Desperation Driving Asking Prices

Jonathan Samuels - 20 June 2012

The latest Rightmove house price index was published earlier this week. Quite staggeringly, it showed that asking prices in June rose by 1% on May and are now up 2.4% over the past year.

Now this is nothing new. Asking prices have been artificially high for some time, but my feeling is that we have transitioned from seller intransigence to seller desperation.

Many people are asking for more for their properties not because they are stubbornly - and naively - resisting market forces but because they have no option.

Selling for anything less would leave them in negative equity, see their LTV shoot up, or at the very least mean they cannot move on. It's this that is contributing to the stagnation in the market. Many households are unfortunately between the rock of a depressed property market and the hard place of negative equity.

Some say that agents are at the heart of the problem, overvaluing in order to secure the instruction. In some cases, this may be true but my feeling is that asking prices are really being driven up by sellers.

On a more positive note, it's the resultant stasis in the market that is seeing any properties that are correctly priced fly off the shelves. Due to the ongoing shortage of supply, there is in fact strong demand in the market when properties are realistically priced, not desperately priced.

As to where prices are going for the rest of the year, my feeling is that the high point has already been reached. A summer of sport is going to depress activity levels in the months ahead and the ongoing uncertainty in the economy is unlikely to see demand surge in any material way come the autumn.

Despite the sideways moving market, prices will continue to jump around erratically from month to month on the back of low transaction levels. We're only half way through 2012 but as far as house prices are concerned, the year is already as good as over.

Only in prime and super prime areas of the UK, especially in London, will prices have any genuine reason to rise. Such properties are seen as a hedge - or safe haven - in front of the global economic downturn.