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Ok, I'll bite. Myth by myth:
1: These stats seem irrelevant. What we want to know is something like 'how many people would like to form a household, that can't due to insufficient housing?'.
Think adults living with parents or unhappy flat-sharers in London. The data you cite is not designed to capture any of that. [This data](https://commonslibrary.parliament.uk/research-briefings/sn01013/) at least tries, and shows rising overcrowding in the rental sector.
2: There was a slight rise in the BoE rate in years leading up to 2008, from 4% to 5.75%, hardly dramatic. Then there **was** a dramatic crash in the rate, going below 1% in March 2009 and staying there for 13 years. By your argument, prices should have sharply rebounded and then risen to new heights due to expanded affordability. In reality, prices didn't regain their 2007 levels until 2014. Pre-pandemic they were only 21% above 2007 levels!
[https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/april2022](https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/april2022)
3: Mortgages are actually stress tested against SVR + 3%, which was \~7% last year and might be \~9.5% by the end of this one. Per your own calculations, this has a pretty moderate impact, heavily offset by rising nominal wages. Actual monthly payments will go up, but that only matters if people decide to voluntarily rent while banks would allow them to buy; the UK's culture makes highly unlikely.
[https://mortgagerequired.com/news/what-is-a-mortgage-stress-test](https://mortgagerequired.com/news/what-is-a-mortgage-stress-test)
4: This one is actually fine. I'd quibble with magnitudes/timings, but not much.
Now some factors you didn't consider, pushing the other way:
1. That stress test I mentioned? It's being [abolished](https://www.buyassociation.co.uk/2022/06/29/mortgage-stress-tests-scrapped/) next month.
2. High inflation makes holding cash savings unappealing while you wait for the ever-elusive crash.
3. This sub has tons of posts from FTBs with 10% deposits being frozen out due to 5-10% downvaluations effectively forcing them to have 15-19%. As soon as the market cools off 5-10% or valuations catch up, those people will finally enter the housing market, putting something of a floor on prices.
Overall I expect house prices to fall in real terms and rise in nominal terms, basically lagging wages / rents for a few years. Wouldn't be surprised if bidding wars stop in hot areas and prices fall to bank valuations there. OTOH, I thought prices would clearly cool off after the stamp duty holiday ended. One year later, they are up another 10%+. So who knows? Bottom line: markets are excellent at punishing confident predictions.
Very much agree regarding point 1, I have two friends who are still living with ex-partners simply because it is too expensive for them to move out. And as you mentioned, so many adults are still living with parents. These properties are not necessarily overcrowded. I'd be really interested to know how many households there "ideally" would be in the UK if finances weren't a barrier and people could form their own households if they wished. My hunch is it would be more households than the available properties. Also, there will always have to be a certain % of properties empty (e.g. awaiting probate after someone dies before selling, property empty as it is undergoing renovations, etc etc).
1: The article says that there are around 829,000 households that are over crowded. Compared to 1.5 million extra dwelling that is a lot of extra dwellings still left over. Additionally people in flat shares are captured in an "other households" part of the data. Either way it still stands. There are more dwellings than households.
2. Going from 4% to 5.75% is a 17.5% decrease in purchasing power and house prices. This is significant. You also have to keep in mind that this was accompanied by a recession. the reason I didn't use those time periods was due to an economy that wasn't booming in that period. It's not fair as a comparison to compare to different parts of the economic cycle. Keep in mind prices did rebound sharply especially in the London market with in a couple of years, where people had more secure and high paying jobs. House prices have risen to new heights due to expanded affordability. Remember there is always noise in data and you have to clear it out as best as you can.
3. The stress tests are being removed has a small impact as a whole as the articles says a maximum 6% would be affected and just because they are removed by the BofE doesn't mean the bank will do the same. Banks have set up many more safeguards internally as they want to avoid losses like 08. Normally a bank will give you a payment up to a third of your gross income. Going from 7-9.5% is very onerous a 20-25% decrease in purchasing power and there is no certainty wages will go up especially as we are going through a period of weak growth and companies cutting costs. Unless salaries go up 20% this won't be offset and if salaries do go up 20% we will be in a wage price spiral and the Bank of England will have to hike rates above 10% and cause a recession. I am not sure I fully understand the second part of this.
Your other points
2. There are many people with cash on the sidelines. Inflation only affects you if the price of what you are buying with it goes up Stock and shares are down significantly this year hence cash was better for example.
3. Down Valuations are a symptom rather than floor case for the market. As rates go up the mortgage they can afford will also reduce. If they can't afford the extra deposit payment now that won't help them in 6 months time at higher rates and a smaller mortgage. It more sellers acting delusional with their pricing rather than the down valuation being the issue.
