The question for UK house prices is not "will they crash?" but "when will they crash?". The topic received a slot on the 10 o'clock BBC national news last night.
The impending crash is receiving increasing coverage in the UK media for two reasons:
- The British public has developed a fascination with house prices and much of its savings is tied up in property.
- Interest rates are rising and if they go high enough, this could be what it takes to trigger the correction.
House prices will crash. The property market, just like the stockmarnet, goes in cycles. Over decades, property prices have always risen. But over short periods, the market moves faster and it moves in both directions. We have become used to rising prices and after 10 years of growth, it is too easy to forget that they go down as well as up.
A key factor is affordability. In the past, average house prices have tended to move between 3 and 4 times income. However, they are now at almost 6 times income. House prices have never been this high.
Watch the news clip, don't over-stretch yourself and as the BBC concludes, "be prepared".
Some things to remember:
Average house prices will fall, but some areas will fall more than others. If prices fall 30% on average, some properties may fall 50% and others may fall only 10%. Local issues such as job prospects, transport links, town planning, proximity to a good supermarket will all determine how much resilience a specific area has.
Pessimists have been forecasting a crash for a few years now and they have been wrong. The time will come, but immigration is strong and that is propping up demand for housing. Interest rates remain affordable and the Bank of England only adjusts them by 0.25% per month so the effect is gradual (unlike the days of Norman Lamont). The UK economy remains stable and growing. So, while a correction is inevitable, it may still be a few years away.
Classic Matt cartoon