Why we’re talking about . . .

The cooling housing market: what happens next for UK property?

The end of the latest boom is in sight. What kind of landing can we expect?

As we mark the Queen’s platinum jubilee, it’s fascinating to take a look at the economics of her whole 70-year reign, said David Smith in The Sunday Times. One story has been about inflation: her rule has been “bookended” by periods of rapid price rises in the early 1950s and early 2020s. But the biggest theme is “years of roaring house prices”. Back in 1952, when Nationwide helpfully began its house price index, the average UK home cost £1,891. The index’s latest average is £260,771 – “139 times the 1952 level”. This remarkable rise, fuelled by the greater availability of mortgages and inadequate housing supply, has had a huge social impact. “In the 1950s and 1960s, people did not need mega City salaries to live in style. Teachers, civil servants and other professionals could do so. Then housing pulled away.” 

The pandemic led to another mini-boom, which outlasted the boost provided by extraordinary measures such as the stamp duty holiday. In March, Nationwide reported that prices had risen by 14.3% year-on-year. But the pace of growth now finally seems to be slowing, said Melissa Lawford in The Daily Telegraph. The latest survey from Zoopla indicates that “asking prices are being cut” – a sign that demand is falling and supply is rising – and “homes are also taking longer to sell”. The property website forecasts that by the end of the year, “the pace of growth will plunge to 3.4%”. 

The big question, as ever, is whether boom is set to turn to ruinous bust – and the issue is playing out globally. The European Central Bank has warned that rising interest rates are likely to lead to “a correction” for eurozone house prices, which it judges to be “15% overvalued”, said Martin Arnold in the FT. Indeed, “a reversal in the region’s housing markets was one of the main risks identified by the ECB’s twice-yearly financial stability review”. Warnings from the US are even more alarming, said Paul Farrell in the Daily Mail. The former hedge fund boss Michael Burry, of The Big Short fame, has likened the slowing housing market to 2008. It’s like “watching a plane crash”, he said. 

Experts are divided on where the market will go next. But despite “the psychological impact” of a rising base rate and the cost-of-living crisis, few predict a big fall this year or next, said Samantha Downes in The i Paper. As London estate agent Jeremy Leaf points out: “mortgage repayments remain relatively affordable”, and supply is still at “roughly half the level” it was pre-Covid. But even if a 90s-style crash is unlikely, “things could yet get a bit rocky”. Perhaps the best outcome would be for harsh economic conditions to “put some gentle brakes on the housing market”. 

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