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Property crash is finally here in UK

Property crash is finally here in UK

Old Dec 9th 2004, 11:05 pm
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Default Re: Property crash is finally here in UK

And before Stanton starts banging on .... read the Roger Bootle + David Smith debate of last week.

House prices are in for a 'hard landing', if you believe Capital Economic's Roger Bootle, who says the lack of first time buyers and low rental yields are a bad omen.

Bootle's argument appeared to win the day when he and David Smith, the Economics editor of The Sunday Times, squared up to debate the state of the UK residential housing market at the Council of Mortgage Lenders’ conference yesterday.

Before the debate the hall was slightly in favour of the ‘soft landing’ outlook advanced by Smith - defined for the purposes of this debate as a peak-to-trough fall in residential property prices of 5% or less - but this had reversed by the end of the debate.

Smith noted the peak-to-trough nominal house price fall in the 1990s housing crash was 13% and was, coincidentally, the same figure in the 1930s Great Depression. He concludes house prices are ‘sticky downwards’ and even extreme circumstances lead to little falls in house prices.

But he argues the UK economy is actually much healthier than this, with low interest rates and low expectations for inflation, near full employment and generally increased economic confidence.

Smith feels ‘something fundamental has changed’ and so concludes the house-price-to-earnings ratio, which is admittedly at record highs, is no longer a helpful guide to judge ‘fair’ house prices by.

He argues the UK’s low base interest rates are the key to a soft landing and is confident neither interest rates nor unemployment is set to soar. With low interest rates and low inflation, which combine to give a powerful gearing effect, increased competition in the mortgage market, high employment, tight housing supply and ‘the return of the private landlord’, a soft landing will be achieved.

By stark contrast, Bootle strongly disagrees with the view that ‘it’s different this time’ and sees the current UK residential property market as a bubble transferred from the stockmarket and part of an international phenomenon.

Bootle acknowledges the house-price-to-earnings ratio has problems and limitations but says it has proved an excellent general indicator of over/undervaluation in each of the last three booms and corrections. He does not believe this relationship has broken down.

But he points out that indicators such as the level of mortgage arrears and unemployment, both low today, did not point the way forward in the 1990s crash and he does not believe they are good indicators today.

Bootle argues that mortgage debt has raged ahead because of low nominal interest rates even though real (inflation-adjusted) interest rates have not fallen notably. This means people take on lower front-end costs on a mortgage today but much higher far-end costs than they had in the past.

Bootle argues they are either myopic, or they just do not care, or that they are deluded, with overall consumer debt now at a similar level to the start of the last housing market ‘bust’.

He sees the lack of first-time buyers as a clear indication of a problem along with low rental yields, and warns the recent heavy falls in mortgage approvals signal falls to come.

While he feels stagnation would be required for approximately ten years before the market would naturally reach a healthy state, he fears ‘asset markets do not behave like this’ and concludes ‘in real terms, crashes follow booms’. However, Bootle argues the UK market may suffer and says there is little scope for the economy to weather a hard landing in the housing market."

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Old Dec 9th 2004, 11:15 pm
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Default Re: Property crash is finally here in UK

Originally Posted by callë
...and so... any of you financial wizards have any advice for me?
I need to sell my US home and I'm going back to UK next Autumn. Will have to rent there untill we have had employment I think for 6 months (?). Meanwhile the dollar is dropping at breakneck speed. What would be the best thing to do timing wise? Will accept any advice. My daughter jokes we will be living out of a box
Lots of variables but if the rental market is good in Jacksonville, consider renting the place out and either re-mortgaging or getting a line of credit againt the property. Does the house have good coastal views, etc? Not just a regular house. If it is the latter, I would sell it.

Keep the cash in USD, as once interest rates increase in the US the buyers will return and the USD will become stronger.

However, May take longer than you have so, the option if sticking on depot at 5% is attractive. You get jack-sh*t on the depot rates in the US hence the weekness.

That said though. I would ride it out and keep it in USD for a while. If it goes any lower maybe buy more dollars.


So to sum up, regular house: Sell; You don't need the cash in GBP yet, so hold tight; when you get the feeling the UK market is showing signs of bottoming out, change the cash and buy in bulk!
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Old Dec 10th 2004, 5:08 am
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Default Re: Property crash is finally here in UK

Originally Posted by WheelsOfSteel
So to sum up, regular house: Sell; You don't need the cash in GBP yet, so hold tight; when you get the feeling the UK market is showing signs of bottoming out, change the cash and buy in bulk!
Biggest risk here is USD/ GBP conversion rate. Dollar has fallen 40% since February 2002 and many economists feel there is a further 30% to go.

