Sellers need to get smarter: UK Property Shop News

Rightmove reports that average asking prices have risen by 0.8% (£1,799) in March, as new sellers ignore market reality. Smart pricing by sellers is required to avoid stagnation and the Government, Bank of England and lenders must take urgent co-ordinated action to ease mortgage liquidity.

Buyer choice continues to grow as average unsold stock has never been higher at this time of year. Price increases head towards zero as the annual house inflation rate drops from 5.8% to 5.0%.

New-to-the-market sellers raised their average asking prices again last month to £239,655, an increase of 0.8% (£1,799). In spite of the credit crunch resulting in a more stringent mortgage environment, sellers are testing the market at prices still remarkably close to the peak of last year's boom. Although Rightmove has never measured higher available housing stock at this time of year, average prices being asked by new sellers are only less than 1% lower than the record high of £241,642 in October of last year. This is down only £1,987.

Miles Shipside, commercial director of Rightmove comments: "Most sellers coming to the market seem to be ignoring the increased competition from other unsold properties and the challenge buyers now face in obtaining a mortgage. As many of these sellers are likely to be buyers themselves, they seem to be trying to bank a higher figure for their home but want a bargain when they buy. It's human nature, but in the current market, sellers should price below their competition to achieve more interest now and avoid a larger price drop later in the year."

Prices tend to overshoot in a boom and readjust over time. With sellers still launching their properties onto the market at close to peak figures, it is likely we are in the midst of such an overshoot. Whilst sellers are dropping their prices after a few weeks after no interest from buyers, the gap between sellers' initial price and buyers' ability to pay appears, paradoxically, to be widening. Shipside comments: "Deals are being put together but tend to be at around 10% below peak boom prices. The challenge to sellers is to get smart and accept this new reality. The best price sellers can achieve has fallen - though they won't lose out if they are then planning on buying as well."

Smart pricing is required and should take into account recent comparable property sales, buyers' affordability constraints and competing properties on the market. With lower levels of sales transactions, competition is growing. Average unsold property stock per branch has risen to 67 from 56 at this time a year ago (and from 64 last month), evidence of the slower rate of sales and giving credence to forecasts that completed transactions will be under a million this year.

Rightmove measures an average of 35,000 properties coming to the market every week. Even when allowing for the significant proportion of property merely swapping agents and those that are withdrawn from the market, the excess of supply over demand is on course to worsen. Fortunately levels of new listings remain limited by market conditions, the costs of providing a HIP, and drastic cut backs in new homes. These factors will help prevent excessive over-supply from causing the sharp falls seen in many areas of the US housing market. Over the past month, time on the market has seen a substantial drop to 82 days from 93. Whilst this is to be expected at this time of year due to more sales than in the quieter winter months, this reduction shows there is a positive base of activity in the market if you are willing to price intelligently.

With the turmoil in the financial markets, current lending criteria are harming the housing market. As the credit crunch shows no sign of easing, there is a risk that lending criteria will tighten even further, causing more damage to the market. Some properties may effectively become unsaleable as potential buyers cannot get a mortgage. If we are to avoid a period of stagnation, as a matter of urgency, sellers need to price more realistically now rather than later in the year, and the Government:
* needs to act on finding market-led solutions to strengthen the funding markets,
rather than merely discuss, as the Chancellor said in his Budget statement
* find ways to increase the availability of mortgage funding; and
* ensure a more efficient working of the interbank lending system.

Shipside adds: "If sellers were to price more realistically at the same time as lenders were able to normalise lending criteria, we could see a speedier harmonisation of seller expectations and buyer affordability. Until then, there will be a lot of sellers who can't sell
and a lot of buyers who can't buy, and everyone sitting on their hands."