Half way through the crash – the outlook for UK residential property

The 2009 Knight Frank residential market forecast

Key highlights

• UK residential prices will fall 30% from their peak, taking values back to September 2003 levels
• Sales volumes will hit a low point in late 2008, at only around 30% of their long term average
• Sales volumes will recover to reach 60% of their long run average by the second half of 2009
• Development land values outside London are already down 33% from their peak, with a further 15% to go in 2009
• Equity rich investors and speculators are already in the market, targeting distressed land and property sales
• The top of the agricultural land market has been reached, we expect price falls of up to 10% from the 2008 peak

Where do you begin when the world is falling apart?

Liam Bailey, head of residential research, Knight Frank commented:

“The central question for anyone who owns their own home is – when will prices stop falling? Our forecast suggests that we will be closing in on the bottom of the market during late 2009 / early 2010.

“Prices in the UK peaked in late 2007 and have fallen sharply since that point. Our forecast suggests that we are now at least half way through the process of price falls, with around 15% of an estimated 30% peak-to-trough decline already factored into prices.

“Some markets are experiencing very different conditions from the national or regional average. The regional new build sector has already seen substantial price falls, with examples of 50% or more in several locations. It looks as if price declines are already coming to a close here – with investors sensing that “fair pricing” is almost at hand.

“Prices will take some time to recover to their 2007 peak, a process which, on average, will be complete by 2015, led by central London (2012) and concluded by Northern Ireland (2019).

“Our recovery picture is based on the assumption that mortgage providers will adopt a far more conservative lending approach once the credit crunch unravels. However, it is also worth noting that we do not have the oversupply problems of Spain and the US, and, indeed, a shortage of housing will become more apparent with time. Whilst a market peak is hard to spot, so too is the bottom of the market. There are lots of buyers watching the residential market very closely, and they are desperate not to miss the floor when it comes. Equity backed investors are already active, and more are waiting for prices to correct in the forthcoming months.

“The winners in this market will be anyone with equity who can buy over the next six months. Those requiring significant finance will be unlikely to be quick enough on their feet. Vulture funds and cash-rich individuals will be the first to benefit.

“It may be hard to stomach but opportunistic buyers are looking for distressed property sellers. They are interested in individual properties – repossessions in particular – and also development land, or even newly completed developments. In fact, anything where values are felt to have fallen as far as they are likely to.”

Courtesy: Knight Frank Residential Research

For further information, please contact:

Liam Bailey, head of residential research, Knight Frank,
Tel: +44 (0) 7861 5133, +44 (0) 7919 303 148
Email: [email protected]

Jon Neale, head of development research, Knight Frank,
Tel: +44 (0) 207 861 1551
Email: [email protected]

Andrew Shirley, head of rural property research, Knight Frank,
Tel: +44 (0) 1908 302 938
Email: [email protected]

Nick Barnes, head of international research, Knight Frank,
Tel: +44 (0) 207 861 1674
Email: [email protected]

Davina Macdonald Lockhart, pr manager, Knight Frank,
Tel: +44 (0) 207 861 1033, +44 (0) 7796 996 154
Email: [email protected]