That's disaster if you hold most assets in USD and need to convert them into GBP.
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Old Dec 10th 2004, 6:19 am
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Default Re: Property crash is finally here in UK

Originally Posted by Don
Biggest risk here is USD/ GBP conversion rate. Dollar has fallen 40% since February 2002 and many economists feel there is a further 30% to go.

That's disaster if you hold most assets in USD and need to convert them into GBP.
Long low (dead cat) bounce likely. FOMC meeting 2004/Dec/14. International invervention depending on change of rate >= +0.25%.
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Old Dec 10th 2004, 7:29 am
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Default Re: Property crash is finally here in UK

Originally Posted by odaat
And before Stanton starts banging on .... read the Roger Bootle + David Smith debate of last week.
For somebody who has such a disdain for anything that requires the application of a brain - no doubt reflecting your own inadequacies in the educational and analytical departments - you seem to be in a 'cut and paste' frenzy.

But, as usual, you have added nothing to the discussion.

The facts are clear : house prices have stabilised and are dropping in some areas. That is not open to debate.

However, as even The Economist pointed out in it last week's edition - the majority believe we're in for a soft landing. Have the fundamentals changed so much in the last week? Nope.

Prices, like inflation are driven - in part - by future sentiment. Now, if a significant number of people believe that prices will drop and they decide to sell - prices will be driven down. Ask for a particular price (low or high) and realising it are two different things. Comparisons with stock markets are simplistic; because the former are far more liquid - people buy houses for longer-term investments. Only ~4% of all mortgages in the past year were for 'buy to let' properties.

Yes, there could be a crash. Do I think there will be? No. Do most economists believe there will be a crash - many fall into the 'don't know' category. And I'm not aware of any research indicating that most economists believe there will be a crash.

BTW, Bootle vs Condon was also in a debate 2 months ago - the outcome was (you may recognise this bit of 'cut and paste'):

"So, the two economists seemed happy to conclude a housing market 'crash' is not 'inevitable' but we should prepare for several years of flat or falling prices from here. That said, neither see the coming correction as likely to bring economic Armageddon. Indeed, both feel the UK economy will cope perfectly well if house prices start to fall."


Your views are simplistic scare-mongering at best.

Last edited by MikeStanton; Dec 10th 2004 at 7:42 am.
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Old Dec 10th 2004, 12:34 pm
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Default Re: Property crash is finally here in UK

Originally Posted by Don
Biggest risk here is USD/ GBP conversion rate. Dollar has fallen 40% since February 2002 and many economists feel there is a further 30% to go.

That's disaster if you hold most assets in USD and need to convert them into GBP.
... well worth the ride. The long term opinion based on money-market rate curves is up, the question is how long.
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Old Dec 10th 2004, 1:04 pm
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Default Re: Property crash is finally here in UK

Originally Posted by WheelsOfSteel
... well worth the ride. The long term opinion based on money-market rate curves is up, the question is how long.
I'm not so sure. The USD has been in long term decline since the 1960s and the trend shows no sign of reversing.

The only investment I choose to hold in USD is my China Opportunities fund and that's a) a small % of the total and b) just the fund 'holding' currency - real investments are more China-related, admittedly in the renminbi which is pegged to the USD and c) a 20 year gamble though I can switch out if I want to.

I'm really not keen on the 10 year outlook for the USD.
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Old Dec 10th 2004, 2:55 pm
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Default Re: Property crash is finally here in UK

Thanks guys for all your replies. First off my 'need' to sell is actually based on several points. I will need some of the money for moving expenses and getting settled, and the fact that the house prices in my area have increased but now have levelled off. In fact I expect a decline (neighbourhood has reached its peak and is now starting to go downhill. The city of Jacksonville is trying to improve its drug infested downtown area and so they are moving many government housing projects into the suburbs. Thus the crime and drug use is becoming rampant in the burbs.) So even if I where not returning to UK, now would be the time to sell. I do not have a coastline view but am only ten minutes from the beach. Average home (4 bed, 2 bath). I dont think it would be wise to rent because of the condition I've seen some of the rentals fall to. Disgusting!
One of you mentioned putting the money into UK bank, but keep it as US dollar until the exchange rate improved. I didnt know this was possible. And what are the real chances that it will improve? I guess my biggest fear here is that the exchange rate will continue to get worse and I will lose more money. But if there is a real chance it will improve I will gladly wait it out.
My husband has already secured a job in England so I dont see us needing to use too much of the money until we are ready to buy a home. Which brings it back to what on earth will happen to to the price of homes in the UK. In our case of course we are hoping they will continue to drop some.
I guess timing is everything and I do appreciate your thoughts on all this.
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Old Dec 10th 2004, 5:46 pm
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Default Re: Property crash is finally here in UK