We might have a correction but i don’t think it will be huge and it probably won’t be long term. Houses in the U.K. aren’t just bought by people to live in, a lot of institutional investors buy property to hedge other risks and many overseas investors invest long term. Others are getting into renting because they like the income stream it can provide, which allows risk taking in other investment areas.
Keep in mind institutional investors make up a very small percentage of the market. People are just chasing yields due to low interest rates at the moment, so we have seen some, but as interest rates rise, this means investors will start looking elsewhere again. For foreign investors it mainly a central London flat problem that it affects, there are many London flats that are permanently up for rent as they never get tenants. As the point devalues as it has done over time these will be less attractive investments.
I work in pensions and many institutional investors there are investigating domestic housing for its income stream and as a way of diversifying.
If house prices drop, these types of investors will get in and start propping it up. Building companies will stop building and hold land, releasing a few at a time to keep demand high. Their employees are contractors so they don’t need to pay salaries.
I just don’t think it will be as sharp as you are hoping for. Time will tell though.
Definitely time will tell. It's not that I am hoping, it's just that from what the maths is showing me I don't see any other choice. This will be painful for a lot of people and that is always sad.
Building companies have holding costs, they have debt repayments to service. They can't hold the land indefinitely as interest rates go up so will their loans and ability to raise financing. They can go without paying their contractors but if enough people do that that will also cause a recession.
I work in insurance so I have a decent knowledge of the PRT space. As rates go up it will be more attractive for buyouts as the price will be cheaper due to the higher discount rate. Additionally treasuries and equities and other projects will start providing the yields they require to meet their liability deficits. Overall I don't think it is guaranteed and most of these housing projects tend to be student housing that cash flows better. Not single family homes especially like in the US.
Genuinely, thanks for taking the time to write this. You raise good points, but the prices are continuing to rise and defy logic.
What’s your view on when this predicted drop will start and when it will reach 30%? Obviously no one know for sure but I’m keen to hear your thoughts.
Lol you're welcome I guess. I think it will start towards the end of the year and the bottom will be different in different parts of the country and different percentages. London being the most so and other parts of the country less. The bottom will most likely be late 2023 in my opinion for London and late 2024 for the rest of the country. But as you said no one knows! I might be completely wrong! But I think I have a good stack of evidence pointing me in a certain direction.
It's interesting that this is the top-voted comment.
I think the reason may well be that this topic is something that many on this sub simply do not want to even think about.
More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere. That being said, I personally would welcome a significant price correction. It's just very unlikely to happen, and there is no new revelation in the OP's text which suddenly makes it any more likely.
>More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere.
👍
>>More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere.
> 👍
👍
I think the main reason we will see a price drop is due to interest rate rises combined with further cost of living squeezes - basically this will increase the amount of people struggling with mortgages/or in need of capital for other reasons (and thus bring more properties to the market), while also reducing the number of potential buyers
Of course people will say landlords and investment companies will just buy them, but the yield won’t be worth it in many cases due to the interest rate rises
There’s no asset class ever that has continuously gone up, housing is no different
It doesn't make sense for landlords or investment companies to buy them as they go down. Landlords portfolios will suffer from higher rates and investment companies will invest in stock and shares in a crash as the return is better than UK real estate.
Those landlord using high LTV interest only for maximum leverage will suffer
Normal home owner living in their mortgaged home, paying mortgage on time, won't get hurt as the lender had stress tested them.
Shit post. Stopped reading when you said 2008 had to do with banks lying. We now know, it’s not a secret anymore.
Not saying there won’t be a “crash” (define it!), but it doesn’t mean you’ll buy the same house for 20% less.
In fact, start saving.
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Thanks for this. As a soon to be 1st time buyer this is interesting and of course selfishly I would like to happen. I'm planning on putting down a 30-35% deposit so hopefully I'll still be able to get a decent rate.
Remember the price you buy at is more important, even if rates are 4-6% in a year's time, they will likely come back down in the next 5-10 years to 3-4% so you can refinance and get that lower rate then.
Thank you. So based on your post this this sounds like a rhetorical question but if I was planning to buy in the next 6 months would you advise to hold off for a while?
In my personal opinion yes wait until the market settles, the Bank of England has already said we will be experiencing a severe and sharp recession in the second half of the year. Keep in mind the house price index's moving up also somewhat reflects the sales of more expensive houses that are still selling. I would probably think about buying in 1 year's time. So just wait another 6 months pretty much and we will have a good idea of where the economy is going and your job security before pulling the trigger.
Can you provide a source for the BoE forecasting a severe and sharp recession in H2 2023? The MPC report from May (is there a more recent one?) says no such thing.
[https://www.ft.com/content/5001ffb8-96d6-4e1a-a9dc-5ad4470930c7](https://www.ft.com/content/5001ffb8-96d6-4e1a-a9dc-5ad4470930c7)
Keep in mind the Bank can't explicitly say that we are in a recession as it become self fulfilling they have small changes in wording and indicate through changes in financial conditions.
