Education
Fast Growing UK Property Prices & The Property Cycle
What factors contribute to the growth of real estate prices in a particular location? Economic growth, employment opportunities, population growth and more. Is there a way to determine if property values are rising or falling? You can use the property cycle to track if the property market is rising or falling.
In this article, we look at the factors that trigger rises and falls in property prices and cover the basics of the property cycle.
Influencing Factors On Property Prices
Global and local conditions influence property prices. Let’s look at some local factors that create demand for housing.
Economic Growth
Economic growth is one factor that influences the interest in and demand for housing. For example, a solid economic performance in an area with growing job opportunities and income levels will lead to higher real estate prices.
Additionally, with economic opportunities, areas will see population growth, which can drive up demand for accommodation.
Infrastructure Development
When the economy is doing well in an area, it’s likely to get a boost in infrastructure, such as new transportation networks, schools, hospitals, and commercial centres, which can create desirability and a rise in house prices.
Interest Rates
Lower interest rates can make it more affordable for individuals to borrow money for home purchases, leading to increased demand for real estate and potential price growth. Conversely, higher interest rates can have the opposite effect and even go as far as contributing to dropping property prices.
Government Policies
Local government policies, such as zoning regulations, building codes, and tax incentives, can impact the real estate market. Policies that promote development and investment may contribute to price growth.
Glasgow Fastest Growing House Prices
Scotland loves to beat England at everything, and like most countries, there is a rivalry between the cities.
In Scotland, the competitiveness dates back centuries. Some 300 years ago, it began over a loaf of bread!
The standards of baking, no less, is where it all started, and today, there’s jostling for the top position in just about everything from business to sport, music, you name it, so Glasgow topped the list of fastest-growing house prices in the UK is a local celebration.
Known as the second city of Scotland, Glasgow has outdone English cities like Leicester and Liverpool, which are the following best performers, and Edinburgh is coming in a clear fourth place. Scotland is also attractive for property investors, with some of the best yields.
The Property Cycle
The property market is cyclical and, therefore, recurrent. Analysts can observe and predict when an area or country moves from one phase to another, i.e. from boom to slump. Here is the layperson’s definition of its four phases:
Boom
The boom is the peak of the cycle, and it’s when property prices are at their highest, and it triggers more vendors (sellers) to sell up to reap the rewards of achieving a higher sale price and, thus, more profit from the sale. This phase is a seller’s market when real estate agents are busiest. There are more sales transactions during the peak.
There is a correlation between the boom and the state of the economy. If one is doing well, the other will do well, too, and lower interest rates on loans result in homebuyers borrowing more, which fuels property price growth.
It’s not all positive in this phase, as the property price growth returns lower yields for landlords. They offset this outcome by raising rents, which, in turn, impacts the cash flow of the tenants. They are looking forward to the friendly times of the next phase in the property cycle – the slump.
Slump
The property price growth slows and then plateaus, and it’s a buyer’s market. Vendors (sellers) now think twice about listing their properties for sale as they are unsure they’ll get their asking price. Resetting sellers’ expectations is the job of real estate agents and surveyors, and it’s tough for homeowners to accept their property is no longer worth thousands of pounds or dollars more than they can achieve now.
The slump is the phase that excites property investors as they know this downturn in the market may drop further and become a ‘bust’.
Bust
The bust phase does not occur in every property cycle in all regions and can be passed altogether. However, this is the bottoming out of the property market, where there’s a notable drop in sales activity, with sellers put off by the lower property values. In some areas, property values can drop dramatically in this phase and cause desperate homeowners with large mortgages to sell or foreclose, i.e. a mortgagee sale.
While some homeowners and investors may have overextended themselves and are forced to sell up, seasoned property investors with more than one property cycle behind them love this phase. These buyers are ‘cashed up’, i.e. they have enough equity in their existing property holdings for deposits on more home purchases. Buying homes often below their registered value provides instant equity, so this activity is rampant in this phase and the one that follows – the recovery.
Recovery
Home sellers who have held on during the lowest point in the market now breathe a sigh of relief as they know property prices are rising. The boom will return if they can hold on for a few more months before they sell.
Summary
Property prices increase and decrease depending on various factors, including those mentioned above. It’s worth noting that these factors are interconnected, and their impact can vary over time. Real estate markets are dynamic, and combining these elements often contributes to the overall trends in property prices.
The property cycle has given property investors a tool to gauge the real estate market so they can time their purchases and sales.