Will house prices finally fall?

[PupInAPram]

They've been defying gravity for so long, but surely now there are too many downward pressures?

The more people in negative equity (a highly likely result of a price crash) will see lenders become more strict on who they will give mortgages / deposit requirements etc so may not help you anyway

I hope they fall a bit. Houses round here have gone up 20% in 2 years which is totally bonkers and seems entirely unsustainable. Ideally they'd drop 10% or so just as quickly then plateau - not enough that many people are going in to negative equity but enough to make moving possible for a lot of people who would otherwise be unable to due to prices of 4 bed houses and therefore availability of the ones below.

Trust me I know how hard it is to get on the market, we were only recently able to buy our first house in our mid 30’s as it took us that long to save a deposit.
But a drop in house prices usually signifies a wider issue that affects everyone… including FTB’s. It doesn’t create a market where there are loads of young people suddenly able to buy a house… lenders become much more strict with their lending, for a start.

I think people are now much more vulnerable to interest rate rises than they have been in previous crashes. It's not just mortgage debt, but all the other consumer debt people now have driven, in part, by low interest rates. If banks do start to repossess then prices could fall quite rapidly, but that would torpedo bank balance sheets when it puts paid to the lie of current valuations.

I think more likely is that growth will halt and wait for wages to catch up, which at 7% inflation might be sooner than we think. It'll happen because banks will apply much more stringent stress-testing for new borrowers rather than outright downvaluations.

Making money out of asset price speculation in things like housing has worked as people seek returns away from income assets because of low interest rates. I suspect higher interest rates would divert money away from asset price speculation back towards income generation - particularly as the last of the baby boomers retire and start to draw on private pensions.

However, the labour and skills shortages we're seeing in the real economy will also drive productive investment in things like automation, and therefore suck money out of non-productive assets like housing.

Finally, in the UK at least we'll soon find that leaky, unheatable homes will become unmortgageable and unrentable too. They'll then be worthless, which will drive up the price of better homes. It's not just an area or region thing, but how energy-efficient a home is that will be a big driver of price in future.

@Franklin12 you talk about people with no experience of the property market. I have first hand experience of the 1989-93 crash as I sold in London just before they went down. This is why I believe they could go down again.

Houses don't get repossessed because of negative equity. Houses get repossessed because owner occupiers can't pay their mortgages. That isn't caused by house prices.

But a drop in house prices usually signifies a wider issue that affects everyone… including FTB’s. It doesn’t create a market where there are loads of young people suddenly able to buy a house.
This. If the older, wealthier homeowner loses their job and has to sell their house cheap, do you really think the 20-something junior employee will still have a job and be able to get a mortgage?

The best thing to happen would be house prices stay stagnant during a period of high inflation (as long as wages increase to keep pace with inflation). Houses become gradually more affordable for first time buyers, while existing owners don’t need to lose their property/get stuck in negative equity so they can’t move. This is what may happen over the next few years.

My question is what happens to BTL properties when tenants can't afford the rent because of increases is the cost of living but the landlord can't cover the mortgage payments by themselves? Many of these are also interest-only mortgages now nearing the end of their term taken out pre-2008. In a falling market, the fear of negative equity on an interest-only mortgage would definitely give a real impetus to sell quickly.

I think there is a deep depression coming.
So yes, I think house prices will fall.

I think they have to or at least return to the more reasonable amounts.

It's a weird combination of circumstances though. Obviously the economy isn't doing great but then at the same time we have a labour shortage and what looks like the first signs of correction to the 14 year downward spiral in wages we've all just come through.

If we're heading for depression it's via an unfamiliar route.

but he's only ever seen massive rises since he started saving for his deposit.

I had that then we bought 2007 - and then they dropped after a decade + of saving.

I think they may fall a bit - then finger crossed stagnant.

No. There are still enough people able to buy, and there is a basic shortage of supply keeping prices high

Population in the UK is increasing so supply will be a constant issue. Previous crashes happened when there was over supply - I recall seeing houses empty but that no longer happens as there is always demand. Estate agents report multiple buyers for each property - very rarely are properties not selling.

The 2007/8 crash was characterised by people saying a crash just couldn't happen again.

There is a massive misunderstanding about what happens in this scenario. People have been sitting tight for a few years so there's less stock on the market. But during a cost of living crisis and rising interest rates it's the inability to pay the mortgage that starts the pyramid crumbling.

If your son has a healthy deposit and is looking to stay for a long enough time to ride out any crash then go for it. But if it's a stepping stone then be wary.

It's more rapid rise in rents and rising living costs and I don't see how people can save the deposits needed.

No, because people just don’t sell when there is a major recession etc, so fhe market becomes tight, and demand then drives it back up.

House prices on paper falling doesn’t mean everyone suddenly tries to sell their house. They only do it if absolutely forced to. Like in the early nineties. And the banks and the government will prevent those sort of increases in interest occuring again with all of their might. Then the issue was folks couldn’t afford their mortgages and some were forced into repossession. Every one else held on and rode it out. Even banks held onto their properties they had repossessed if they couldn’t get their money back

So If theoretically values drop, everyone sits tight and rides it out. They don’t sell for a loss unless really forced to. The market becomes tight, As everyone knows it’s a short term blip and then they escalate even higher than ever.

House price drops in the nineties was a paper exercise. The market was not flooded with folks suddenly deciding wow, my house has lost value, think I shall sell it.

Increase in number of nasty HMO all around because that's how you make more money from property these days.

There isn't a housing shortage btw. We have plenty of houses. We have more houses than we have households by about a million. What they cost is the issue.

will see lenders become more strict on who they will give mortgages / deposit requirements etc so may not help you anyway

Lenders have been stricter since 08. Let's be honest FTBs can only buy today if they have good jobs &/or help so I'm not sure those people would be impacted. The average FTB deposit in London is 150k

They do need to stagnate though & work needs to pay rather than salaries going backwards. It does not make for a productive economy

Why would people not sell/move if house prices fell? For people wanting to move up the ladder falling prices would be an advantage wouldn't they?
If I have a house worth 100k and house prices fall by 20% I now have 80k.
The 200k house I want to buy also falls by 20% so is now 160k, i only need an extra 80k to buy it instead of 100k, plus reduced stamp duty, estate agent fees etc.
I suppose another big reason to sell would be if the owner had died, can't see why falling prices would stop those sales.
I know things don't happen in a vacuum but don't see why falling prices would stop people selling, negative equity, but that would be a minority of people. The only people I can see negatively affected by falling prices are downsizing and, perhaps, those in negative equity who need to move. And a house is only worth what someone will pay for it.

I think they'll probably slow a little for a short period then continue to rise again.

As long as some people continue to add to their housing portfolios, then property prices won't go down.
People with large savings have seen interest rates plummet on them so property is the next best thing
Property owners can guarantee a much higher rate of return on rental incomes than they'd ever get , including all the associated costs, from a savings account.

The rental market is a huge cause of artificially inflated house prices in many areas.

Needs addressing but nobody will, because so many of the elite know damn well that owning and renting out property is the proverbial cash cow.

Not every older person in an expensive house has other wealth. Many rely on downsizing to fund their retirement or help their dc.