The House Price Escalator
With house prices continuing to show signs of weakening in many areas of the country are we right to be worried about this?
The media love this sort of thing of course, generating attention grabbing headlines telling us how we are all going to be worse off.
And of course it is worrying to think that the value of our homes is falling. We are a nation of home owners and the fact that our homes have increased in value so much over the last 10 years has created a feeling of prosperity and indeed for those people that have actually jumped out of the market or relocated to areas where prices are lower it has created prosperity for them.
But should we be as fixated on house prices as we are, or is this a ‘problem’ that has been blown out of proportion by the media and our natural inclination to follow the herd?
Doesn’t our fixation on prices work against us, particularly when prices are not shooting upwards, by paralysing us with fear?
Let’s take a look at this.
Traditionally we have viewed the housing market as a ladder, all striving to climb the ladder by moving to larger more expensive houses and by capitalising on price increases.
If prices rise we feel good about it and we are keen to make a move up to the next rung. Buyers are easy to come by and all is good.
But when prices fall or stagnate the story is different. Nobody wants to move, worried that they won’t make as much on their property as they feel they ought to or could have done a few months back. Better to just wait and see what happens to prices and stay put for now.
Of course when everyone does that the market grinds to a halt.
But viewing the market as a ladder with people climbing up or down it isn’t quite right.
Here at Move2You we like to think of the market as an escalator. Those of us that are home owners are on the Housing Escalator rather than the Housing Ladder and this escalator can move upwards or downwards in its own right as well as people individually moving up it or down it.
Let me explain.
When house prices move up they move up for everyone – ie the escalator moves upwards. And when prices fall they fall for everyone – ie the escalator moves downwards.
Of course it’s a little more complex than this in reality. The higher up the escalator you are the faster the escalator moves. This is because if house prices move by 10% the more your house is worth the bigger in the change in value in absolute £ terms.
So as prices rise those houses that are further up the escalator move a little further away from you with each percentage increase and likewise you move a little further away from the houses below you on the escalator. In a falling market those houses above you get close to you in affordability.
The principle however is that everyone is moving together on this great big housing escalator and this should give us all some comfort in these uncertain times.
It can be more worrying if the escalator has moved far enough in a downwards direction for your property to be worth less than you owe on it. But of course even then this situation only becomes a reality if you actually need to sell. If you don’t then it’s a case of holding your nerve and waiting for the escalator to move back up.
For the vast majority of us however this isn’t going to be a problem and we should try and be a little less fixated on house prices. Yes prices will go up and yes they will go down, but they are also doing the same for everyone else on the escalator.
So the key variable is if you want to make an individual move up or down the Housing Escalator and what you can so to ensure that such a move can be achieved successfully whatever the market conditions.
To do this the focus needs to be on the transaction(s) you will actually be involved in; i.e. you need to find a buyer for your property and find a suitable property to move to.
Right now finding a buyer is a really difficult thing to do as many of them play a wait and see game or are finding it hard to get a mortgage.
The buyers are out there however, they are just hidden or reluctant to make a move.
So this means you need to work hard to find these hidden buyers and then do everything you can to encourage them to make an offer.
With the way the housing market works right now finding a hidden buyer is not easy. It isn’t geared up to helping you do this. Right now you are dependent on potential buyers taking the necessary steps themselves to search for a property and then actually stumbling across yours.
And this is the problem we are working on solving at Move2You.
We are developing a tool that will enable you to access the hidden housing market and we think it is going to make a massive difference…..
Until next time,
Dan
Tags: buyers, house prices, Housing Escalator, Housing Ladder, Housing Market, sellers