The extra money saved during the pandemic and the stamp duty rebate, as well as significant changes in people’s lifestyles, will accelerate buying and selling from 2020 onwards. Some experts believe that the housing market has started to crash, others believe that it will be slow but stable. So who is right?
New loans are falling, but home prices are generally stable.
The number of new home loans approved by lenders has fallen since January. This is the first sign that a rise in interest rates will reduce the demand for goods.
Home prices, however, rose for the twelfth month in a row in June. Steady demand and a shortage of housing on the market pushed prices up about 1.8 percent in the month, the biggest increase since before the recession in 2007.
In July, house prices fell slightly for the first time in a year. However, they are still 12% higher than they were last summer.
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Money is not keeping up with rising housing prices.
Data from Nationwide, Britain’s largest building group, shows that it has never been harder to find a home than it is now. The average house price is equivalent to seven times their annual income. In the past, prices have been close to four and a half times that amount.
However, the high cost of living is making potential homeowners afraid to buy large properties in an uncertain market. In addition, interest rates are making repayments more expensive, and long-term mortgages will start to look like a better option for some potential buyers.
Rightmove says the market is slowing – but demand is still strong
The center’s website indicates that the annual increase in home prices will be nearly halved by the end of this year. Commentators have also noted that prices have remained high in line with demand but are not being lowered as demand begins to quietly decline.
Rightmove says that demand has not shown any delays, but that when it arrives it will help housing availability. “The property market in the first half of 2022 stabilized slightly from 2021, but remained healthy and ahead of 2019. Although economic uncertainty increased at the end of the half, the decline in sales or demand was small.” A spokesman for Rightmove said.
It’s hard to tell if this is wishful thinking, sound analysis or a combination of both?
Can the housing market survive the financial crisis?
Huw Pill, the Bank of England’s Chief Economist, believes the housing market would have recovered despite interest rates and the worst recession in 15 years. BofE believes we will start a long-term recession this winter, which will hit the economy by 2.1%. This is the result of the rising cost of living, inflation and taxes.
The Bank of England has raised interest rates six times in the past nine months to contain inflation, which has been driven largely by the sharp rise in global oil and gas prices since the Ukraine conflict. Pill said the tough policy was designed to reduce inflation and “will work through a range of economic mechanisms, including the housing market”.
Andrew Wishart, economist at Capital Economics, is pessimistic. “Based on our predictions that the recession is coming, we think that house prices will fall by 5 percent. But if the worrying assessment of the Bank of England that a deep and long-term recession proves to be correct, house prices will fall even more,” said the economist.
That’s why any of our homeowner’s insurance clients who are considering selling real estate should think carefully about the timing to maximize the potential returns. Demand for mortgages should remain strong if fewer buyers commit to buying but mortgages may struggle to keep up with inflation if fixed-rate mortgages are not held back for long.