The EU’s financial risk watchdog and ‘think-tank’, the Organisation of Economic Cooperation and Development (OECD) has reported the risk of a potentially huge, worldwide drop in property prices.
The OECD advises that the differing monetary policies expected during 2017, the likelihood of rising inflation, and recent and dangerously high property prices in many advanced economies, including Sweden and Canada, raises the possibility of a global downturn in property prices, with massive price falls predicted if property markets overheat.
The UK is one of eight countries identified by the OECD with property markets at risk of overheating due to low interest rates.
However, the OECD’s Chief Economist, Catherine Mann also thinks that a slowdown in property prices as a result of the UK’s decision to leave the EU might actually “be good for the UK” – especially for first time buyers – where the liability is mainly felt by foreign investors.
“[What’s] interesting in terms of the implications for the UK economy is who bears the burden – who bears the adjustment cost. If it’s a non-resident then lower house prices could actually be good for the UK.” said Ms Mann.
London particularly continues to see a slowdown in property price growth except in a few ‘hot spots’ – see our November issue ‘The Rise of the Hipster Hotspots’).
Recent research by Countrywide also reports that the number of homes selling for above the asking price has drastically declined over the past 12 months.
At the beginning of January 2016, 41.5 per cent of London homes went for more than the asking price; in November 2016, this had fallen to just 23 per cent. Whilst the drop was far less pronounced elsewhere in the UK with 29.8 per cent selling for higher than the asking price back in March, that figure had also fallen by November, with only 23.1 per cent going for more than marketed.
Sellers in London especially have been accepting lower offers as buyers decide not to buy amid fears of what will happen as Britain triggers the process for leaving the EU.
Across the UK, house prices have continued to grow but the market place has seen a slowdown in activity throughout 2016. Johnny Morris, Head of Research at Countrywide, said “There isn’t the same level of competition in the market now.”
A report on the very low numbers of new buyer inquiries since June 2016 by the Royal Institution of Surveyors (RICS) supports this. In addition, fewer homes are coming on to the market for sale and this has also helped keep prices up.
Mr Morris added: “We expect prices to fall next year as this slowdown works through the system. Generally the first thing to change will be the number of transactions, and then after the gap between what people will pay and how much people will accept opens up quickly and takes a while to close. Sales slow, and then there is a price adjustment.”
Back in December, the Bank of England also warned that any improvements to house finances felt since the 2008 financial crisis are like to come to an end.
In the meantime, the OECD will continue to monitor for “vulnerabilities in asset markets”.
24 Jan 2017