Knowing when to buy or sell your property can seem like a guessing game. Markets are always fluctuating, and you may feel that you need to be an expert to spot property market trends. But there are actually a number of factors to look out for which indicate the health of the current property market and where the trend is likely to go. Here’s our brief guide to spotting property market trends.
Factors within the property market
There are a number of factors within the property sector that can indicate the state of the market and where it’s likely to go. Three major indicators have fairly accurately tracked the trajectory of the housing market. They are; the number of building permits issued, the number of housing starts, and the number of new homes sales within a given month. These statistics are released every month and are found online.
The building permit data tells us the number of permits that have been issued for construction projects over the past month. Housing starts data tells us the number of housing projects that began construction over the past month. Housing starts are an indicator for the state of the economy overall; people spend lots of money not only on houses but also the furniture they put in their houses. Therefore, a large number of new housing starts suggests that there will be significant economic activity in other industries (furniture, art, appliances, etc) in the coming months. New home sales data tells us the number of new houses sold and up for sale over the past month.
Interpreting this data
Building permits data gives us an indication of next month’s housing starts data, and housing starts data gives us an indication of next month’s new homes sales data. Therefore, we can gain an indication of the property market’s near-future trend.
Look at these three pieces of data on a graph and you can see how accurately they predict average house prices and in turn, the state of the property market. This is called the UK House Price Index. The data trend accurately tracks the House Price Index, just a few months/years in advance.
In the case of the Credit Crunch of late 2007, when house prices dramatically took a downward turn, the other three statistics began to fall in the preceding months. These metrics also started to tick upwards just before the house prices began to rise again. Noticing this trend in building permits, new housing starts and new home sales can give us an indication of the property market. It’s not foolproof, but when interpreted correctly, the accuracy is undeniable.
Factors outside the property market
As well as looking directly to the property industry, there are a number of distinct factors which can act as indicators of property market trends. In some cases, these may even prove to be more accurate. Here are some of them.
Personal income and inflation
Higher income is a sign of a growing economy, and when people have more income, they’re inclined to spend more, which leads to inflation rising. Hence, positive trends in average personal income can indicate a healthy property market. Higher inflation means higher house prices, combine this with people’s added willingness to spend thanks to higher income and this is a sign that the property market is in a healthy position and will be for the foreseeable future.
Of course, the opposite is true when average personal income is low. When this happens, people are less willing to spend and more inclined to save, which can lead to lower property prices and a general slump in the property market. Information on personal income and inflation can be found on official government websites, such as the Office for National Statistics.
The unemployment rate is another good place to look when predicting property market trends. Generally speaking, the lower the unemployment rate (i.e. the more people in work) the stronger the economy. It also means that, in a similar vein to the previous point, people will be in a better position to spend money on houses.
It’s rare for unemployed people to buy a house and especially difficult for the unemployed to secure a mortgage. Therefore, significant increases in the unemployment rate could (although it’s impossible to say for sure) suggest that the housing market may slow down in the near future. Again data on the unemployment rate is readily available online.
Delinquency is quite simply a failure to meet repayments of a loan. A lower delinquency rate means that fewer people are missing their loan repayments. This indicates less risk for lenders, making them more confident that they’ll see a return on their investments, hence when delinquency rates are low, lenders are more willing to lend money.
The more willing mortgage brokers are to lend, the more stimulated the property market is likely to be. Conversely, a high delinquency rate suggests a high risk for mortgage lenders which could stifle the property market. Find the current UK delinquency rate here.
James Anderson aim to make buying and selling property as easy as possible. We don’t wish to bombard you with jargon, we like to keep things simple. We pride ourselves on our personal service, and we’re always happy to answer any and all questions on the state of the property market. Get in touch with a member of our team for more information.