pockets of resistance to overall falls in house price growth'. (You don't have to look too far in the Plymouth market to find evidence of 1 or 2 properties reaching far in excess of the normal growth on their asking price within a short time period of ownership).
Supply versus demand.
Transactions are of course at the heart of what's been happening to the market over the last 18 months. Prices have been pushed up for those looking to upsize and downsize in part because of great levels of equity or owning a home outright, meaning they can compete against others more readily when they do see their ideal next home.
It was thought that when the pandemic started it would be major doom and gloom for the housing market. Even the most optimistic forecasts believed that yearly property sales could halve, heading down to 600,000 rather than the normal 1.2 million yearly transactions in the UK. The fact that in those months just above 1 million transactions were achieved is a major achievement - especially as the market lost 2 months of selling/buying during the lockdown.
Personally, I can't see any major reason (another pandemic lockdown aside) that would cause demand to subside this year. Interest rates will be raised again at some point to try to curb inflation but will this have a dramatic effect on the housing market? I'm not convinced it will and I think that it's because I agree with some economists when they say that the actual structure of the property market and property ownership has changed.
What has changed?
It wasn't too long ago (20 odd years ago) that affordability was based on 3.5x income levels and most people that owned a home had a mortgage. If property prices went up during this time more than 3.5x the 'average income', then property prices would typically fall back. Move forward to 2022 and most mortgages are now based on affordability checks and around 30-35% of purchasers buy with cash (yes I am always amazed at this too), so house prices aren't tied to wages as they were in the past. This of course has seen affordable areas in Plymouth see rapid price rises and more typically expensive areas of the City see more buyers coming from other areas of the country to purchase. Being able to work from home more easily with lifestyle choices means a change in location away from the higher salaried areas of the UK, whilst enjoying the lesser property prices - this has and will continue to drive non local buyers to Plymouth.
Will interest rate rises have an effect on house prices?
With 30% of buyers purchasing with cash and no mortgage, any interest rate rises shouldn't have a massive effect on them. Couple this with an estimated 50% of property owners not having any mortgage on their home, it is unlikely that anyone will be forced to sell their home due to a rise in mortgage costs - this means although there will be more property coming to the market over the next year as opposed to the last few months of 2021, it won't be majorly influenced by 'having to sell' because of it not being financially viable to stay living in a property. Another factor is that those with mortgages are not at the 125% level of borrowing of yesteryear and they aren't at 5-7% interest rate levels but at low fixed rates over 2,3,5 year terms. Any newer mortgages have been based on affordability at a higher interest rate which gives the owner and lender a 'buffer' on any interest rate rise.
Price increase or crash?
With this years transactions likely to hit 1.5 million I guess the housing market should be congratulated for pushing through so many sales since the market reopened in May 2020 and when you look at the average UK sales of 1.2 million per year and taking into account the 1 million we did in 2020, with many forecasters predicting 1.5 million transactions for 2021 once all the data has been gathered, it is easy to see why we should be optimistic in 2022.
Whenever there has been a 'boom' then it is typically been followed by a crash. But I'd argue that what we have seen in many months of 2021 in regards to house price increases, has not been a boom but fuelled by a lack of supply. You could also argue that house prices in many areas the UK, Plymouth included, have now merely 'caught up' to where they should be in relation to pricing in other areas. The advent of an initial necessity and subsequent seed change in being able to work remotely takes away the demand to live in typically more expensive areas of the UK?
It's difficult to see what could happen in the market to change it from an under-supply to an over-supply situation. There will still be seemingly massive prices being achieved for certain high demand properties but on average house price growth should stay between 3-5% in 2022. Rightmove stated that buyer demand for property since Summer 2021 had increased by 30% based on a 5 year average and although a more stable market is good news for buyers, sellers and indeed estate agents alike, I can't see it changing in the short term. Some will say it is a hangover from the pandemic, some will say the stamp duty exemption period, lenders being asked to lend more readily and the fact that escalating building material costs make extensions less affordable may have helped the market and increase the demand. I think it is a combination of all these things coupled with a change in the thought process for buyers in understanding that living within a better space is now top of their own wish lists.
My advice if you are thinking about moving.
I saw a BBC interview with an estate agent in Taunton this week which was so 'wishy-washy' it really got me annoyed. She stated that it'd be really difficult to secure a property purchase if you didn't get yourself in a proceedable position beforehand. The simple truth is that whilst the market has a lack of supply, you are wasting your time trying to secure anything prior to selling. They'll be others who are in better positions and you'll miss out. Get yourself speaking to an agent who you feel comfortable with. Be firm that you want a buyer who will wait for you to find. Let that agent do their job and get you the best buyer to make you as strong a purchaser as possible for when you do see that property. Oh and speak to me of course! :)
Chris Mervyn MNAEA DEA. Marketing Director.
To speak to Chris or any of the team please call 01752 229292 or email on firstname.lastname@example.org
Excerpts from Negotiator magazine Dec 2021.