House Prices: What are the expectations for 2011 and what does that mean for investors?

Despite all the doom and gloom surrounding house prices over the 12 months, average property prices actually remain broadly unchanged compared to this time last year.

Nationwide Building Society, for example, put the average house price in November 2010 at £163,398 - just 0.4% higher than the £162,764 recorded in the same month in 2009. Meanwhile, Halifax showed a slight annual decline of 0.7% in the average property value to November 2010. Prices in December 2010 stood at £164,708, said the bank, compared to £167,032 the same time in 2009.

A bumpy road for property prices in 2010

But this doesn't mean that little or nothing has happened in the past 12 months. The start of 2010 was encouraging for existing homeowners, with the first seven or eight months showing pretty consistent rises in the property market. But by the latter part of the year, the picture started to look less rosy.

Both Halifax and Nationwide reported that prices fell in November 2010 (by 0.1% and 0.3% respectively) on the month before, while three-monthly data has showed downward movement. This is largely due to a higher number of properties for sale, combined with reduced demand, say experts.

According to separate data from property website Rightmove.co.uk, sellers are finally responding to the recent falls by reducing their prices. Those who put up the ‘For Sale' sign in December 2010 cut the price by an average of 3% (£6,969).

But of course, all these averages hide a myriad of individual 'house price tales' as values fluctuate considerably between regions. Property in London, for example, actually showed a 0.4% rise in during the third quarter of 2010, according to Nationwide's latest regional data, while the Outer Metropolitan area increased by 0.7%.

Conversely, home values in the north-west and Yorkshire & Humberside fell by 2% and 2.7% over the same period.

And the forecast for property prices in 2011 is?

It is impossible to be certain what will happen to house prices next year, however, as this depends not only on where you live but on nationwide factors including interest rates, availability of mortgages and the state of the general economy.

Mortgage lending figures - crucial to the strength of the housing market - are not looking pretty. Lending for house purchases is 16% lower than a year ago according to recent data from the Council of Mortgage Lenders, while lending for remortgages is 21% down compared to last year.

When it comes to interest rates, most commentators predict they will have to stay low for the housing market to get back on its feet. However, recent figures show that the Consumer Prices Index (CPI) measure of inflation hit 3.3% in November - up from 3.2% on the previous month and even further from the Government's 2% target. This puts greater pressure on the Bank of England to raise rates from their current low of 0.5%. However, our view is that the risks to economic output by raising rates are greater than the potential benefit of reducing inflation and that bank rates will stay very low for most if not all of 2011.

What do the property experts say?

Little surprise then, that uncertainty still remains the buzz word when it comes to forecasting what will happen to house prices next year. But what do the experts say?

David Hollingworth at broker London & Country

"The outlook for house prices for 2011 will be flat at best. The recent trend has been downwards and that could continue although I don't expect prices will reduce more than 5% over the year. Much will clearly depend on how government cuts take hold, although mortgage availability is unlikely to increase dramatically. However if the supply of new property to the market dwindles then this could hold up prices."

Suren Thiru, housing economist at Halifax

"Although weak earnings-growth and forthcoming tax rises will put constraints on the market, interest rates are likely to remain very low for an extended period, which will support the improved mortgage affordability position for homeowners and those able to enter the market. As a result, we do not expect to see a significant fall in house prices. Indeed, overall, we predict that prices at the end of 2011 will be at a broadly similar level to that at the end of 2010."

Martin Gahbauer, chief economist at Nationwide Building Society

"There is little evidence to suggest that current house price declines are likely to accelerate in the months ahead... In addition, there are early signs that the flow of new property onto the market may be slowing down again as potential sellers observe the recent weakness in prices."

David Bexon, managing director at website Propertypriceadvice.co.uk
"Fragile consumer confidence, government debts and spending cuts along with the spectre of 20% VAT looming large in the new year all adds up to the rather boring prediction of more of the same for the 2011 property market. Nationally, house prices will, at best, see no change and, at worst, a 3% reduction on current levels. However, London, the South and South West could witness increases of 2% to 3% over the year."

Ray Boulger, senior technical manager at broker John Charcol
"In the first half of next year, house prices will drift slightly lower but low interest rates will prevent a significant fall. By the middle of 2011 the negative impact on consumer confidence of the public spending cuts will have worked its way through the system and confidence will start to improve. This will result in more demand for property and a modest recovery of prices."

Miles Shipside, commercial director at property website Rightmove.co.uk
"In 2011 we will see larger falls in weaker markets due to over-supply and forced sales. Conversely, pockets of the country where supply is traditionally low, will see prices underpinned and somewhat immune from the falls... Nationally prices for 2011 will, at best, be close to flat and, at worst, down by 5%."

Rod's opinion about property investment in 2011
Taking all these views together, Axis broadly expects house prices to end up at the end of 2011 roughly where they are now, with some minor regional variations.

Given this scenario, what does it mean for property investors? The only word is 'excellent'. That's because property investors do best in a contrarian marketplace. When the general economy is poor, and house prices are low with general concerns about the future, the very best deals are there for the taking.

We originally thought that the best deals would start to fall away at the end of 2010, but this news of continuing uncertainty and roughly the same pricing gives investors a window of opportunity to buy extremely well in 2011!

Here are the four key benefits for property investors who buy in 2011:

• Rock bottom property pricing
• Excellent discounts below market value 
• Low interest rates
• Strong rental demand across the country

It makes for a powerful combination - and it's true whether you are looking at investment property in the UK or the USA.

Checkout Axis currently available property investment opportunities

In the UK

In the USA

Live with Abundance

Rod Thomas FCA   

Posted in Property Prices

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