Things may settle down - they can't keep rising, but they won't crash. Too much demand and too little supply.
This.
It depends on where you are in the country as to how it will play out.
One of the biggest problems is how the housing market crash is filtering through the system.
In London prices continued to rise, but this wasn't the case everywhere. In many places they have never recovered to pre 2008 prices. Where prices continued to rise, anyone who bought in the last ten years or bought for the first time after the crash continued to gain equity. If you had bought in the years shortly before the crash and live in an area which has only just recovered you didn't get that equity boost.
What you have now is a gap between people who gained equity and those who did not / those who are not on the housing ladder at all.
Those who continued to gain equity continued to fuel the market. But that is now running out of steam. The pool of those people is shrinking. So prices CAN NOT rise any higher.
Why?
Because those lower down the ladder or in areas which haven't had big price rises simply can not afford property or afford to move upwards.
This isn't helped by developers who in search of maximising their profits do not want to build smaller houses and instead have focused on luxury 4 bed properties.
The trouble is that there are too many of these and not enough smaller properties.
This comes at a time where older people, whose children have left home, are looking to downsize (perhaps to help finance their children to buy a home) so are looking for 2/3 bed small properties. But families who would normally have moved into the 4 bed properties can not afford to do so and remain trapped in smaller 1st or 2nd rung on the ladder properties. Which in turn inflates the price at the bottom end of the market.
So you would EXPECT the market to slow down, particularly at the top end. It will grind to a halt as the higher priced properties just won't shift unless they slash prices, but they will still always remind more expensive than smaller ones. Its just that above a certain price point, the price per extra m2 will be much lower. Whilst the price of 2/3 bed properties will be disproportionally high because of the short supply / high demand. But these can not rise above a certain point either.
Its like a compression of prices to a smaller range which is higher at the bottom end and lower at the top end. It looks like a drop in prices on many of the figures you'll see floating about, but the reality is that the prices at the bottom are not really decreasing.
What dictates this point is simply the amount of money people are earning. If people have no equity then this price is savings plus your multipler. If you have point 10 years into a mortgage without an equity gain from property price rises, you might be looking at around £100,000. A household with an income of £80,000 might be looking at getting a house at about £450,000 at top whack. And that price point will act as a ceiling for the vast majority. Realistically the ceiling is lower than that for the majority of buyers who are still on a good income - its closer to about £350,000.
The exception to this is those who do get help from the bank of Mum and Dad or get inheritance. In time as the baby boomers die off, a lot of money will filter downwards - but because of the weak demand for more expensive houses, again there will be less money than people anticipate from the sale of these houses.
The need to build a lot more smaller houses, in this context, can not be understated. The housing market is distorted because its top heavy but the demand is all at the bottom.
I can see this happening in my local area. The larger houses are just not shifting. The large luxury new builds are all over priced as they were built by developers effectively trying to 'get rich quick'. It won't happen. There are simply not people left here to buy those houses. Meanwhile the family houses at the bottom of the market are up just a few weeks (sometimes just days). I can only see the problem locally getting worse.
We are seeing a lot of house price slashes here this year - mainly at the top of the market. The area only just recovered from 2008 in the last year or so. Now its looking like it will dip back from there. Again, largely because of the lack of equity that younger people have in comparision to someone who had exactly the same income and bought in the same area ten to fifteen years earlier.
We have local friends who are ten year older than us on a similar income who are in a 5 bedroom detached. We might just manage a good sized 3 bed. The only difference is the rise in equity and demand at the bottom of the market.
As I say, the thing that needs to change is WHAT we are building. No amount of government schemes to help buyers can solve the problem when the problem is too many big houses that no one can afford and too few small houses which have over inflated prices that no one can afford.
Of course, the government at too stupid / have too many conflicting personal interests / too preoccupied with other issues, to get any of this.
So we're all screwed in one way or another. Whether you are at the top, bottom or middle or whether you rent.