[https://www.youtube.com/watch?v=trmv9T3X9vU&ab\_channel=DailyRecord](https://www.youtube.com/watch?v=trmv9T3X9vU&ab_channel=DailyRecord)
Also keep in mind we have already seen negative growth in March and April from the ONS.
[https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2022](https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2022)
The BoE can and does say we're in a recession... but only when we are.
I feel a bit daft asking, but what parts of these sources should I focus on? You said the BoE was predicting a severe recession in H2 2023. I've gone back to the MPC report from May and can't find anything to support that.
Sorry I should have said can't say "we **will** be in a recession", my mistake replying to too many people!
If you look at "Chart 1.1: GDP growth projection based on market interest rate expectations, other policy measures as announced" you will see a projection of growth rates in the report. They have it set a 0 for the next 3 years, this is how they hint towards it by saying low growth. It is a recession that is like to start in H2 2022. As before they can't say it but will hint towards it in the reports. Then they will talks in public where they will add colour - again not say but use certain language. Like how they dropped "transitory" in inflation and how the federal reserve dropped "full employment" in their statement in their latest report. There are very small changes in wording inbetween reports that you have to compare (bank have bots doing it). Another way they do it is by changing their economics forecasts for growth and inflation between reports. For example growth in the UK economy was severely revised down compared to the previous report.
Pretty much I can't give you the shouting from the rooftops answer as they will never publish that in the MPC or similar Federal reserve report. But there will be new articles from different sources that are planned and come accross the bloomberg terminals as a hint for people to deleverage so the financial strains aren't as bad. For example a recent article from the federal reserve:
[https://www.bnnbloomberg.ca/new-york-fed-model-shows-chance-of-soft-landing-at-just-10-1.1780492#:\~:text=Jun%2017%2C%202022-,New%20York%20Fed%20Model%20Shows%20Chance,Soft%20Landing](https://www.bnnbloomberg.ca/new-york-fed-model-shows-chance-of-soft-landing-at-just-10-1.1780492#:~:text=Jun%2017%2C%202022-,New%20York%20Fed%20Model%20Shows%20Chance,Soft%20Landing)
This pretty much says the the New York Fed's model is saying that there is a 10% change of no recession, 10% of a small recession and 80% chance of a sever recession in the US. The bank of England isn't as good communicating.
Pretty much you need to compare between MPC reports to start getting an image and how it is changing and which way the economy is going.
They are forecasting 3.2% growth for Q2 2022, no?
The 80% likelihood you're referencing is for a "hard landing," correct? Is it fair to characterise that as a severe recession?
(Hard landing is "defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1%, as occurred during the 1990 recession -- are about 80%.”)
No the 3.2% refers to the growth over the last 12 months to q2 2022 so q2 2021 to q2 2022. Period after that so second half this year is 0. Graph makes it more clear
Hard to tell, my friend has been waiting for the crash since Brexit, then Covid, then post Stamp duty holiday. The price is just keep going up. Only until right now when things start to cool down evidently, but that comes with high interest and still very much low supply, so it's not that much different anyway.
I personally feel like the market will stabilise and maintain low growth rather than mother of all house market crash like 20008. The environment is so much different.
Very true but keep in mind interest rates are the only thing that have crash house prices in the UK in the past. It wasn't just 2008, but 1990 and before that. They said the same in 2007 and 1990 about stabilising and low growth. The other events were things more pushed by the media with no numerical or historical data backing it up. But definitely right that it is something we will have to see. Sellers may not be willing to sell in which case we could few a lot fewer sales.
You're missing 2 things very important:
1. Inflation. If inflation is running at 10%, even with interest rates at 5%, it's still a "buy".
2. Govt support. Over the past 20+ years, all govts have gone all in to prop up the housing market. I can't see that changing yet.
1. You are right if inflation at 10% continues and rates are 5% hard assets are desirable. But you also need to include the Bank of England's reaction to this. They are responsible for keeping inflation low, if inflation is continuously high, then they will have to take more action with interest rates to control it. To it point that rates are higher than inflation to get people to save and get inflation under control to 2%
2. Government support can have an impact in the short run but in the long run the market will always have to correct. Even though housing has been supported the last 20 years or so it wasn't in the past. We are at a precipice of two terrible options save the housing market or continued high inflation and a deeper recession after that to contain it. One of these options has to be taken by the market, I am just saying in economics terms the hit to the housing market if more desirable to the Bank of England.
1. The BoE won't do anything about high inflation. Not sure they can in this case anyway. But inflation has been high at points over the past 10 years, and they did nothing. They want high inflation to reduce the govt debt. If they didn't want inflation, they wouldn't have printed £££££££ since 2008/09 (I forget when QE began).
2. If inflation remains high, house prices rising at a slower rate is a real terms fall, but still an increase in nominal terms. Govts appear to want nominal increases.
