The Markets Changing – Time to Adapt

Market Insight: October 2022

It’s no secret that the UK economy has been struggling in recent weeks; rising fuel prices and interest rates have contributed to the now present ‘cost of living crisis’, meaning many households face increased expenditure in the form of energy bills, fuel and mortgage repayments.

The property market, which has experienced an incredibly active period since May 2020, was bound to see activity levels drop off eventually. Prices have been consistently rising despite numerous attempts to curb the rate of inflation through a series of interest rate rises, but these inflated prices are now becoming unaffordable in the current market.

Some media sources are suggesting we’re now on the verge of another ‘market crash’, as previously experienced in 2008, however is there enough evidence to reach this conclusion?

Looking at Rightmove transactional data for Wirral and West Cheshire in 2022, it is clear that Q3 has experienced a drop in demand causing the volume of available properties to grow. Many of the properties which have been introduced to the market will have been priced according to prior market conditions; limited stock, rising prices and lower interest rates.

However, given the average interest rate for a 2-year fixed mortgage sat at 6.11% as per the end of September, up 4% on the previous year, many buyers will not be in a position to afford property that they have done months earlier. As more properties enter, and then stay, on the market, it reduces the pressure on buyers to make offers with more urgency.

Market Activity Comparison in Wirral and West Cheshire (Rightmove, Jan 2022 – Sept 2022)

An unsurprising consequence of this recent market is the rise in the volume of price reductions. Motivated sellers and proactive estate agents won’t allow property to sit on the market for too long without taking action. It is understandable that sellers will want to maximize their asking price given the success of the market in months gone by, however reductions can be a great way to revive interest when viewings and offers begin to dry up.

Volume of reductions by postcode in Wirral and West Cheshire (Rightmove, Jan 2022 – Sept 2022)

The positive news is, locally at least, that the market has experienced a 50% increase in the number of price reductions in Q3; every postcode has seen a rise in reductions from all agents in this period. These price reductions are critical in ensuring prices reflect the current market and allow buyers the opportunity to make offers that they can afford, rather than what the market dictates.

Interestingly, the percentage of properties that have sold following a price reduction has hit an annual high this month at 25.9%. This means that over one in every four properties required a price reduction before agreeing a sale. The chart (below) shows how this trend has progressed throughout 2022, with fewer properties requiring a reduction in the early months.

Percentage of sales agreed that have had a reduction in Wirral and West Cheshire (Rightmove, Jan 2022 – Sept 2022)

Between August and September 2022, the listing of detached property on Rightmove has risen sharply by 23.8% while other property types experienced negligible change. In the same period, detached property sales on Rightmove dipped by 33.7%.

Larger, more expensive properties will become more expensive to run over winter due to rising energy prices and increasing interest rates, which explains the shift in the market towards smaller, cheaper properties for buyers. When downsizing, vendors can both release equity and reduce monthly outgoings to put themselves in a stronger financial position.

Outlook For Q4

It is easy to jump to the conclusion that the property market is struggling and a ‘crash’ is inevitable; the data certainly suggests that demand has eased and prices are no longer rising as they have been for the past 48 months. However, the market needs to stabilize after a long period of significant growth, and rising interest rates have certainly had an impact on this.

The positive news is that the government have already taken action by increasing the minimum threshold for Stamp Duty to £250,000, up from £125,000; first time buyers will pay no tax on the first £425,000(up from £300,000). This move is unlikely to cause another surge in activity but should provide some much-needed relief for those who are still active in the property market.

As for the local market, the message is clear: there is no need to panic. Market conditions are changing more drastically than initially expected; however, we’re going through a period of adjustment where the expectations of buyers and sellers are shifting. This is already evidenced by the increasing volume of price reductions in recent weeks, showing sellers are beginning to acknowledge proactivity is the key to a sale in a tougher market.

The next few months will undoubtedly be challenging for many financially, however stock levels in the local property market are very strong which means plenty of opportunity for buyers to find their ideal home. If Estate Agents can work hard to manage their clients’ expectations and encourage price reductions at an early stage, there’s no reason why the market can’t thrive in Q4.

If you would like to know what your property is worth, please click the link below to arrange your free valuation.