The growing imbalance between demand and supply makes an eventual recovery in property values inevitable, according to a new report from Savills.
The Savills August 2009 Residential Property Focus has found that the current imbalance between demand and supply makes recovery certain and that the market is now in the first stages of a recovery that will be led by prime.
The report also suggested that there is clear evidence of restored investor confidence in residential bricks and mortar, which has resulted in price rises in recent months (prices in prime central London were up 4.3 per cent in March to June).
In prime central London in particular, pent up demand, an acute shortage of premium stock and improved buyer sentiment have all combined to boost activity and values. Transaction levels are up on the extremely low levels seen in 2008, and are building towards those seen in 2006 – although the market is still dominated by equity-rich buyers.
Unusually for July, which normally suffers from a seasonal downturn, applicant numbers have barely faltered. Similarly, the ratio of new applicants per property (a key indicator of future prices) has held firm in July at a level much more akin to that of 2007.
However, director of Savills residential research, Yolande Barnes, warns that despite early signs that mainstream values are following the prime markets in showing increases, talk of a sustained recovery in the mainstream market is premature. The Savills report predicts that prime markets will outperform the mainstream in the medium term, as they are less impacted by limited mortgage finance and unemployment.
Looking to the future, Savills predict that the supply of properties will improve in the autumn as growing prices attract more vendors back into the market. This could take the heat out of the market and eradicate some of the gains in recent months.
Barnes said this "would be consistent with the early stages of a market bottoming out and a period when prices 'bounce along the bottom'. There is now clear evidence of restored confidence in bricks and mortar, not least as an investment vehicle, and we expect prices to stabilise through 2010 before returning to more sustained growth from early 2011."