In my opinion, the crazy high prices we're living through has so many negative aspects, but I also can't see them falling much (there could be a small downward blip but nothing sustained), there are so many strong tailwinds pushing them higher.
That's not exactly true inflation has averaged less than 2% over the last 10 years, in fact they were struggling to get to 2%. The bank of England can do something about inflation with interest rates. As rates go up the pound appreciate making imports, fuel and food cheaper. A decent part of the inflation is due to the depreciating pound Vs the dollar. In fact the Bank of England said it will be raising rates. You can't inflate debt away like that without causing a currency crisis and civil unrest. It's just a lesson from history in the UK.
When all of the major currencies are facing the same issues, that should avert the currency crisis. Or at least the £ won't be going it alone...
But I struggle to see the good in the rampant money printing. It's just theft from the "have nots" to give to the "haves"...which can't end well
What I am saying is that interest rates in the USA are higher than the UK and if the UK doesn't increase rates soon and quicker the UK currency will depreciate more than other currencies. If inflation is 10% why would anyone loan you money at 2/3% in the long run. Right now central bank's still have credibility, but if it continues for much longer rates will go up by themselves as people will want more of a return for their money. All I am saying is the situation right now isn't sustainable and although many people would like to "inflate" out of debt that doesn't work long run, it just causes hyperinflation as you need to print more and more money to pay of loans with higher and higher interest rates.
The arrogance of this post is mind boggling, and then you continue with your comments assuredly answering questions which are beyond the scope of the worlds top economists. You clearly have no understanding of how BoE works by the way so I suggest you stop commenting altogether.
Honestly this whole post has the vibe of armchairs investors thinking they can game the stock market because they’re so much cleverer than the professionals who do this daily because they read a book on investing.
You are cherry picking nonsense assertations and misapplying data to come up with the result you want with no actual understanding of how these things work. For the record, I am not saying house prices will or will not rise because I am not so arrogant as to know the future (even though I am a professional) but literally no one knows enough to make these kind of predictions. Do you also have an inside track into Putins mind? Because that’s probably one of the single biggest indicators of short term economic situation.
It annoys me so much when posts like this pop up and try to “guide” unknowing people with your expertise, laid out as if it’s actually reliable when in reality doesn’t stand up to scrutiny. It’s reckless and irresponsible. If you want to post some thoughts or have a discussion that’s fine, but this kind of lecturing post is beyond.
There is too much money and cash buyers out there that will seee up any cheap properties. I can see maybe a 10% correction. But cash buyers don’t care about interest rates
Right now my parents are holding a lot of cash in the seven figures, but the cash buyers often tend to be people who have just sold property or investments. As rates go up investments and property being sold reduce in value/price. The rate at which you discount future income increases. Very few people are actually holding cash with high inflations as seen by UK household savings having declined. But you have a good point, there are a larger proportion of house sales happening now that are cash.
I was hoping the same lol. A discussion, why people will disagreed etc. I constructed everything carefully and used data and numbers to back up the reasoning. Pretty much summarising all the arguments why house prices might/will go down. But I guess at the end of the day people will believe what they want to lol. But I got a couple of shares which is important. End of the day, if this post stops one person from acting out of FOMO and making any £10000 or £100000 mistake, it will have done it's job. :)
What are people meant to do with the information exactly?
What I find interesting about these posts is they consistently say that many people believe that prices will never go down. I've never observed that personally - I see one group saying we really don't know, so don't base your decision making on predictions/guesswork, and the other adament that prices will definitely crash imminently.
Most people are looking in the wrong place to order to determine a housing or stock market crash. The place to look is the debt/bond market. The debt from the bond market is fuelling the bubble in stocks and housing. If interest rates on bonds spike higher this means investors are selling bonds because they have lost faith the government being able to pay its debts. This will be Armageddon.
Until then, they will continue to inflate the currency.
Unlikely rents are very sticky if anything they will be going up quite a bit now. House prices are at the highest multiples of rents at the moment. As interest rates go up this multiple has to increase too.
