Isn't a house price crash inevitable?

Question

I'm no economist, but history seems to show that any economic system that appears to be unsustainable turns out to be so, in the long run. There has been a long running perception now that house prices are rising at an unsustainable rate and that a crash is inevitable to balance the market. Is there anybody with genuine economic knowledge out there who can confirm or rebuke this notion? Is there a similar perception within the financial world, or is the perception simply a misconception made by the layman?

Answer 1

I too have been concerned about the sustained year on year residential capital growth in the UK but I am not of the beleif that a crash is likely. The wealth of this nation is largely dependent on the wealth of the individual, the consumerist and with most debt secured on property the Bank of England know negative equity would force lenders to foreclose which would cause a high street metdown and loss of business and workforce. The oil price has come down by 15 percent since August and concerns of inflation have been lessened by recent data. The national residential market has moved forward by an average of 8% since the war despite set backs and for the most part it is driven by City confidence. With boneses at their record level this year and 30% increases in bonuses next year, the boom London is seeing now will spread out to the home counties and north within 9 months and 18 months respectively. History has shown us these timescales are realistic. The avergae longterm interest rate is 5% which is where we are now, limited residential supply and enormous demand supports pricing as does the ever growing inflow of people from eastern Europe and beyond. There simply are not enough houses to go around.
All of which doesn't neccessarily paint a picture for 20% gains a year, but certainly the average of 8% which is what we are now seeing.
This isn't exactly technical but it is based on years of experiecne in the property market both as a seller and buyer.

Answer 2

In october the Bank of England set interest rates at 5% the highest they have been in at least 3 years. Higher interest rates means you have to pay more back on a 25,000 loan or 100,000 mortgage than you did in september, on top of this 5% mortgage companies add a small percentage so they can make profit.
With high house prices and mortgages 'more expensive' how will anyone get on the property ladder?
If there is a slow in the lower end of the market (under £250k) then it is likely that a slump in house prices will follow, how large a fall depends on inflation, if inflation is at 2.4%+ (2.0% government target) for the next quarter than goods may well get more expensive, the demand for those goods will change and overall people will have less money in their hand at the end of the month. What the government and/or the Bank of England decide to do in the next quarter will also affect how affordable mortgages are. But currently a fall in house prices is quite possible.

Answer 3

The buy to let market is keeping house prices high most new developements are being bought to rent them out as prices increases fewer people will be able to afford to buy so the renting market increases.

The only way the market will crash is if interest rates increase to an unsustainable level a glut of houses will be put on the market and the prices will have to come down to sell them. OK % rates have gone up recently but most people know this would happen, and bargained for it. If they continue to increase 1-2% then and only then the market may crash but only in areas which has a high buy to let market London for example the north will be less affected prices will slow up north but not to the levels in london.

Answer 4

The final bust (1994 / 5) grew to become right into a great blow to many and ought to convey approximately a distinctive down turn in many areas of buisness, i'm hoping there is no longer a bust on the way, no longer by way of fact i own a house, yet by way of fact it is going to intend a great hike in expenses of interest and regularly a improve in Inflation, jobs will go through as small companies pass below, expenses of interest on borrowing from credit lenders will pass up, all varieties of nasty issues ought to take place. specific the charges of sources distinctly in London is stupid has been by way of fact the 80's yet there returned, seem at what everybody is earning, wages are so extreme.

Answer 5

Yes or No depends on what happens to the UK economy. If it weakens, and unemployment is up the recent wave of new immigrants into the UK will leave, hence demand will be temporarily dampened, given the momentum behind the rise in house prices in recent years the correction can be quite hard hitting.

Answer 6

I think it will continue to be artificially inflated for some while, because of people investing in property because of insecurity in pensions and also because banks are increasing the amount of money that potential buyers can borrow.

I believe the market would soon have started to slow as first time buyers were priced out. However, as the banks have changed their lending criteria in response, to lend ever-increasing sums of money, this may now not happen for some time.

Answer 7

Land is finite in supply whereas demand for land is not.

As more developments are built and economies expand, there is an increased demand for both commericial and residential properties which are built upon land.

A house price crash occurs when an economic boom is not followed-up to keep the boom ticking over. The house price crash is more likely if the economy is growing at a fast rate but it is not inevitable.

House prices in the long run can only go one direction - up!

Answer 8

You are correct....a crash is inevitable.

Those who cite land's scarcity don't take into account an important factor, population size. Anyone who has flown in a plane over our country can see that we have waaaayyy more land than we have people to occupy it.

If people want their real estate prices to keep going up, allow as many immigrants as possible to come to America.

Answer 9

I hope it crashes! Sorry for all those selling houses at the moment but until house prices drop lower I'll never be able to afford my own place! I'm sure there are many wouldbe first time buyers in the same boat as me too!

Answer 10

Hope it crashes. My house is worth £400,000 and they are thinking of linking council tax to house value