Originally Posted by callë
Thanks guys for all your replies. First off my 'need' to sell is actually based on several points. I will need some of the money for moving expenses and getting settled, and the fact that the house prices in my area have increased but now have levelled off. In fact I expect a decline (neighbourhood has reached its peak and is now starting to go downhill. The city of Jacksonville is trying to improve its drug infested downtown area and so they are moving many government housing projects into the suburbs. Thus the crime and drug use is becoming rampant in the burbs.) So even if I where not returning to UK, now would be the time to sell. I do not have a coastline view but am only ten minutes from the beach. Average home (4 bed, 2 bath). I dont think it would be wise to rent because of the condition I've seen some of the rentals fall to. Disgusting!
One of you mentioned putting the money into UK bank, but keep it as US dollar until the exchange rate improved. I didnt know this was possible. And what are the real chances that it will improve? I guess my biggest fear here is that the exchange rate will continue to get worse and I will lose more money. But if there is a real chance it will improve I will gladly wait it out.
My husband has already secured a job in England so I dont see us needing to use too much of the money until we are ready to buy a home. Which brings it back to what on earth will happen to to the price of homes in the UK. In our case of course we are hoping they will continue to drop some.
I guess timing is everything and I do appreciate your thoughts on all this.
Based on that, selling seems a good idea.

Re. the USD/GBP. The consensus is that the USD will strengthen against most other currencies...eventually. The question really is of time and that is where it really gets complicated.

You have to consider what you money will be worth in n years time given a number of factors, mainly time invested/duration and yield or interest accrued. If you were to hold on to it in USD you may well get a better rate of exchange at some point in the future, however you are sacrificing the option of placing that money on deposit at a considerably higher percentage than you will be able to get in USD. You could get upwards of 5% per anum holding in GBP against less than 1% in USD (could be higher but no too much).

So, considering that you see that if you keep the money in USD you are actually loosing money unless the USD/GBP ratio increases more than the equiv. of keeping on depot for n years. That's why you get better rates for fixed term investments, as the issuer has to issue the instrument/investment with an insentive, as the underlying depot rates may move higher thus making the investment a bad one. Thats essentially how the bond market works.

However, if it were me I would still keep some in USD as I feel the risk is worth it, but I wouldn't be looking to get a return any time soon...

I hope the above helps you understand things a little better.

All the best...

WOS.
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Old Dec 11th 2004, 5:42 am
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Default Re: Property crash is finally here in UK

USD see my post here http://britishexpats.com/forum/showt...=1#post1884290
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Old Dec 14th 2004, 1:47 am
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Default Re: Property crash is finally here in UK

Labour's fortunes are cemented to bricks and mortar values

Larry Elliott
Monday December 13, 2004
The Guardian

Estate agents are twiddling their thumbs. Property is proving hard to shift. House prices are falling.

The boom in bricks and mortar is over.

So much, so obvious. After its phenomenal rise since the middle of the last decade, some correction in the housing market was overdue.

By the middle of this year, the conventional method of measuring the affordability of property - the ratio of what it costs to buy a home against the size of the average pay packet - showed houses very dear indeed. In the UK as a whole, it was 41% above the long term average.

It may be, as both the Treasury and the Bank of England have argued, that with interest rates and inflation low, we feel more comfortable about carrying more debt, but even the most starry-eyed optimist accepts that a price to earnings ratio of around six was too high.

First-time buyers could not afford property at those levels and without them, the market freezes up.

What is in dispute is what happens now.

Will the housing market have a hard landing? Would a recession in property spell calamity for the economy as a whole? And how will the end of the bubble affect the views of voters?

A crash may be avoided. If they are unable to shift their homes at the asking price, sellers may decide to sit tight until the market picks up. That would lead to a sharp drop in activity - already in evidence - but not necessarily a big fall in prices.

Instead, they would move sideways or slightly lower for a few years while earnings continued to rise. Given that Britain is a small island containing 60 million people, strong underlying demand for homes should ensure that the market has a gentle descent.

This all seems a little too pat. For a start, the demographics are not straightforward. The number of baby boomers looking to cash in their big gains in the property market is rising at a time when the proportion of 25- to 34-year-olds, the classic first-time buyer age group, is declining. Relatively, the proportion of sellers is rising as the number of buyers is declining. Many of the sellers may decide to wait for the market to pick up again, but there will always be a number of people who decide to sell or who have no option to do otherwise.