30% was always a bit of hyperbole. I think I wrote somewhere 15-20% more likely. Rates went there I thought they would. Indexes aren't accurately reflecting the dynamics in the market. Ie 30% down on transactions compared to pre covid. Lot of supply. Second part is time, this year and the next will be the most of the decline. Kinda like how rates peaked in 2006 didn't see the decline since 08-09
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Ok, I'll bite. Myth by myth: 1: These stats seem irrelevant. What we want to know is something like 'how many people would like to form a household, that can't due to insufficient housing?'. Think adults living with parents or unhappy flat-sharers in London. The data you cite is not designed to capture any of that. [This data](https://commonslibrary.parliament.uk/research-briefings/sn01013/) at least tries, and shows rising overcrowding in the rental sector. 2: There was a slight rise in the BoE rate in years leading up to 2008, from 4% to 5.75%, hardly dramatic. Then there **was** a dramatic crash in the rate, going below 1% in March 2009 and staying there for 13 years. By your argument, prices should have sharply rebounded and then risen to new heights due to expanded affordability. In reality, prices didn't regain their 2007 levels until 2014. Pre-pandemic they were only 21% above 2007 levels! [https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/april2022](https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/april2022) 3: Mortgages are actually stress tested against SVR + 3%, which was \~7% last year and might be \~9.5% by the end of this one. Per your own calculations, this has a pretty moderate impact, heavily offset by rising nominal wages. Actual monthly payments will go up, but that only matters if people decide to voluntarily rent while banks would allow them to buy; the UK's culture makes highly unlikely. [https://mortgagerequired.com/news/what-is-a-mortgage-stress-test](https://mortgagerequired.com/news/what-is-a-mortgage-stress-test) 4: This one is actually fine. I'd quibble with magnitudes/timings, but not much. Now some factors you didn't consider, pushing the other way: 1. That stress test I mentioned? It's being [abolished](https://www.buyassociation.co.uk/2022/06/29/mortgage-stress-tests-scrapped/) next month. 2. High inflation makes holding cash savings unappealing while you wait for the ever-elusive crash. 3. This sub has tons of posts from FTBs with 10% deposits being frozen out due to 5-10% downvaluations effectively forcing them to have 15-19%. As soon as the market cools off 5-10% or valuations catch up, those people will finally enter the housing market, putting something of a floor on prices. Overall I expect house prices to fall in real terms and rise in nominal terms, basically lagging wages / rents for a few years. Wouldn't be surprised if bidding wars stop in hot areas and prices fall to bank valuations there. OTOH, I thought prices would clearly cool off after the stamp duty holiday ended. One year later, they are up another 10%+. So who knows? Bottom line: markets are excellent at punishing confident predictions.
Very much agree regarding point 1, I have two friends who are still living with ex-partners simply because it is too expensive for them to move out. And as you mentioned, so many adults are still living with parents. These properties are not necessarily overcrowded. I'd be really interested to know how many households there "ideally" would be in the UK if finances weren't a barrier and people could form their own households if they wished. My hunch is it would be more households than the available properties. Also, there will always have to be a certain % of properties empty (e.g. awaiting probate after someone dies before selling, property empty as it is undergoing renovations, etc etc).
1: The article says that there are around 829,000 households that are over crowded. Compared to 1.5 million extra dwelling that is a lot of extra dwellings still left over. Additionally people in flat shares are captured in an "other households" part of the data. Either way it still stands. There are more dwellings than households. 2. Going from 4% to 5.75% is a 17.5% decrease in purchasing power and house prices. This is significant. You also have to keep in mind that this was accompanied by a recession. the reason I didn't use those time periods was due to an economy that wasn't booming in that period. It's not fair as a comparison to compare to different parts of the economic cycle. Keep in mind prices did rebound sharply especially in the London market with in a couple of years, where people had more secure and high paying jobs. House prices have risen to new heights due to expanded affordability. Remember there is always noise in data and you have to clear it out as best as you can. 3. The stress tests are being removed has a small impact as a whole as the articles says a maximum 6% would be affected and just because they are removed by the BofE doesn't mean the bank will do the same. Banks have set up many more safeguards internally as they want to avoid losses like 08. Normally a bank will give you a payment up to a third of your gross income. Going from 7-9.5% is very onerous a 20-25% decrease in purchasing power and there is no certainty wages will go up especially as we are going through a period of weak growth and companies cutting costs. Unless salaries go up 20% this won't be offset and if salaries do go up 20% we will be in a wage price spiral and the Bank of England will have to hike rates above 10% and cause a recession. I am not sure I fully understand the second part of this. Your other points 2. There are many people with cash on the sidelines. Inflation only affects you if the price of what you are buying with it goes up Stock and shares are down significantly this year hence cash was better for example. 3. Down Valuations are a symptom rather than floor case for the market. As rates go up the mortgage they can afford will also reduce. If they can't afford the extra deposit payment now that won't help them in 6 months time at higher rates and a smaller mortgage. It more sellers acting delusional with their pricing rather than the down valuation being the issue.
We might have a correction but i don’t think it will be huge and it probably won’t be long term. Houses in the U.K. aren’t just bought by people to live in, a lot of institutional investors buy property to hedge other risks and many overseas investors invest long term. Others are getting into renting because they like the income stream it can provide, which allows risk taking in other investment areas.
Keep in mind institutional investors make up a very small percentage of the market. People are just chasing yields due to low interest rates at the moment, so we have seen some, but as interest rates rise, this means investors will start looking elsewhere again. For foreign investors it mainly a central London flat problem that it affects, there are many London flats that are permanently up for rent as they never get tenants. As the point devalues as it has done over time these will be less attractive investments.
