Are prices falling fast or not?

I keep reading the newspapers hoping for some good news about the property market and they keep giving me bad news. The bad news is that property values have only fallen an average of 2.2% this year compared with last year, according to the Financial Times. I was hoping for something more like 10% to 15%. The sooner sellers forget what someone told them their property was worth over dinner in February 2007 and start putting their properties on the market at attractive prices, the sooner buyers will start sensing bargains and come back into the market, and we will all be trading again.

But these figures from the Financial Times just don’t make sense to me even though they say the Land Registry has come to roughly the same conclusions. According to the two of them, prices have just fallen back to where they were in May 2007. That’s certainly not my experience in central London. Even when prices are agreed at a discount to the asking price, the price is still inevitably going to be slashed again just before change contracts, and I haven’t yet come across a seller refusing to agree a further reduction. My experience is that such reductions from the original asking prices are a lot more than 2.2%, and I’m not talking about asking prices set at the top of the market last year, but prices at which properties were being put on the market in the summer this year.

I think the problem with trying to compare prices from one year to the next is that there is no single commodity like there is in the financial markets which you can compare from year to year. You can compare prices for an ounce of gold or a bushel of wheat from one year to the next, but you can’t very well have a market in three-bedroom houses you can measure accurately. If you had to value wheat according to whereabouts the field is, and what sort of bag it’s in, you couldn’t couldn’t come up with a standard value for wheat which you could compare from one year to the next either.

So I am forgetting about indexes. I think what really matters is the experience of estate agents in particular areas. I think if you tried to tell estate agents in South Kensington that prices have only dropped 2.2% since February 2007 … well at least it  would give them something to laugh about.

I’m hoping my gut feeling, based on deals we’ve been involved in this year, is right, and asking prices have dropped – and are still dropping — sharply. If you follow the stock market, you will know you can have strongly trending markets, going up or down, or you can have markets which just trend “sideways” - in other words they do nothing and the stockbrokers starve, or at least book cheaper holidays.

The good thing about a strong move downwards is that there is every chance it will quickly hit the bottom and start back up. There are definitely buyers out there looking for a bargain. Properties for refurbishment are being snapped up at auctions by buyers with cash.