How do you know that property prices are going to rise where you invest?
When you invest in property, wouldn’t it be good if you had a crystal ball to tell you if property prices are going to rise or fall where you are buying? I’m going to give you that crystal ball. In this article, you’ll learn how you can use three pieces of easily discoverable data to figure out whether prices are likely to rise or fall in the coming months.
The data that could give you a crystal-clear picture of future property prices
While the property fundamentals of shops, schools, transport links, major employers and major investment tell you whether to buy a property for its long-term investment potential, there are three pieces of data that give a big clue to short-term price direction.
1. Time on market
When properties are selling fast, it’s because demand is high and buyers believe prices will be higher in the short term. They want to buy now to avoid having to pay more in the future. They don’t want to be gazumped by a higher offer.
2. Property sales
This demand translates into property sales. So, when property sales numbers are high and increasing, then it’s a sign that demand is rising. That’s a great sign for the short term (and for the longer term, too).
However, sales numbers could also fall in a rising market, because would-be sellers don’t want to sell in a rising market and so delay putting their home on the market.
A better way to consider numbers of sales as a predictor of future prices is to look at the relationship between the number of properties on the market and the number sold: a higher sold-to-for sale ratio would indicate a greater likelihood of prices rising.
3. Price achieved
I know this sounds obvious, but the higher the price, the more likely it is that prices are rising. However, I’m not simply talking about price. I’m talking about the percentage of the asking price. If buyers believe the market is rising, they are more likely to pay near or at the asking price. So, you should also look at the percentage of asking price achieved when considering the short-term future for property prices.
What data is good, and what data is bad?
Now we’ve identified what data to use, let’s look at what is good and bad – translated as rising prices, falling prices, and stable prices:
|Data||Prices Rising||Prices Falling|
|Time on Market||Properties sell within 10 weeks||Properties take 20 weeks and longer to sell|
|Sold-to-For Sale Ratio||Four or more properties out of every 10 are sold||Two or fewer properties out of every 10 for sale are sold|
|% of Asking Price Achieved||Offers are at least 95% of asking price||Offers are less than 93% of asking price|
Data that lies between these extremes points to a stable property market.
What is the data telling us – should you invest in property?
Now, to what you all want to know: what is the current data telling us about short-term property prices?
Let’s look at the time on the market first:
In July, Rightmove announced that the average time to sell is 60 days. This time on market has remained broadly unchanged since March 2017 and points to rising prices.
Now, let’s examine the sold-to-for sale ratio:
According to the latest RICS report, estate agents sold 17 properties per branch in July 2017 and had an average of 37 properties for sale per branch. That’s a ratio of 4.5 sales per 10 properties for sale, and an indication of higher prices to come.
Finally, let’s turn our attention to the percentage of asking price achieved:
In its UK Cities House Price Index, July 2017, Hometrack released its latest analysis. It shows that the average asking price achieved across England was 97%. Again, positive for short-term property prices.
All three indicators are in positive territory, suggesting that unless something awful happens to the UK economy in the next few months, average house prices will rise through the remainder of 2017 and into 2018.
How can you predict short-term prices where you are considering investing?
We’ve looked at the UK. What about where you are considering investing in property? How can you analyse a local market?
Much of the data you need is to be found on the internet, from data providers like Hometrack, Rightmove, and RICS. You can also search the terrific database posted at www.home.co.uk.
However, these data releases always lag by a few weeks. For a real-time assessment, you could:
- Count the number of ‘For Sale’ boards in the area
- Count the number of ‘Sold’ stickers on those boards
- Search the Land Registry website for sold prices in your area, and compare them to asking prices from recent estate agent listings
- Ask estate agents how long it is taking to sell property
Don’t confuse short-term price movement with long-term profit potential
This type of analysis could help you decide whether to buy now or delay property investment. But, never buy in an area that doesn’t exhibit all the property fundamentals for long-term investment potential. If you do, you could find that a great price today translates into a bad investment in five years.
Contact one of the Gladfish team today on +44 (0)207 923 6100. Ask us about our Hotspots Algorithm, and the 108 data points it analyses across 324 areas of the UK. We think it’s the best tool available to assess long-term investment potential, and it’s a major factor in the success our clients have had in property investment.
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