Watch for the Price Points

Have you ever noticed how many prices aren't round figures?

Many shops use the tactic of £9995, rather than £10,000, as it sounds a lot less, even thought it's only a fiver less.

The daft thing is that people are taken in by this and once they've heard the first figure, they don't always take account of the rest of the number.

Marks & Spencer went the other way a couple of years ago when they realised that the cost of processing all the change caused by the 99p ending of the prices, acutally cost them about 50p per transaction - so they rounded up all their figures to round numbers, to reduce the coin they took in. (Similarly, offering cash-back to consumers reduces the volume of notes they process, which reduces their bank charges)

The same thing happens with houses.

I was talking with an estate agent this week, on the way back from looking at a house, and I asked him how he saw the local housing market. He told me that anything under £100k was selling within a week, but anything over that was taking longer and anything over £150k wasn't selling at all.It seems crazy that people would miss out on a house because it was just into six figures, but people have psychologial barriers when it comes to money.

As an investor there's 2 angles to exploit here.

The properties that cost over 150k are likely to be picked up for less than that, if you can find someone who wants to move quickly, but also given time, the estate agents will test the £100k ceiling, until everything is priced over that amount. Once this happens, it won't be long before you see prices of £110 and £120k.

This isn't a property phenomenon, as it happens in the currency markets and equity markets, where these points are called resistance levels.

So, I've been buying at 10% discount to market value, rather than my usual 15% because I can see a £10k capital increase as soon as the area breaks the £100k barrier.

So what next ? I'll refinance to get as much of my deposit out and look for the next area - which I've already found and is only 6 months behind. In that area, the agents are advertising at above £100k for the larger terraced houses, with the intention of taking just below the magical figure for a quick sale. As soon as they start to sell at this level, the local estate agents will use their scientific formula for assessing houses of seeing what's sold recently and then adding on 10%, which will push the market norm to above the £100k.

Once the prices break this ceiling, there's another price point at £120k, due to the stamp duty threshold.

People will create price points beyond which they don't want to spend, for example the figure of £100,000 could be one of these magical figures.

So look out for areas that are averaging just below or about thresholds as should see a large jump in values once properties start to break through the price point.