Bucking the Market

My daughter, Georgina, has just bought a house so it looks like I will be busy doing 'voluntary' work on it for a few months. The fact that she has bought a house at this time is either seen as canny or foolish. Some people think it is a bad time to buy because they see predictions of house prices falling still and some think it is a good time because they believe things are bottoming out.

Nobody knows which will turn out to be the case so it's a punt, or at best an educated guess. A year ago the price she paid for this property would have been seen as ridiculously low, now it's the market price. If prices fall by an average of 30% as some predict then conventional wisdom says she will have paid more than she need have. But the key word here is 'average'. Because the average market price falls, that doesn't mean all house prices will fall in line with the average. The likelihood is that the overpriced flats and new builds will take a hit but a house which has effectively bottomed out already will probably stay there. The price she paid takes account of market pessimism so if the prediction is for a 30% fall this is the reason it isn't selling at the moment but it doesn't necessarily mean it will go lower. There are people out there who believe that if they hang around long enough some desperate person will sell them a house for next to nothing.

There is a great deal of pent up demand in the housing market and we have stopped building at the very time that there is a shortage. Personally I have no desire to see house prices go back up, so a trickle of activity that doesn't open the flood gates is the best thing. The problem is that markets rarely work in that way. We have Bulls and Bears. At the moment it is the Bears who are dictating things but when the Bulls sniff a little blood it will be like Pamplona. People will get trampled in the rush and there will be those following behind who see it all disappear in a cloud of dust but have no chance of catching it.

This of course is just another prediction to go with all the rest out there and it means nothing because nobody really knows but, though following the herd is safe, it will never win any prizes.


Roger Bisby
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