Take a step back before deciding if your glass is half full or empty
IT IS often hard to move for the number of property analysts discussing price movements in the housing market. But what do UK households think?
The Knight Frank/Markit House Price Sentiment index sets out to answer that question. Every month, we ask 1,500 people around the country what they think has happened to the value of the property they live in over the previous four weeks, and how they expect prices to perform over the next year. The respondents range from outright homeowners, to those who are still living rent-free at home with Mum and Dad.
Sentiment is a sometimes overlooked part of the market process. What households think will happen to the value of their home informs any decision they make – except when immediate re-location is needed – about when to buy a home, or sell a property to upsize or downsize.
One of the most striking aspects of the sentiment survey is the age gap which has opened up between the under and over 45s.
While under 45s say they expect prices to rise over the next 12 months, those aged over 45s expect price falls, reflecting a trend which emerged sharply late last year.
These contrasting views on the future direction of the property market start to make sense when you consider that many in the younger age group are still likely to be renting a home and waiting for a chance to climb on to the property ladder. In such circumstances, the perception of continually rising prices reflects the extent to which many feel that homeownership is moving further from their grasp. August’s data shows that those in the typical first-time buyer age bracket of 25-34 expect the biggest price rises, with a future sentiment reading of 55.9. Any figure over 50 indicates that prices will rise, the higher the figure, the bigger the rise. Any figure under 50 suggests prices will fall.
Those aged over 45, many of whom will already own their own property, are more downbeat about the future performance of prices, reflecting their concerns that the current difficulties in the housing market are undermining the equity in what may be their biggest asset. Indeed, those who have paid off their mortgage in full, and own their home outright, are the most pessimistic, with a reading of 46.6.
LONDON LEADS THE WAY
Yet look across the country and there is one pocket of unbridled optimism: London.
Londoners are much more upbeat about house prices than households anywhere else in the country by quite some margin – and have been for most of the last 18 months. Given the performance of London property values compared to the rest of the UK, such positivity is understandable. Average prices across the city have climbed by around 20 per cent since the housing market troughed in early 2009, while UK prices have risen by a much more modest 5 per cent. Those living in the capital are also much more optimistic that the value of their property will rise in the future. The scale of the price rises expected has also been climbing steadily over the last year, up from 56 in August last year to 61.3 last month. Although this marked a fall from the 2012 high of 65.2 in March.
It will be interesting to see what effect the successful Olympics and Paralympics have had on sentiment this month, after a period when London truly was at the centre of the world.
Grainne Gilmore is head of UK residential research at Knight Frank.