Housing market logjam could see prices fall

Over-optimistic sellers are refusing to accept "too-low" offers, creating a massive gap between asking prices and actual sale values.

The average time a property stays on the market in the capital has risen to 87 days, the longest such period in November for five years, according to figures from property website Rightmove.

With Christmas nearing, agents warned that homes could remain unsold until the spring unless they are "priced to sell".

Chris Brown, president-elect of the National Association of Estate Agents, said: "Lots of whammies came at the same time - the introduction of home information packs, the failure of Northern Rock, the negative press about the US sub-prime market. They all hit about three months ago. That is why it is taking so long to sell.

"The only properties that are moving are the ones where a price correction has been taken into account by the seller. The ones that are hanging around are where the vendor thinks it will be all right on the night - but it won't be."

Ed Mead, sales director at Douglas & Gordon, said prices in central London were already down about five per cent.

"Whenever market sentiment turns, it always takes about 90 days for vendors to believe it," he said. "We are in a period where a lot of sellers are still not prepared to believe the world has changed."

The biggest impact had been on the middle to upper end of the market, with properties over £1.5 million, he added.

It is a dramatic turnaround from only a few months ago when buyers were having to make sealed bids for prime properties.

Part of the problem is that City bonuses are not being spent in advance of Christmas, as they have been in the previous two years, because there is so much uncertainty about what banks will be paying out at the end of the year.

Savills found that the proportion of City buyers of homes in the £2million-to-4million price bracket has fallen by a quarter since August. In the £1million-to-2 million range, the proportion has dropped by a fifth. Tim Le Blanc-Smith of John D Wood said: "Bonuses are still good but large job losses are expected next spring so most City buyers are remaining in rented accommodation until the City settles down."

Only the "super-prime" properties selling for more than £5million seem to have escaped unscathed. At this level most buyers are wealthy foreigners who are much less exposed to factors such as rising mortgage costs.

Liam Bailey, head of residential research at Knight Frank, said: "In the early summer we were still in the midst of the strongest sellers' market for 20 years. It is now very much a buyers' market. Sellers are having to compete much harder and ambitious asking prices are not being achieved."

Knight Frank's figures show the overall central London price in the year to October rose by more than 34 per cent but last month itself the figure was just 0.3 per cent, the lowest monthly increase since July 2005.

Mr Bailey said: "We forecast no more than three per cent price rises for next year. The exception is for homes at over £5million, which we expect to rise by eight per cent or more on the back of international demand, particularly from Russia, Kazakhstan and the Middle East."

Rightmove's data shows asking prices in London rose 2.3 per cent in the past month, suggesting vendors were still optimistic. The biggest borough increase was 8.5 per cent in Kensington and Chelsea.

Miles Shipside of Rightmove said: "We forecast that prices will increase again next year but by only five per cent compared with this year's boom.

"The underlying trend is one of a slowing market, with worrying signs of difficulties in getting mortgages. If sellers don't adjust their price expectations, the number of sales will fall."

PLAYING THE WAITING GAME

ON MARKET FOUR MONTHS: £175,000
Chingford: Marsha Gray has been trying to sell her one-bedroom flat in Chingford for more than four months.
The spacious, ground-floor property went on the market for £190,000 in July but has failed to go despite being reduced in price since then. Ms Gray, 30, an admin manager, bought it for £143,000 in August 2005 and decided to sell to move closer to the City.
"It's a lovely big space with goodsized rooms and a garden," she said.
"Everyone who has been to see it has loved it but many couldn't afford it."
In September, she instructed her estate agents to lower the price to £175,000. "It was a bit presumptuous to think I'd get £190,000 but at the time I thought it was worth a try, so I was happy to accept less," said Ms Gray.
She received an offer of £175,000 but the prospective buyer's survey valued the property at £9,000 less so the deal fell through.
Since then, there have been a couple of viewings but no more offers.
Ms Gray said: "I've told the estate agents that if I haven't received an offer by Christmas I will pull it off the market and rent it out."

ON MARKET TWO MONTHS: £3.95m
Cadogan Square: In the spring, this corner mews would have been sold within days of coming on the market at or above the asking price of 3.95million.
But it only came on the market in the middle of September, since when the credit crunch and City bonus and employment fears have meant that it is still available through agents Friend & Falcke.
The house has three large bedrooms, one with ensuite bathroom and dressing room, drawing room, dining room, sitting room with study and kitchen/breakfast room.

ON MARKET EIGHT MONTHS: £570,000
Barnes: This three storey semi-detached house is in a popular and quiet location. It has three bedrooms, one with ensuite bathroom, a reception room with dining area, kitchen/breakfast room, family bathroom and small rear garden.
The failure of this house to sell at the asking price is the result of the cooling-off of the London market as a whole, which began before the recent troubles.
The owners should have reduced the asking price for a quick sale before the end of the summer.

STATE OF THE MARKET