House prices drop but property market could see ‘return to normality’

After an increase in house sales during the coronavirus pandemic, where homeowners could make huge savings on Stamp Duty, house prices are said to be falling. According to Nationwide, the 1.1 percent fall was the first annual fall in property values since November 2012, aside from a small drop at the start of the pandemic. 

An investment fund manager has warned that house prices could plummet even further.

Temple Bar portfolio manager, Ian Lance, said: “I wrote a white paper last year called Reversion to the long-run mean and it literally just asked the questions that if you take equity valuations, bond yields, house prices and you basically take them back to their long run averages, that has some quite significant implications across all of those things.

“US equities should be down 50 percent or more. The bond yield’s one actually comes true very, very quickly hasn’t it?

“Because bond yields back then were one percent and I was saying you know long-run bond yields are normally about four or five percent.”

Speaking to the Merry Talks Money podcast, Ian said there is “no reason” why house prices shouldn’t be 30 percent lower than they currently stand at.

He added: “House prices looked very, very expensive on a long run basis and I just said that could be one of those things that eventually mean reversed back to its long run average.

“I have no reason to assume that it won’t and again if it does, house prices should be probably 30 to 40 percent lower than they are today (in nominal terms).

“That’s a prediction, but why wouldn’t they? Why shouldn’t, why shouldn’t equity markets mean revert to their long run average valuations and bond yields and house prices?

Don’t miss…
Method to grow juicy tomatoes from seed [EXPERT]
Seven ‘overlooked’ bedroom items people forget to wash [COMMENT]
Three ‘easy’ methods to ‘deter’ cats from fouling in your garden [EXPLAINER]

“We know what drove these things substantially above their long run averages. It was low interest rates, it was quantitative easing. 

“Now to the extent that all those things are now going away, why wouldn’t these things mean revert to the long run averages?”

Demand from buyers has fallen in recent months, which has caused the housing market to cool off.

In January, the estate agent trade body Propertymark reported that 73 percent of transactions were completed below the original asking price, the highest percentage since 2020.

Looking for a new home, or just fancy a look? Add your postcode below or visit InYourArea

This trend is said to continue as competition from buyers fizzles out, the opposite of what was going on throughout 2020 and 2021.

Rightmove claimed that it took an average of 57 days to see in February, a huge increase from the 32 days back in May last year.

However, according to one expert, the property market is now seeing a “gradual return” to normality, not fast approaching “cliff edges”.

Managing Director of Barrows and Forrester, James Forrester, commented: “We’ve seen widespread precautions of a property market demise for many months now and yet the UK housing market has continued to defy these naysayers and stand firm in the face of increasing interest rates and wider economic uncertainty.

“Of course, the higher cost of borrowing has brought about a slight adjustment and this is only natural following such a prolonged period of house boom.

“However, we’re very much seeing a gradual return to normality, not a fast approaching cliff edge.

“Even in the wake of the most recent Great Recession, house prices only fell by 19 percent before rebounding and so claims that they could tumble by 40 percent are, quite frankly, laughable.

“We’re a nation of aspirational homeowners and the average buyer simply isn’t going to abandon these aspirations due to speculations around equity valuations and bond yields.”

Source: Read Full Article