October asking prices increase despite market conditions
The Rightmove House Price Index has seen an increase in average asking prices every October for the past 10 years, so it was perhaps not surprising to see a 3.1% rise over the past month. However given the economic backdrop of near-record stock levels and deteriorating mortgage finance it may be the case that sellers will need to drop those initial asking prices over the coming months if they are to entice buyers.
Miles Shipside, director of Rightmove, comments: “Every year, vendors coming to market after the summer holidays hope to take advantage of any positive price impetus from buyers who are keen to be in a new home before Christmas. Between 2007 and 2009, October sellers tried higher prices in spite of the ‘credit crunched’ housing market, and it’s a habit that is proving hard to kick in the ‘spending review’ market of October 2010. It’s not likely to be a successful tactic, though it is a sign that many sellers are not experiencing high levels of financial stress but can’t afford to accept a lower price if they are to make their sums stack up for the next move”.
A key question for sellers will be whether they will be missing out on early buyer interest by dropping prices once their property is on the market. Research from Rightmove this month shows how the number of webpage views a property receives in the first week of coming to market is double that of the second and third weeks combined.
Miles Shipside explains: “The entry of a property to the market always has the potential to create a buzz among watching buyers as they are on the look-out for anything new that suits their needs better than what is currently on the market. When a property is launched to market the seller’s objective is to create a sense of urgency to view amongst buyers and a feeling of fear that by not viewing they will miss out on their dream home. This strategy is enhanced if it is keenly priced as buyers will act fast to get a possible bargain. If a newly marketed property fails to initially impress and find a buyer then it can quickly go stale and get written off even though its price may subsequently be substantially reduced. A high launch price can damage your chances of securing a sale and in recession-hit markets you often end up chasing prices down and achieving less in the end.”
The government Comprehensive Spending Review also looks likely to have a negative effect on housing market sentiment and consequently challenge sellers to price more realistically in order to meet buyers at a more realistic pricing level for the finance that is available. Shipside adds: “Buyers and sellers are staring each other out, and it’s a question of who will blink first. Even if they wanted to, buyers cannot blink unless lenders release more funds for mortgages. As that’s not going to happen, there are likely to be some blinking sellers this winter!”.
