The current phase of the property market – what it means for investors

The current phase of the property market – what it means for investors
16th May 2005

It\'s a phase that we could label: the \'I feel good about things, but I keep reading about a collapse in the property market, a collapse in the stock market and so on,\' phase.

Look at this headline from a press release this month from Experian, the economics analysis and forecasting group:

\'Consumer confidence rises, but caution slows High Street spending\'

Confidence and caution? 

Strange bed-fellows.

\'Consumer confidence is on the rise as people feel more positive about their finances and less fearful of a house price crash or further rises in interest rates.\'

People are essentially only prepared to think about dipping a toe in the market ... later.

The Experian survey is a good barometer and predictor, not just of consumer spending, but also the property market.

\'Regionally, sentiment has risen across all parts of the country but most notably in the South and Midlands where confidence has been especially weak. The overall ‘Feel Good Factor’ has improved fastest in the East Midlands and East Anglia, whilst Wales, the South West and Greater London have similarly recorded impressive increases in optimism.\'

This, though, is the kind of confidence that we might call ‘relief optimism’. 

The sort of feeling you might get when emerging after a huge storm to find that the damage hasn’t been as bad as you feared and only some of the houses have been blown away.

It doesn’t inspire you to go out and spend.

So it is with the property market – people are pleasantly surprised, as they emerge blinking from a storm of terrifying headlines and predictions of sky high interest rates and tumbling house prices, to find everything is actually not too bad.

But the reality is that the market has slowed, even reversed slightly in some areas, and interest rates (and therefore mortgage payments) are higher – and the further reality is that they may well go higher.

So, people are not going to go out and start borrowing a lot of money to move up the property ladder right now.  This is a time for consolidation.

We can also see from the survey just how important the property market is in driving confidence and consumer spending.

‘….there is a north-south divide over spending on major items. People in the North, East Anglia and Wales are far more optimistic about spending on major purchases in the coming year than they were three months ago, and there have also been improvements in the North West and Yorkshire & Humberside. All other regions, however, have recorded falls, with the greatest being in the West Midlands and Greater London.’

And this is directly linked to the property market.

\'The housing market has been much slower in the south than the north and, with house prices much higher as a proportion of income in the south, homeowners are likely to be more sensitive to changes in interest rates.\'

Levels of confidence


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