2024 has begun on a vastly different footing to 2023. The substantial change is the interest rate shift, which dramatically and suddenly reduced profitability and cashflow, for property investors.
The expectation that property prices would fall as a result, was a simplistic but accepted view. In fact, this is a view that many still hold, assuming property values are directly linked to and proportionate to costs. This view is wrong, both then, now and over time. If it were true, property values would have risen uncontrollably when interest rates were slashed, both after the 2008 crisis and the Brexit referendum. Yet they did not.
Similarly, interest rate rises did not cause a fall in values. There is something else at play.
Property prices are driven by many factors and many investors assume they know why. Train stations, cranes in the sky, infrastructure projects, planning and dozens of other reasons are given. All may be true at some point and in some areas, but statistically, there is no correlation between such events or activities.
For a decade, I have been working on better insights in property.
This research has led me to these five key considerations when investing in any property.
This is the single most important measure and the one I use locally and nationally as a key metric for growth (or decline).
The average turnover of stock in estate agents across the UK is currently 19% (December data from the ultimate property dashboard (UPD)). This is higher than the historic trend of about 10-15%. This is also why values have not fallen despite all the recent turmoil.
Furthermore, demand varies by area and type of property. Look at these examples for two nearby postcodes and note the significant differences in demand.
Despite being just a couple of miles apart, demand in SA7 for 2-bedroom properties has been above 30% for 3 months, peaking at 40% and the highest it has been since spring 2023.
Whereas demand in SA5 for the same property type, is less than 30% over the past 3 months and dipped to just 10% in December. This is why some areas grow more than others at certain times and why demand is so important to measure.
Affordability of property is another major area to consider when investing. If an area enjoys average household income rises, the affordability of local property improves and the market adjusts. This is also very important to measure in areas where jobs are lost and income falls, or, if new employment opportunities arise.
Each area will have an approximate multiple of household income for property types and knowing this number can give you an idea of how much the market can rise or fall, if demand is high.
Affordability multiple = asking house price ÷ average household annual income.
You can see how this varies massively in an area. Sometimes, cheaper areas are unaffordable and expensive areas are more affordable. Knowing this can unlock new opportunities and new areas for you to invest. Look at this graph to see how massively this can vary.
You can get the salary information from the office of national statistics (ONS) but to really make this equation work, you need current property asking prices, not sold prices, which are too out of date by the time they are published by land registry.
All of us must be certain that a local market and property type can hold its prices. This is where having the right data is crucial. Sold prices are the wrong data. You need asking prices for this, as the movement up or down of monthly average asking prices, gives you the indicator you need to know if confidence is high enough to put prices up, or low enough to cause agents to list at lower prices.
Note these two locations and the difference in asking price movement over the past 9 months:
Supply is the single greatest challenge to UK property and is reflected in demand analysis. However, knowing the supply in an area is important, because you can see where there may be less competition for your product or service and, you can identify where there may be gaps in supply that you can fill.
My favourite example of this is when houses of multiple occupation (HMOs) are in high demand. The next step from HMO, for many tenants, is an apartment. You will often see increases in HMO stock but not a corresponding growth in apartments. As students graduate, or couples choose to co-habit, the market then comes under pressure for supply of apartments. Measuring, learning and acting on this data is a very smart strategy.
The rule of fifty is a commonly observed trend in my property business. As a type of property approaches a multiple of £50,000 for the asking price, the market often slows and does not grow in asking price until demand pushes it beyond.
Buying in areas where this is happening, is like buying in an area of pent-up growth potential. Once it tips over the multiple of £50,000, then the market will surge to the next £50,000.
The acceleration is often sudden, so a major gain in capital appreciation can be strategically planned.
This is also true of rents, with £50 per month surges, often following a similar trend.
These five key considerations are among a whole range of strategic actions an investor can take to ensure they maximise their growth and profitability, in both difficult and easy times. Remember, the property market is massively different depending on location and property type, so make sure you add insights to your investment strategy and be confident of your due diligence.
2024 will be a year of great local and national change. Change will also bring with it new opportunities and new risks. Many investors may find they begin to stagnate and procrastinate during this shift, while others will rush to decisions, without considering risk and completing due diligence. Some will not grow at all and others may grow unprofitably.
I forecast that we will see many more examples of both behaviours, as in previous years. I also expect more of us to grasp modern insight techniques and that this movement will grow in size, scale and confidence.
You can access the reports and all of the data I have discussed in this article, by trying out the Ultimate Property Dashboard here: or by scanning this QR code.
You can also checkout how this research can drive your business forward, by joining me at one of my regular free Flex webinars here: or by scanning this QR code.
John Penquet is a property insights expert, renowned for his forecasts and use of data to assist the industry in better understanding future market trends.
He has co-created the property technology and data portal, Ultimate Property Dashboard and supports businesses directly through, Flex Property Education. John is still an active property investor and also the author of the book, Property Truth or Dare.
