How low can they go - house prices

The debate over whether house prices will keep falling continues.

Some experts and financial press, those of the like of Moneyweek and those on Houseprice crash think that we are far from the bottom. Margo recently highlighted Adrian Ash in Moneyweek who recently suggested that we were only at a 20% fall half way through the fall of 40% in prices he expected.

However, what all experts agree on is there will be a bottom. At some stage house prices will stop falling and the chances are they will then start rising again.

Replacement costs of housing

One factor that should not be overlooked is the replacement cost of housing. This long term goes some way to underpinning values. Despite property prices falling, the cost of building property is not. Construction costs and raw material costs continue to rise although at a falling rate. Here could be the secret for those looking to spot the end of the downturn in property prices.

A recent inspection of new build or newly refurbished flats in Nottingham shows that 1 bed flats are now coming to the market at around £50k. At the height of the boom they would have been at or above £100k. If you guess that these units will have a net internal area of say 45 square metres. With build costs of around £1000 per square metre, plus an allocation of £5k per plot for works to communal areas like entrance halls, stairways, lifts, etc then there is an argument for saying that the city centre apartment market may well be getting close to the bottom.

The above also excludes any cost for the land. Land values for city centre apartment developments have been decimated over the last few years as developers have deserted the market and put a hold on any further development schemes.

It would be interested to know whether landlords in other parts of the country have a similar view on whether the bottom is getting close?



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