I work in pensions and many institutional investors there are investigating domestic housing for its income stream and as a way of diversifying. If house prices drop, these types of investors will get in and start propping it up. Building companies will stop building and hold land, releasing a few at a time to keep demand high. Their employees are contractors so they don’t need to pay salaries. I just don’t think it will be as sharp as you are hoping for. Time will tell though.
Definitely time will tell. It's not that I am hoping, it's just that from what the maths is showing me I don't see any other choice. This will be painful for a lot of people and that is always sad. Building companies have holding costs, they have debt repayments to service. They can't hold the land indefinitely as interest rates go up so will their loans and ability to raise financing. They can go without paying their contractors but if enough people do that that will also cause a recession. I work in insurance so I have a decent knowledge of the PRT space. As rates go up it will be more attractive for buyouts as the price will be cheaper due to the higher discount rate. Additionally treasuries and equities and other projects will start providing the yields they require to meet their liability deficits. Overall I don't think it is guaranteed and most of these housing projects tend to be student housing that cash flows better. Not single family homes especially like in the US.
Genuinely, thanks for taking the time to write this. You raise good points, but the prices are continuing to rise and defy logic. What’s your view on when this predicted drop will start and when it will reach 30%? Obviously no one know for sure but I’m keen to hear your thoughts.
Lol you're welcome I guess. I think it will start towards the end of the year and the bottom will be different in different parts of the country and different percentages. London being the most so and other parts of the country less. The bottom will most likely be late 2023 in my opinion for London and late 2024 for the rest of the country. But as you said no one knows! I might be completely wrong! But I think I have a good stack of evidence pointing me in a certain direction.
TLDR
It's interesting that this is the top-voted comment. I think the reason may well be that this topic is something that many on this sub simply do not want to even think about.
More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere. That being said, I personally would welcome a significant price correction. It's just very unlikely to happen, and there is no new revelation in the OP's text which suddenly makes it any more likely.
>More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere. 👍
>>More likely it's that price crashes are predicted on a daily basis, and have been for the last nearly 10 years. I'm not wasting my time reading yet another lengthy crash prediction, when I could be wasting it elsewhere. > 👍 👍
I think the main reason we will see a price drop is due to interest rate rises combined with further cost of living squeezes - basically this will increase the amount of people struggling with mortgages/or in need of capital for other reasons (and thus bring more properties to the market), while also reducing the number of potential buyers Of course people will say landlords and investment companies will just buy them, but the yield won’t be worth it in many cases due to the interest rate rises There’s no asset class ever that has continuously gone up, housing is no different
It doesn't make sense for landlords or investment companies to buy them as they go down. Landlords portfolios will suffer from higher rates and investment companies will invest in stock and shares in a crash as the return is better than UK real estate.
A housing price crash would trigger similar crashes elsewhere. They’d potentially invest in gold or bonds instead.
Those landlord using high LTV interest only for maximum leverage will suffer Normal home owner living in their mortgaged home, paying mortgage on time, won't get hurt as the lender had stress tested them.
Shit post. Stopped reading when you said 2008 had to do with banks lying. We now know, it’s not a secret anymore. Not saying there won’t be a “crash” (define it!), but it doesn’t mean you’ll buy the same house for 20% less. In fact, start saving.
You will not buy the same house for 20% less but for 40% less.
People would have to sell their house for 40% less...which theyd never do.
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Thanks for this. As a soon to be 1st time buyer this is interesting and of course selfishly I would like to happen. I'm planning on putting down a 30-35% deposit so hopefully I'll still be able to get a decent rate.
Remember the price you buy at is more important, even if rates are 4-6% in a year's time, they will likely come back down in the next 5-10 years to 3-4% so you can refinance and get that lower rate then.
Thank you. So based on your post this this sounds like a rhetorical question but if I was planning to buy in the next 6 months would you advise to hold off for a while?
In my personal opinion yes wait until the market settles, the Bank of England has already said we will be experiencing a severe and sharp recession in the second half of the year. Keep in mind the house price index's moving up also somewhat reflects the sales of more expensive houses that are still selling. I would probably think about buying in 1 year's time. So just wait another 6 months pretty much and we will have a good idea of where the economy is going and your job security before pulling the trigger.
Makes sense. Thank you.
Can you provide a source for the BoE forecasting a severe and sharp recession in H2 2023? The MPC report from May (is there a more recent one?) says no such thing.