The Royal Institution of Chartered Surveyors is reporting the highest number of price falls in 12 years, which appears to dovetail better with anecdotal evidence than the more upbeat noises coming out of the Halifax, the Nationwide and the Council for Mortgage Lenders - all of which have a vested interest in demand for mortgages remaining robust.

If, as seems likely, asking prices are already down on where they were six months ago, there is no reason to imagine the trend is going to stop soon. That, after all, is the psychology of markets.

Potential buyers do not think: "That house looks cheap now the asking price has come down from £200,000 to £175,000, so I'll put in a bid." They think: "If they've come down by £25,000, they'll probably come down a lot more, so I'll offer £150,000." The winter months - always a quiet time, anyway, for the housing market - could see hefty falls in prices.

The Bank of England recognised in its inflation report last month that a "steep slowing in house price inflation" was expected, but thought the impact on the wider economy would be modest. It challenged the conventional wisdom that rising property prices make mortgage payers feel better about life, encouraging them to go out and spend, while the opposite occurs when the market turns sour.

The relationship between consumer spending and house prices has broken down in recent years, the Bank says. Consumer spending growth has trundled along at around 3% a year, even though house prices have been going through the roof. As a result, it expects spending growth to "ease only moderately" unless something else detrimental happens to affect the behaviour of consumers.

The Bank backs up its view with a chart showing the correlation of consumer spending to house prices, and uses a 10-year moving average to show the trend. This does show a breakdown in the relationship, since a coefficient of one would indicate a perfect correlation while zero would show no relationship at all.

City analysts have pointed out however, that a five-year moving average provides a different picture. The second chart shows that using this methodology there was a similar breakdown in the boom of the late 1980s, but that the old relationship quickly reasserted itself after house prices fell. The gloomier analysts expect the same to happen this time, with consumers retrenching as the value of their homes comes down.

The big difference between now and the late 1980s is that interest rates are at 4.75%, rather than 15%. The severity of the monetary squeeze between 1988 and 1992 led to a sharp rise in unemployment that resulted in record numbers of homes being repossessed. Will this happen again? Anything is possible, but it looks pretty unlikely. Inflation is well below its target, there is no need for the Bank to keep rates high in order to defend a fixed exchange rate, and there is plenty of scope for monetary policy to be eased - aggressively if need be - should the economy run into difficulties.

Any move would not happen for several months, because the Bank will want to see if its assessment of the de-linking of consumer spending and the housing market is correct. If it proves to be a temporary soft patch, the Bank may revisit the idea of nudging up rates next year. But if a fall in the housing market puts the skids under consumer demand in December and January, the odds on a rate cut in the spring would shorten considerably.

There would be no immediate boost to the housing market, but it would help cushion the fall. Growth would be somewhat less than Gordon Brown is predicting for next year, but there would be no recession. The positive way of looking at this is that the macroeconomic framework introduced by the chancellor is working. Monetary policy is forward-looking and proactive, and as a result the economy should be able to ride through the necessary adjustment to the housing market. Britain is on course for a 13th straight year of growth in 2005, and for that the government should get credit.

The problem is that there may not be much of a feelgood factor around. Labour's strategists may take little comfort from knowing that the economy should be in calmer waters by the end of next year when they have pencilled in polling day for a time when the storm could be at its fiercest.

rivetting stuff .... odaat
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Old Dec 17th 2004, 8:37 pm
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Default Re: Property crash is finally here in UK

At least Five per cent discount on average house price
Tuesday, 14 Dec 2004 13:25

The average house is selling for five per cent less than its asking price as House selling conditions toughen.

The average house is now selling for almost five per cent less than its asking price, the National Association of Estate Agents (NAEA) admits.


Figures released today show that after *six months* of continued decline, prices stand just 4.8 per cent higher than they were a year ago, down from an annual house price inflation rate of more than 12 per cent in May.

With the constant decline in house price inflation since then the market has shifted from favouring sellers to buyers and the average discount received on an asking price has jumped from just 2.8 per cent to 4.9 per cent.

Additionally, with fewer first-time buyers and more people looking to get out while the going is good, housing supply is also beginning to exceed demand.

The NAEA found that last month the number of houses for sale remained high, while the number of prospective buyers dropped to its lowest level in 2004.

With additional numbers moving into rented accommodation, the buy-to-let market is strong and rental yields are showing the most widespread increase for three years, the Royal Institute of Chartered Surveyors (Rics) has found.

A house price crash is still "unlikely" according to the NAEA, which believes the usual New Year upturn in the market will develop into a more positive market generally in early 2005.


"The market is now in its sixth month of this price correction and, although annual increases are at their lowest rate for many years, the gloom merchants are going to be left disappointed that the slowdown will not morph into a crash," commented Richard Hair, president of the NAEA.

