Property market paralysis
The estate agency website Rightmove is forecasting ‘paralysis’ for most of the UK residential property market in 2011.
They have found that sellers are refusing to drop the asking price for their property, despite an apparent lack of demand.
The average price of newly-advertised properties on the website during January was £230,000.
This is £65,000 above the average selling price of property in England and Wales at £165,000.
During 2010, only 43% of UK property sellers found a buyer. At the start of this year there were nearly one million residential properties for sale across the country.
If property sellers have unreasonable expectations about the value of their property, the residential property market could face paralysis as even more sellers are unable to find willing buyers.
Whilst residential property is not an asset class we recommend within our investment portfolios for clients, the direction of this market does have an important impact on economic conditions.
A rising residential property market can help to boost consumer confidence; we might not have more money in our pockets but we feel wealthier because the value of our property is going up.
With a stagnant or falling residential property market, as a result of restricted mortgage lending to buyers and unreasonable price expectations from sellers, consumer confidence could be severely dented.
With price inflation stubbornly above the government target and public sector spending cuts coming into force this year, a weak residential property market could spell really bad news for UK economic prospects.