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Will the 2024 favour the homebuyers or the sellers?
For the sake of this article, I have created a Bollinger Bands (BB) chart that visualises the overall mood among the buyers (and the sellers), the price movement and direction, and the possible trends over the next year or even longer. The bands widen when prices become more volatile and narrow when things calm down. Analysing house prices through this lens can reveal interesting insights.
Based on the chart, London residential property market is showing signs of stabilisation. The recent prices are closer to the moving average without solid signals of a breakout above the upper band or a breakdown below the lower band. That can be a good sign.
There is, however, a caveat. When the BB chart shows signs of low market volatility, this can also indicate sudden price movements in both directions. Why is that? Because the market hates stagnation. That means, the market will adjust accordingly to generate the movement. Sometimes, it means the prices will have to drop further to attract the buyers. That change does not happen overnight.
Do you know how the sales agents adjust their prices and how frequently? This is typically a £5k every three months. So, if the house does not sell quickly, the price is reduced to test how the market reacts. This is not a golden rule, just my experience. However, it very often turns out to be true. So, when the market is stagnant, the agents will drop prices gradually, giving enough time for the economy to adjust. There may be new government policies, or more definitive signals from the labour market. This is, in fact, a very smart way of selling things without compromising too much value of the assets.
In the current housing market context, it may mean deeper price cuts to counterweight higher interest rates and low purchase power among the prospective buyers. However, when you see a house for sale that advertises for the £500k, please do not hope the price will suddenly drop another 10% because the market is stagnant. This is not how it works, unless you make an offer, survey the house and find real deficiencies that beg the discount. This is a more likely scenario in the current market condition but may not be applicable when buyers are abundant.
It's important to remember that the London housing market is not monolithic. Depending on local factors like employment, affordability, and housing supply, different boroughs will likely experience varying degrees of price growth or decline.
In the following article, I will analyse the overall market direction. This is important because short-term fluctuations may completely overshadow what happens over a much more extended period.