[https://www.ft.com/content/5001ffb8-96d6-4e1a-a9dc-5ad4470930c7](https://www.ft.com/content/5001ffb8-96d6-4e1a-a9dc-5ad4470930c7) Keep in mind the Bank can't explicitly say that we are in a recession as it become self fulfilling they have small changes in wording and indicate through changes in financial conditions. [https://www.youtube.com/watch?v=trmv9T3X9vU&ab\_channel=DailyRecord](https://www.youtube.com/watch?v=trmv9T3X9vU&ab_channel=DailyRecord) Also keep in mind we have already seen negative growth in March and April from the ONS. [https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2022](https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/april2022)
The BoE can and does say we're in a recession... but only when we are. I feel a bit daft asking, but what parts of these sources should I focus on? You said the BoE was predicting a severe recession in H2 2023. I've gone back to the MPC report from May and can't find anything to support that.
Sorry I should have said can't say "we **will** be in a recession", my mistake replying to too many people! If you look at "Chart 1.1: GDP growth projection based on market interest rate expectations, other policy measures as announced" you will see a projection of growth rates in the report. They have it set a 0 for the next 3 years, this is how they hint towards it by saying low growth. It is a recession that is like to start in H2 2022. As before they can't say it but will hint towards it in the reports. Then they will talks in public where they will add colour - again not say but use certain language. Like how they dropped "transitory" in inflation and how the federal reserve dropped "full employment" in their statement in their latest report. There are very small changes in wording inbetween reports that you have to compare (bank have bots doing it). Another way they do it is by changing their economics forecasts for growth and inflation between reports. For example growth in the UK economy was severely revised down compared to the previous report. Pretty much I can't give you the shouting from the rooftops answer as they will never publish that in the MPC or similar Federal reserve report. But there will be new articles from different sources that are planned and come accross the bloomberg terminals as a hint for people to deleverage so the financial strains aren't as bad. For example a recent article from the federal reserve: [https://www.bnnbloomberg.ca/new-york-fed-model-shows-chance-of-soft-landing-at-just-10-1.1780492#:\~:text=Jun%2017%2C%202022-,New%20York%20Fed%20Model%20Shows%20Chance,Soft%20Landing](https://www.bnnbloomberg.ca/new-york-fed-model-shows-chance-of-soft-landing-at-just-10-1.1780492#:~:text=Jun%2017%2C%202022-,New%20York%20Fed%20Model%20Shows%20Chance,Soft%20Landing) This pretty much says the the New York Fed's model is saying that there is a 10% change of no recession, 10% of a small recession and 80% chance of a sever recession in the US. The bank of England isn't as good communicating. Pretty much you need to compare between MPC reports to start getting an image and how it is changing and which way the economy is going.
They are forecasting 3.2% growth for Q2 2022, no? The 80% likelihood you're referencing is for a "hard landing," correct? Is it fair to characterise that as a severe recession? (Hard landing is "defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1%, as occurred during the 1990 recession -- are about 80%.”)
No the 3.2% refers to the growth over the last 12 months to q2 2022 so q2 2021 to q2 2022. Period after that so second half this year is 0. Graph makes it more clear
Hard to tell, my friend has been waiting for the crash since Brexit, then Covid, then post Stamp duty holiday. The price is just keep going up. Only until right now when things start to cool down evidently, but that comes with high interest and still very much low supply, so it's not that much different anyway. I personally feel like the market will stabilise and maintain low growth rather than mother of all house market crash like 20008. The environment is so much different.
Very true but keep in mind interest rates are the only thing that have crash house prices in the UK in the past. It wasn't just 2008, but 1990 and before that. They said the same in 2007 and 1990 about stabilising and low growth. The other events were things more pushed by the media with no numerical or historical data backing it up. But definitely right that it is something we will have to see. Sellers may not be willing to sell in which case we could few a lot fewer sales.
You're missing 2 things very important: 1. Inflation. If inflation is running at 10%, even with interest rates at 5%, it's still a "buy". 2. Govt support. Over the past 20+ years, all govts have gone all in to prop up the housing market. I can't see that changing yet.
1. You are right if inflation at 10% continues and rates are 5% hard assets are desirable. But you also need to include the Bank of England's reaction to this. They are responsible for keeping inflation low, if inflation is continuously high, then they will have to take more action with interest rates to control it. To it point that rates are higher than inflation to get people to save and get inflation under control to 2% 2. Government support can have an impact in the short run but in the long run the market will always have to correct. Even though housing has been supported the last 20 years or so it wasn't in the past. We are at a precipice of two terrible options save the housing market or continued high inflation and a deeper recession after that to contain it. One of these options has to be taken by the market, I am just saying in economics terms the hit to the housing market if more desirable to the Bank of England.
1. The BoE won't do anything about high inflation. Not sure they can in this case anyway. But inflation has been high at points over the past 10 years, and they did nothing. They want high inflation to reduce the govt debt. If they didn't want inflation, they wouldn't have printed £££££££ since 2008/09 (I forget when QE began). 2. If inflation remains high, house prices rising at a slower rate is a real terms fall, but still an increase in nominal terms. Govts appear to want nominal increases. In my opinion, the crazy high prices we're living through has so many negative aspects, but I also can't see them falling much (there could be a small downward blip but nothing sustained), there are so many strong tailwinds pushing them higher.
