Is the UK heading for a housing crash?
Latest data confounds predictions but sellers warned to ‘fasten their seatbelts’ ahead of rate rises
Predictions of an imminent housing price crash appear to have been premature as the latest figures continue to show month-on-month growth.
Despite the growing cost of living crisis, Nationwide said average UK house prices climbed 11% in the last 12 months, with the building society's chief economist, Robert Gardner, adding that the market had “retained a surprising degree of momentum”.
“Demand continues to be supported by strong labour market conditions, where the unemployment rate remains near 50-year lows and with the number of job vacancies close to record highs,” Gardner said. “At the same time, the limited stock of homes on the market has helped keep upward pressure on house prices.”
James Forrester, managing director of Barrows and Forrester, told Sky News that “market momentum remains unwavered, having weathered a prolonged period of Brexit uncertainty, a global pandemic, increasing inflation and the most incompetent prime minister in living memory”.
He added that “all things considered”, it feels as though “nothing short of an apocalypse can bring the property market to its knees”.
So will house prices fall and if so when?
“The market has been surprisingly strong throughout the Covid pandemic and despite the worsening cost of living crisis,” said The Guardian, “boosted by a strong jobs market, a persistent shortage of properties on the market and a ‘race for space’ amid the rise in home working”.
However, Nationwide’s headline growth figure does not tell the whole story, noted The Telegraph. The data showed growth has fallen to the slowest rate recorded in 15 months “as soaring mortgage rates depress demand”.
The rise over the last month was just 0.1% according to data from the building society, and “these increases mask falling buyer demand”, said The Telegraph.
Andrew Wishart, of Capital Economics, told the paper “the main takeaway from the July figures is that house prices may already be stalling”.
Fasten your seatbelts
The managing director of HBB Solutions, Chris Hodgkinson, said while house prices remain sky high, home sellers would be “well advised to fasten their seatbelts as we're likely to witness a period of heightened turbulence before the year is out”.
He said buyer demand levels were starting to “wane” and once the “well runs dry” sellers will have to put their asking prices down.
“With inflation at a 40-year high sending living costs and interest rates soaring, the market is expected to slightly lose momentum as pressure on household budgets intensifies,” said the Daily Express. Bloomberg agreed that surging inflation and rising mortgage interest costs “are starting to take a toll”.
Figures from the Bank of England last week showed mortgage approvals fell further below their pre-pandemic levels in June as lenders raised interest rates to their highest level since 2016.
“Homeowners are facing another jump in borrowing costs this week,” said Bloomberg, “with the central bank expected to step up the fight against inflation by delivering its first half-point rate increase in 27 years.”
Thursday’s expected bank rate rise to 1.75% will have a “dampening effect on the market”, Alice Haine, personal finance analyst at Bestinvest, told the BBC.
‘Not until 2026’
According to The Independent’s Sean O’Grady, a housing slump is “pretty much an inevitability” as living costs soar “against a background of stagnant pay rises”.
But not everyone agrees. British economic commentator Fred Harrison – who accurately predicted the 2008 financial crash – doesn’t think house prices will dip significantly until later this decade.
“It will be in 2026, that is at the end of a 14-year cycle in house prices within a business cycle of 18 years,” Harrison told the MoneyWeek podcast. “They’ll level off for a matter of months and then they start to go down.”
‘Don’t start rejoicing’
“That’s not to say there aren’t good reasons for wanting a purging of property market excess,” wrote Larry Elliott in The Guardian, who argued that “rocketing housing prices discriminate against the young and the poor, lead to the misallocation of capital into unproductive assets, and add to demographic pressures by discouraging couples from having children.”
Yet even if house prices do drop in the coming months, cash-strapped first-time buyers should not start “rejoicing any time soon”, said MoneyWeek’s John Stepek.
If you’re looking for a new home, “timing the market is not the thing you should be worrying about; no one has a crystal ball”, he continued. “All you really need to care about is ensuring that you could afford your mortgage if interest rates rose and also that you’re going to be happy in your new home.”