Property Prices Increasing. Beware Estate Agents?

Much has already been written about the current mini-boom in property sales. Record numbers of houses are currently SSTC, and Estate Agents have seemingly ‘never had it so good’.

The potential sustainability of the current situation however has been a mantra that I have personally being beating out as I speak with estate agencies on a daily basis. Half of those  questioned are ‘happy that it's happening’, expect it to continue and don't really know why. The other half are, shall we say, perhaps a little more economically aware and experienced, and realise that these levels of prices and sales are unsustainable. 

This raises two issues for those agencies that want to both maximise the current situation, whilst simultaneously taking out time to plan and prepare for what most economists agree will be the worst recession in living memory - and one that undoubtedly will hit house sales and enquiries very hard. All during a global pandemic.

Why Are House Sales So Buoyant?

Before being able to make any forecasts of any meaning, it is essential to understand why the market is currently noting record levels of house prices, sales and enquiry levels. 

Economists have recognised for many years that house sales are an essential element of trickle-down wealth. Agencies, solicitors, insurance and removal companies are direct recipients of income from house sales but the DIY and home improvement elements of moving into a new property do not stop at new carpets. Property sales generate spending. So, once the realities of Covid-19 manifested themselves, with the impending crash in the economy, the Chancellor was fast to act with Stamp Duty incentives to stimulate the housing market.

This has had a mixed blessing on the housing market, as lower priced properties have not attracted the same fiscal benefits to buyers as higher price band houses. This has led to a middle-class movement to more affluent out of town properties, also driven by the new requirements of home working and increased space demands. 

Another element as to why property sales are currently so strong is due to the pent-up demand from the early stages of lockdown. DIY jobs were carried out, shelves fixed and gardens tidied, leading to many owners thinking of moving house. Never a better time to sell they thought.  Combine this with the historic low interest rates brought about by pre-coved economic growth worries and Brexit, mortgages were cheap and easy to get.  All of this, piled on the back of a shortage of properties over the last few years has created huge activity in the market.

Why are Property Sales Destined to Slow Down?

This heady mix of record enquiries and sales, higher prices and record sale times will slow. Already the signs are there for those sharp enough to see them. The almost total retraction of the availability of 5% deposit mortgages is a huge indicator that banks and building societies are worried about property equity. 10% deposit mortgages are becoming much harder to find and secure, as financial products tighten up, in expectations of a slowdown and property price reductions. 

Recent announcements regarding mortgage deposits gifted from the bank of Mum & Dad point to a squeeze on first time buyers like never before. Once this sector slows down, the whole cycle slows down. Low interest rates and Stamp Duty incentives will remain for some time, but the existing demand built up over recent months will soon be satiated. 

So, the agencies in straw-built houses expect this to continue. But in six months’ time, when the effects of the recessions huffs and puffs have blown their houses down, they will peer at their peers in their brick-built offices, managing fewer enquiries but  still profitable, and benefiting from necessitated overhead reductions. 

What Should Agencies be Doing Now?

If your agency believes that good things will continue for ever, and that the impending recession caused by furlough schemes ending, unemployment rising and the small factor of having to pay for the many billions borrowed by the Government will not impact on house sales and prices,  then crack on making hay.  

But for those that recognise that Covid-19 will make the banking crisis and austerity of ten years ago look like a financial blip, the time to plan and take action is right now.