Decline in Auction Property Prices to Bring Severe Consequences

The latest report published by Financial Times suggests that UK house prices, which showed stable signs of growth in the past month, might start to decline again as the value of properties sold at auctions fell. Let us remind that earlier in our articles we said Rightmove reported increases in property values, in July particularly. According to the company’s data, UK house prices grew by 0.6% in July 2009 and then fell by 2.2% in August. Evidence supporting the growth of property values was also presented by Halifax, which reported a 1.1% increase in home values in July. However, the latest data revealed in July by the Allsop’s latest auction shows a 43% decline in the value of residential properties sold in comparison to fall 2007. Figures also suggest that this June the percentage of houses sold at a price 35% cheaper than in September 2007 reached 30%, while in July the figure rose by as much as 14%, to 44%. Although experts from Capital Economics assume that the sharp difference in June and July figures might be explained by seasonal factors, it is also reasonable to say that a new period of weakened property market is about to start. Some industry specialists believe that property prices at auctions are a more reliable source of information than traditional property prices because the purchase process at auction is much faster and more simple, which fact gives a better insight into house prices. However, according to Mr. Shah, properties sold at auctions are typically “difficult”, meaning that either owners have trouble selling them, or they have been repossessed, etc, all of which suggests that prices are lower than market average. Commenting on this issue, Capital Economics said that generally an auction discount on market value of a property reaches 10-20%. In the opinion of Mr. Shah, it does not come as a surprise that the recent recovery in UK house prices turned out to be far from long-term; he added that restricted lending, high rate of unemployment and overall weakness of the British economy still make market improvements anything but stable.