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Last Updated: Wednesday, 25 April 2007, 14:39 GMT 15:39 UK
How to read the local house market
By Dan McLeod
Director at London estate agency, Atkinson McLeod

For sale signs
Is your area booming or in the doldrums?
Understanding how house prices are faring in your local area - or the area you want to live - is essential when it comes to buying or selling a property.

If you are a seller, it can make you money, as you will have a better understanding of just how in demand your property is and can price it accordingly.

If you're a buyer, it can be the difference between buying into an area that is on the up, and buying into one that is on the wane.

On the up

Signs of a booming market are probably the easiest to spot, although the list could go on and on.

One of the biggest give-aways is a growing number of estate agencies opening in the area, as they look to cash in on likely future growth.

Look out for hordes of 'For Sale' and 'To Let' boards lining the streets
Dan McLeod

The way in which estate agents market their properties is also telling - the more aggressive their advertising, the more confident they are that they will be able to sell, or let, what they have on their books.

With this in mind, check out the property sections of any local papers and magazines - the thicker they are with advertisements, the better an area is doing - and watch out for new 'flyers' landing on your doormat.

Estate agencies also tend to lower their fees during booming markets as competition with rival firms can be intense.

A skyline of industrial scaffolding and cranes is another big clue, as this often means large property developers are moving in to accommodate the influx of new residents.

In particular, monitor whether petrol stations are being replaced with new build apartments, which means that developers are confident that rents can be set high.

At the same time, smaller landlords tend to split large homes into flats, or buy ex-local authority properties to let out to tenants. Not surprisingly, look out for hordes of 'For Sale' and 'To Let' boards lining the streets

Gentrification

A particularly strong signal that house prices are booming is if an area is starting to 'gentrify'.

Gentrification is the conversion, over a period of years, of less developed and desirable districts into thriving neighbourhoods occupied by professionals and young families.

The process is always a fairly visible one.

It starts with the arrival into an area of 'pioneers' - often actors, designers and people in creative occupations - who are attracted by a particular feature of that area, such as run-down period properties, derelict old warehouses, or simply proximity to a town centre.

Driveways start filling with prestige cars such as Audis, Golfs and people carriers

Following their arrival small independent delis, coffee shops and art studios tend to open up, along with new bars to cater for the new crowd and an estate agency or two.

More people arrive on the back of this and before long more bars, shops and estate agencies start to set up in the area - which in turn attracts more established chains like Starbucks and Pizza Express.

The sharper prices rise and the quicker properties sell, the hotter an area is.

Driveways start filling with prestige cars such as Audis, Golfs and people carriers

A simple way to find out whether property prices are on the up is to visit websites such as mouseprice.co.uk, or nethomeprices.co.uk, which show the prices of properties that have been sold recently along with historical figures.

Mini
Lots of prestige cars can be a sure sign of an area on the up

Otherwise, spend a few minutes every week noting down prices in your estate agency's window.

In the doldrums

The signs of a stagnant market are not always easy to discern. Indecision and stalemate are the biggest symptoms, as buyers and sellers stick stubbornly to their guns.

As with the falling market scenario, fewer homes will be on the market as people sit on their hands until they have a better idea of what is happening.

Meanwhile, estate agencies cut back on advertising and marketing, as they are unsure that they will be able to generate a sale or find tenants.

If the stagnation period continues for long enough, weaker estate agencies could even close down.

More generally, while an area will retain the same character, the number of businesses arriving and new properties being developed starts to tail off.

Stagnant markets can often be stimulated by interest rate cuts, which encourage people to start buying again.

Downward slide

For starters, there will be fewer 'For Sale' boards in a falling market. Buyers tend to be in the driving seat, and make lower offers on properties, meaning only homeowners who absolutely have to sell, do so.

Fewer people renting in an area is another big sign that house prices could be falling, as this is a result of poor overall demand.

For estate agencies, overall transactions drop in a falling or stagnant market, which means that some firms will almost certainly go out of business

More generally, house prices may fall when unemployment - or at least the fear of unemployment - in an area rises.

For example, if a large factory is set to shut down leaving a significant number of people unemployed, the area could go downhill rapidly as people will move away in search of new employment or will be forced to claim benefits.

Demand to live in the area then drops and with it house prices.

For estate agencies, overall transactions drop in a falling or stagnant market, which means that some firms will almost certainly go out of business

Then there are the more obvious signs that house prices in an area aren't doing too well: crime levels start to rise, families start to move out - and schools shut down as a result, cars are left abandoned and, in extreme cases, windows are boarded up or left broken.

These are all indicative of an area where prices are plummeting - just pray they don't happen near you.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.




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