"buyers are continuing to sit on the fence in the anticipation of further drops in prices. Sensible asking prices are key to a successful sale as those who are buying are finding that they are in a stronger position to negotiate with the market in their favour."

Currently, many buyers are continuing to sit on the fence in the anticipation of further drops in prices. Sensible asking prices are key to a successful sale as those who are buying are finding that they are in a stronger position to negotiate with the market in their favour."

if the estate agents body are prepared to admit a modest 5% below asking price, the truth is more likely to be 15 - 20 % below asking price. Anyone hoping to purchase a property, I strongly advise offers at least 20% below market price .... or walk.

Its a buyers market again

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Old Dec 18th 2004, 12:22 pm
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Default Re: Property crash is finally here in UK

likewise - i know where i am happiest invested in property to live and it ain't downunder - far too expensive and unstable.

cannot go wrong in se uk - population stats are incredible frankly - 250k new people per annum until new labour get the boot and nearly all in london and the surrounds. high employment low interest rates. pension fund investment coming on stream. possible tax giveaways in the new year by new labour hoping to persuade all the middle incomes they do not really hate them as much as their actions in the past few year suggest.

the problem with people using income multiples on a historical comparative is that society has changed in the past decade. 2 income homebuyers are the norm in the uk and therefore family affordability criteria is far more important. on this basis property is expensive but hardly over-valued. it is also a limited resource in the uk which has planning restrictions and greenbelt legislation and people are already sick of overcrowding and lack of infrastructure so are fighting hard to resist new build. when you throw in the population growth in the uk and the population shift from north to south the only way for property prices in the south east in the next 5 years is up unless something happens to change that i.e. hugely higher interest rates.

i have to live somewhere and the cost of renting is say £12k per annum for my family in surrey for a small house. my place worth say £300k at the moment. If it drops 10% over say a 3 year period then really no worse off and do not have to suffer the rental sector which is frankly a pain with it's outdated laws and landlord attitudes still in the 17th century. But I still do not think they drop - in fact I think the right locations will continue to rise as people will pay premium for leafy suburbs, low crime, excellent shops and schools and fast train links to town.



Originally Posted by linda 1
not being a mathmatical type of person, I don't follow most of this thread, but I know this, we have bought and sold many houses over the years both UK and NZ, only lost a little money on 1 and it was in NZ. Have just bought in UK mortgage free. Are we going to lose sleep or money..........no way.
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Old Dec 20th 2004, 2:58 pm
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Default Re: Property crash is finally here in UK

Please don't start throwing percentages, financial/banking talk and cut & paste quotes at me as I'll cruble to the ground like Frank Bruno! This is just my personal observations.

One thing you guys keep forgetting to point out is the time of year. The housing market ALWAYS slows down leading up to the end of the year, it's human nature. Why bother going out to buy a new house, may as well wait till after christmas, a new year - a new start!
We're in the process of selling our house and there's no doubt that the market is flat, but we (the agents and us) are all putting it down to the time of year. When we put it on the market we were told by all the estate agents that nothing would happen till the newyear/early spring, some even told us not to waste our time and wait till Jan before putting it on the market. We've had a few viewings but nothing to write home about (scuse the pun). So we'll just have to wait till the new year and see what happens there, everyone seems confident and there's a buzz around the market which hasn't existed in the past few months.
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Old Dec 21st 2004, 4:23 pm
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Default Re: Property crash is finally here in UK

Bleech,
Would you keep the forum updated on your property sale progress. ?

It will be the first bit of real life experience of property selling on this site.

I assume you are selling in Bristol ? fab city which has had a red hot property market for years, if the relative fundaments i.e. employment + cheap interest rates remain in place - the prop market in Bristol should not be slowing down and if it does slow down what would be the causes ?

odaat

Originally Posted by Bleech
Please don't start throwing percentages, financial/banking talk and cut & paste quotes at me as I'll cruble to the ground like Frank Bruno! This is just my personal observations.

One thing you guys keep forgetting to point out is the time of year. The housing market ALWAYS slows down leading up to the end of the year, it's human nature. Why bother going out to buy a new house, may as well wait till after christmas, a new year - a new start!
We're in the process of selling our house and there's no doubt that the market is flat, but we (the agents and us) are all putting it down to the time of year. When we put it on the market we were told by all the estate agents that nothing would happen till the newyear/early spring, some even told us not to waste our time and wait till Jan before putting it on the market. We've had a few viewings but nothing to write home about (scuse the pun). So we'll just have to wait till the new year and see what happens there, everyone seems confident and there's a buzz around the market which hasn't existed in the past few months.
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