As 2014 draws to a close it's time to give thought to what 2015 may bring the Sunderland Property Markets. You'll note that I've written 'Markets' (plural), rather than 'Market' (singular) as there's no such thing as the Sunderland Property Market...
As 2014 draws to a close it's perhaps appropriate to give thought to what 2015 may bring the Sunderland Property Markets
You'll note that in both the title and above I've written 'Markets' (plural), rather than 'Market' (singular) as there's no such thing as the Sunderland Property Market. Sunderland, like any other Town or City is made up of lots of small micro-markets, defined both geographically and by property type
We can’t look at Sunderland in just its little own bubble, so a good place to start would be to look at the National picture and to look at recent trends to see if they are likely to continue into 2015
The recent rapid rise in house values in some parts of the UK in the early part of the year (especially in London), along with earnings growth that remain below inflation and the possibility of an interest rate rise over the coming months, appear to have tempered housing demand
This weakening in demand has led to a modest easing in both property price growth and sales. A moderation in growth looks likely into next year as supply and demand become increasingly better balanced
Now with the General Election on the horizon, whichever Government takes power, they, along with the Bank of England, have a thorny job to do in balancing the expected rise in interest rates with the continued resurgence of the housing market, to ensure the property market doesn't drop and drag down the economic recovery forcing people into selling their property at a loss
The main indicators suggest that buyers will start to gain the upper hand, especially with the new stamp duty rules & yesterdays announcement of a 20% discount offered to 100,000 First Time Buyers aged under 40
There is also good news for landlords looking to buy rental property with the changes in stamp duty and later in 2015, the new rules regarding pensions, where you will be able to take money out of your pension to invest in property
That said, don’t just cash in your pension to buy any old property in Sunderland!!!
First time landlords need to be extremely cautious and it is entirely plausible that if poor choices are made, a Buy to Let property will deliver a much lower net return than a wisely chosen annuity!
Clearly with good advice on what & where to buy and equally good advice on how to finance such a purchase, Buy to Let could outperform annuities and form a great way to fund retirement, so it's vital to always get the best advice you can prior to making any decisions
This is clearly going to be a major talking point next year and I'll be devoting much more thought to this in advance of the pension rules changing in April 2015 & beyond - watch this space...
Anyway, back to Sunderland - there are a number of indicators that we can look at as to the state & health of a property market(s), a key one being sold prices and another being the number of transactions taking place in any period
Looking first at sold prices, taking Sunderland as a whole the average sold price of a property in September 2014 was £123,858 which represented a 3.2% increase on the same period in 2013. Tellingly the volatile nature of the sales market in recent years is highlighted when you consider that the above was actually 0.4% down on the average sold value in 2012 (£124,315) and 0.1% up against 5 years ago
If there's anything to learn from this, it's that house price growth in Sunderland is likely to be modest and landlords should not budget for double digit capital growth next year!
There are always ways to increase capital growth, the most common being to build it in at the start by buying well and in particular buying a property in need of renovation
It's always more interesting to look a little deeper and the Sunderland figures do hide few little gems of information about the particular areas & property types that make up the market as a whole
Most postcode areas in the City experienced average house price increases in the year Sept 2013 to 2014, ranging from a modest 0.3% growth in SR6 to 17.4% growth in SR2 but tellingly average prices in both SR4 and SR6 showed slight reductions (-5% and -10.9% respectively)
Digging a little deeper still, this seems to be of less concern to the investors as first thought - the fall in average prices in both areas was driven largely by steep falls in the value of detached properties (with the 'core BTL market' of terraces and semi-detached properties both showing modest increases) and given there are fewer transactions for this type of property than any other the data is likely to be skewed by a couple of 'distressed sales' which would have affected the average
Looking at property types in the City as a whole, our strongly held view that terraced and semi detached properties make a better long term investment than leasehold flats seems to be by the data, with the average price of a terraced property being 14% higher in 2014 than in 2013, with semis showing even slightly better year-on-year increase of 17.8%
Tellingly the average price of both property types are now higher than the post-crash slump of 2009 (terraced property prices are 7.1% higher than 2009 and semi's 7.5% higher) and the average semi is now above 2007 prices (£141,705 compared to £124,676) with terraces having a little way to go to reach this benchmark
Of all the figures, the ones in the above paragraph are of most interest to me and perhaps should be to investors...let me explain...
We all know that 2007/08 led to the creation of a new breed of 'Reluctant Landlord' who could not sell so chose to rent out their property instead
Most of these 'Reluctant Landlords' are still letting their property although we've noticed a steady trickle of landlords looking to sell (usually when a tenant gave notice) over the last 18 months or so but interestingly many who've tried have failed to get the price they wanted and have returned back to letting
I've held the view for some time that this trickle may become stronger as soon as prices reach 2007/08 levels and the 'Reluctant Landlords' realise they are no longer in negative equity - the above data suggests this point may be just around the corner...
If this trickle becomes a flood it will have a dampening affect on prices which will be great news for those investors looking to add to their portfolio!
Don't get too excited though! We've seen that the 'Reluctant Landlord' properties are not necessarily in the areas that would normally give the best returns or stack up as investments (putting it bluntly they are often better properties in better areas than most investors would go for)
That said, there are always going to be exceptions and it may be that a bargain 'Reluctant Landlord' property could balance a portfolio biased towards Good Yields by adding a property more likely to achieve strong capital growth
Finally, looking at the number of transactions, there were 426 completions in the key summer period of June - Aug 2013 and 538 in the same period this year, an increase of over 25%. This suggests again that the outlook for 2015 is likely to be positive, as this required both buyers and sellers to be entering the market in significantly greater numbers than before
Clearly there's always going to be a seasonal dip in both in the sales and lettings markets around now but both of the above indicators suggest that when things do pick up again in the New Year the signs are good that 2015 in Sunderland will be very much a continuation of where 2014 left off - a reasonably healthy market where well-informed investors can buy good value for money properties that will return significantly better Yields than in many areas, both regionally and nationally