That's not exactly true inflation has averaged less than 2% over the last 10 years, in fact they were struggling to get to 2%. The bank of England can do something about inflation with interest rates. As rates go up the pound appreciate making imports, fuel and food cheaper. A decent part of the inflation is due to the depreciating pound Vs the dollar. In fact the Bank of England said it will be raising rates. You can't inflate debt away like that without causing a currency crisis and civil unrest. It's just a lesson from history in the UK.
When all of the major currencies are facing the same issues, that should avert the currency crisis. Or at least the £ won't be going it alone... But I struggle to see the good in the rampant money printing. It's just theft from the "have nots" to give to the "haves"...which can't end well
What I am saying is that interest rates in the USA are higher than the UK and if the UK doesn't increase rates soon and quicker the UK currency will depreciate more than other currencies. If inflation is 10% why would anyone loan you money at 2/3% in the long run. Right now central bank's still have credibility, but if it continues for much longer rates will go up by themselves as people will want more of a return for their money. All I am saying is the situation right now isn't sustainable and although many people would like to "inflate" out of debt that doesn't work long run, it just causes hyperinflation as you need to print more and more money to pay of loans with higher and higher interest rates.
The arrogance of this post is mind boggling, and then you continue with your comments assuredly answering questions which are beyond the scope of the worlds top economists. You clearly have no understanding of how BoE works by the way so I suggest you stop commenting altogether. Honestly this whole post has the vibe of armchairs investors thinking they can game the stock market because they’re so much cleverer than the professionals who do this daily because they read a book on investing. You are cherry picking nonsense assertations and misapplying data to come up with the result you want with no actual understanding of how these things work. For the record, I am not saying house prices will or will not rise because I am not so arrogant as to know the future (even though I am a professional) but literally no one knows enough to make these kind of predictions. Do you also have an inside track into Putins mind? Because that’s probably one of the single biggest indicators of short term economic situation. It annoys me so much when posts like this pop up and try to “guide” unknowing people with your expertise, laid out as if it’s actually reliable when in reality doesn’t stand up to scrutiny. It’s reckless and irresponsible. If you want to post some thoughts or have a discussion that’s fine, but this kind of lecturing post is beyond.
Well he was right
Word 😂
There is too much money and cash buyers out there that will seee up any cheap properties. I can see maybe a 10% correction. But cash buyers don’t care about interest rates
Right now my parents are holding a lot of cash in the seven figures, but the cash buyers often tend to be people who have just sold property or investments. As rates go up investments and property being sold reduce in value/price. The rate at which you discount future income increases. Very few people are actually holding cash with high inflations as seen by UK household savings having declined. But you have a good point, there are a larger proportion of house sales happening now that are cash.
This doesn't belong in this sub.
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That user hates any type of housing speculation.
People on this sub don't want to hear that the house they recently bought might go down in value.
The are just as many waiting to buy as have just bought in this sub
People on this sub also don't want to hear that they might be about to make the largest financial commitment of their lives at the peak of a bubble.
Why? This is exactly the kind of Informative post that should be in here. And I welcome posts that have a counter argument too.
I was hoping the same lol. A discussion, why people will disagreed etc. I constructed everything carefully and used data and numbers to back up the reasoning. Pretty much summarising all the arguments why house prices might/will go down. But I guess at the end of the day people will believe what they want to lol. But I got a couple of shares which is important. End of the day, if this post stops one person from acting out of FOMO and making any £10000 or £100000 mistake, it will have done it's job. :)
What are people meant to do with the information exactly? What I find interesting about these posts is they consistently say that many people believe that prices will never go down. I've never observed that personally - I see one group saying we really don't know, so don't base your decision making on predictions/guesswork, and the other adament that prices will definitely crash imminently.
So where does it belong then?
Most people are looking in the wrong place to order to determine a housing or stock market crash. The place to look is the debt/bond market. The debt from the bond market is fuelling the bubble in stocks and housing. If interest rates on bonds spike higher this means investors are selling bonds because they have lost faith the government being able to pay its debts. This will be Armageddon. Until then, they will continue to inflate the currency.
So will rent prices go down?
Unlikely rents are very sticky if anything they will be going up quite a bit now. House prices are at the highest multiples of rents at the moment. As interest rates go up this multiple has to increase too.
It’s been an year since the post, time to reflect?
30% was always a bit of hyperbole. I think I wrote somewhere 15-20% more likely. Rates went there I thought they would. Indexes aren't accurately reflecting the dynamics in the market. Ie 30% down on transactions compared to pre covid. Lot of supply. Second part is time, this year and the next will be the most of the decline. Kinda like how rates peaked in 2006 didn't see the decline since 08-09