Words: Ashley Rigg
Published: 24th August 2011
*Lessons from America's property crash
Research from US property portal Zillow provides an interesting insight into the behaviour of property markets as they move from boom to bust.
Zillow found that sellers who bought after the housing crash in 2008 are asking an average of 16% more for comparable properties than vendors who bought before 2006.
The graph above is a snap shot of asking prices and valuations in today’s market. The blue line shows how much asking prices are above current valuations. As you can see, on average all sellers are asking above what their houses are worth but those who bought later are asking significantly more than buyers who bought between 1999 and 2007.
The green line shows the difference between current asking prices and the former purchase price. In other words the profit or loss home owners make from selling at current valuations plotted against the year at which they made their original purchase.
Sellers who bought between 2004 and 2008 are prepared to sell at a loss while those who bought afterwards are trying to make a profit by asking unrealistic prices.
The US housing market crashed earlier and harder than anywhere else. Zillow’s explanation of the trend is relevant to those of us working at an earlier phase in a slowing deflating property market.
“Sellers who bought post-bubble seem to think that since their home purchase occurred after the peak of the market, and thus home values were already significantly discounted relative to the peak, the seller escaped the worst of the bubble. The problem is that “The Bubble” didn’t pop so much as steadily deflate for the better part of 5 years now, and current home values now represent what they were worth in 2003”.
Conclusion?
The obvious conclusion is that the year of property or land purchase is a useful screening question when finding motivated private sellers or developers.
However, there is an important difference between Europe and the US which will probably mean the trend is less pronounced.
The system non recourse loans in the US allows people to walk away from their mortgage debts and flood the market with property. This is not possible in most of Europe and means the property bust in countries like the UK and Spain is likely to be longer but less steep.
Inflation will erode real values in all but prime areas meaning sellers will be able to sell at similar nominal prices to those they purchased at. It should be much easier for property sellers in Europe to convince themselves to sell at a real (inflation adjusted) loss.
Who said I never covered any good news stories?
Source: Global edge
User Comments
Hi,
The US and European property markets are largely down on value since the peak days, a lot of sellers end up getting repossessed or having their properties foreclosed because they cannot sell it in a conventional way through their agent.
The amount of people who have bought in say Spain, the US and the UK who are in negative equity is staggering. Sellers tend to promote through one agent locally and hope for the best, sometimes having no viewings for months, sometimes years.
I would suggest trying to think out of the box, as the world is changing so very quickly, so is the property world. Rather than just trying to sell through a local agent who will promote locally, try promoting internationally. Also try selling in other ways such as options etc.
If anyone has properties they need to sell quickly or that they want to get away from then drop me a line at iain@wholeworldofproperty.com
Regards,
Iain Stewart
iain stewart,
Whole World of Property