By Andrew Stefanczyk
Mini Boom
If you've read a lot of price articles on property for sale in recent months you will have come across quite a few references to the existence of something called a property 'mini-boom'.
Apparently this phenomenon has been with us for at least 6 months now - probably more than 6 months if you take into account the market revival in the price of cheap houses that began when the Bank of England cut rates last August.
You might be asking what is a mini-boom? The phrase is an interesting one – but it shows that the cheap property market has recovered from the slow and depressing days of 2005 without actually frightening anyone with the prospect of one mad rise before an inevitable collapse.
Why is it mini? For the following very good reasons: First, when it comes to cheap house price rises it's just not as big as the boom of 1998-2004.
Second, because it's not affecting the whole of the UK. It's a bit of a London phenomenon - or, at the best, London and the South East.
And third, because its life is expected to be relatively brief. The Boom, you'll remember, just went on and on. But almost everybody expects the mini-boom to fade in the second half of this year.
Is there any sense in this talk of a mini-boom? Yes, there is. The property for sale market has been doing quite well and since the start of 2006 it's been in fine form.
But it's all relative, annual growth rates are now in single digits, monthly inflation is acceptable but hardly racing ahead, and the days when a broom cupboard could fetch £150,000 are way gone.
The recent pick up has also been limited to the South: "The growing divide between London and the remainder of the country means that it is dangerous to read too much into the cheap property price rises," comments Richard Donnell, Director of Research at a company called Hometrack.
"The London effect has been making the overall picture of a relatively buoyant housing market look better than it really is. Outside London, house prices remain static across 70% of all postcode areas."
This has been confirmed by The Royal Institution of Chartered Surveyors, who note that in May, 71% more surveyors reported a rise in prices than a fall in London. But other areas such as Yorkshire and the East Midlands were moribund (8% and 7%, respectively).
So neither the reach nor the strength of the current recovery is capable of pushing the market for cheap houses back towards the days of rampant double digit inflation. But what of the third point, that is the belief that the mini-boom will fade away toward the end of the year.
Several factors can be cited in support of this view, the main ones being that affordability is now very stretched; council tax rises and fuel bills have put pressure on people's finances; unemployment is going up; and rates may rise in the future.
All very reasonable, and already some reports suggest the slowdown is underway. Halifax said that May's 0.1% rise was the smallest increase since January's 0.2% fall.
Nationwide agreed, noting that May's 0.2% rise was the second month of neutral growth in a row.
And Hometrack, as we have seen, argue that most of the country is already slowing - "it's really a case of whether cheap houses in London can keep going," says Richard Donnell.
Recent price rises, of course, have been fuelled by lack of decent property. Yorkshire & Humberside, which had one of the lowest rates of cheap house price rises in May, also had the largest increase in supply.
London, on the other hand, had one of the largest price rises in cheap property thanks to a significant supply and demand imbalance. In the Capital, 32% more surveyors reported rising demand, while a negative balance of -10% reported a fall in instructions.
So you would expect a rise in supply to create a easier market and take some of the pressure off buyers. And there are signs that more property is coming onto the market.
In November 06, new instructions to sell rose at the fastest pace since April 2005 – 18% more surveyors reported a rise in new properties on their books. Will this calm the market down?
It might. But as any expert will tell you, there are counter balancing weights on the other side of the cheap property market seesaw. Demand, fuelled by demographic trends; relatively cheap finance and low rates, property investors still in the market.
All of these still keep the pressure on. And even as RICS reported a rise in supply they also saw a rise in both demand and in sales agreed. The latter takes properties off the active property for sale market and the former increases the competition for those remaining available.
But surely it can't keep going … or can it? We shall have to wait and see. Property market analysts would like things to slow into 'orderly slowdown' territory again, and this should happen.
About the Author: The author of this article has been involved in property investing for 15 years and also runs a website for property investors. Property For Sale www.investalist.co.uk is the UK's No.1 resource for finding cheap houses and investment property.
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