House prices

[Newbie1999]

Realistically, how much do you think house prices will fall over the next couple of years?

Who knows.

I think we can probably expect some reasonably meaty real terms falls, but whether by that i mean 5% or 10% or 20%, and what the inflation-unadjusted numbers will look like, we'd be talking total guesswork.

@Oliversmumsarmy 1,2 and 3 all apply to me. But I thought I was unusual. On Mumsnet/Facebook, you get the impression London is emptying because most white Brits are not religious. Also they seem to be ok with commuting long distances or even taking a pay cut to get a bigger house.

It is hard to tell what will happen yet but predictions are a 1929 crash/type 1930s Great Depression. I hope it won't be that. I certainly remember the 1990s crash when we sold 2 flats in London at big losses none of which had had a 13% 10 year fixed interest rate on it... which was not such a good deal when interest rates went down as low as 8%!

Property remains relatively cheap in some areas such as the NE where I am from originally.

There was already a trend of "Londoners" leaving London so this could accelerate

www.google.co.uk/amp/s/metro.co.uk/2019/07/01/more-people-are-leaving-london-than-ever-for-a-taste-of-the-quiet-life-10094714/amp/

@newbie111

I'm a real estate market analyst, specializing in residential investment for the last 10 years. In return, what are your qualifications to be so certain in your opinions?

@witheringrowan

What are your thoughts on the market, withering?

I think it will remain stable as the government has shown it will not allow a crash at any cost. That in itself is creating confidence in cautious people like me.

Why was @hendersonhen ‘s comment deleted?

I think there will be a lot of money pumped into people starting their own business and maybe taking people on where the government give some tax breaks and incentives to get people working again and to compensate against those that have actually lost their job.

I do think though that a number of those that have applied for UC will immediately return to their work as soon as is possible so at the moment the figures don’t show the true problem

@witheringrowan I'm a quant at a global bank :)

in which case, @newbie111 may I pick your brains???!!!

Please look into your crystal ball and predict the housing market in 18 months for London, studios/one/two bed flats zone 3.

Thank you (and bless you)

Well I am a Conveyancer and I have been made redundant....

Prices are set at the margins. As a previous poster mentioned, deaths, divorce and debt.
Once a few forced sales happen in your area happen at a lower price then the ceiling is set. In a falling market, buyers can wait to purchase at a lower level. Why buy a depreciating assets?
Perhaps when the furlough ends companies which were marginal will cease trading. People will just not have as much disposable income once the Gov starts to claw the money back through taxation and further state pension age pushback.

@Asimovsfutureishere2020

"Please look into your crystal ball and predict the housing market in 18 months for London, studios/one/two bed flats zone 3"

I don't have a crystal ball but I can give you some assumptions we are working with:

• Net recession lasting till end of Q1 2021 (i.e., annual negative GDP growth from Q1 2020 - Q1 2021)
• Significant increase in inflation in early 2021
• Significant increase in interest rates (between 1 -1.25 percentage points) in Q2 2021

I expect, at a minimum, a 15% correction across the all housing stock by Q3 2021.

Not furloughed Dolly.? redundancy seems extreme unless your firm was in trouble already?

Loads of companies have made people redundant. Many could not afford to wait until any furlough money came in or thought they might not get it - apparently it will be coming if you applied when it opened on 20 April within about 6 days. Even worse is firms who were going bust anyway before covid now instead taking all this free furlough money.

@Xenia

The UK had uncontrollable inflation in the 1980's through to the early 1990's though and interest rates were high and more volatile. Fixing mortgages at 10%-13% was not uncommon, particularly for higher earners with stable income - for the simple reason they knew where they stood. By the mid 1990's inflation was looking to be 'licked' - helped by ever increasing globalisation of trade.

The ingredients for inflation to build again can be foreseen, but (as Japan will bear testament) inflation may prove elusive. Increases in interest rates above 2.5% are unlikely over the medium term as we are told economies are unlikely to withstand such a move, yet roll back over the last 20 years and that kind of rate would have been seen as positive for investment.

@newbie111 I believe that 15-20% is optimistic. My 2 bed flat in London zone 3 has dropped 20% from 2017, hence I was able to buy it. Do you think 40% is likely? That is what I fear, as I would be in negative equity with my 15% deposit and may be unable to remortgage in 4 years time. 15-30% , I will probably be able to stomach it.

@Desiringonlychild I'd say 40% is an extreme scenario but not unrealistic. It really depends on how the government reacts to this crisis. There are 2 key factors that will affect house prices in the next 18 - 24 months: The impact of the recession and Government response.

The impact of the recession is something we're able to model, across various scenarios, with moderate confidence at the moment.

What we've been unable to model with confidence is government intervention. Most people don't realise that the money being pumped into the economy (via QE and monetary financing) comes with some serious side-effects: inflation and debt fuelled asset price increases being the two key ones. Depending on the scale of the intervention (already extremely concerning), interest rate rises will be required to prevent the destruction of the value of the sterling. Interest rate rises, as I had mentioned earlier, pay a key role in house prices with a 1% increase in interest rates resulting in a 20% decrease in house prices and a 2% increase in interest rates resulting in a 33% decrease in house prices (as modelled by the Bank of England).

My advice is either buy a flat/house at a 20% discount to 2018 prices OR be financially "cushioned" to take a 20% destruction of equity if you need to re-mortgage any time between 2021 - 2023.

@newbie111 realistically if prices fall by 20-40%, most first time buyers and second steppers who require mortgage to purchase would not be able to take advantage as banks would tighten their lending criteria and offer low LTV mortgages. E.g. if bank expects 20% price fall, they would not want to offer 80% LTV mortgages as the borrower would be in negative equity.

Also if interest rate rises, that could have some serious negative consequences on government debt. In Singapore (where I am originally from,), the government is using the reserves to fund the QE and monetary financing. E.g.75% of all private sector salaries. I think the UK government is using debt to finance this?

A commonly unforeseen problem is when the low rate fixed deals end and a borrower tries to re mortgage again, only to find that the property value is less. This means that their Ltv has increased, locking them out from the best deals and they are possibly stuck on the SVR.

@Desiringonlychild

Singpore has a substantial sovereign wealth fund - which puts it at an advantage - but you are correct the UK will fund this initially by debt but that will have to be repaid through tax increases (organic or by increment) there is no other way.

I don’t think you can compare what is happening now to any time in recent history

We have had recessions and housing markets collapses which were because of high interest rates, or people rushing to buy before mortgage tax relief was quashed or because the economy was going downhill but never in a period of very low interest rates, where we have had a long period of people sitting in their properties (waiting to see what Brexit holds) and where the economics of the country weren’t before this started in a totally bad place and the forecast wasn’t complete doom and gloom.

Personally I see a lot of people getting back to work very quickly and for a lot of people it will be business.

There will be a lot of houses going on the market as there is a lot of DIY going on and as that finishes people will look round their house and see it looking it’s best and with nothing to do on it they will get itchy feet and want to move, there will be couples wanting to divorce as they are sick of the sight of each other. There will be those that want to emigrate who if this thing or something else comes back they would rather spend their time in a villa with a swimming pool in the sun or those that have had time to reassess their lives and want a complete change of lifestyle.
And there will be those that were going to move this year and had just been waiting to see if the bottom fell out of the housing market on January 30th and missed putting their place on the market before the lock down and those that have lost their job and need to move or face losing their house but I don’t see the latter happening for a few months as people will be reluctant to move before spending at least a month or 2 trying to get another job.

Whilst I think initially prices will drop because of the sheer amount of houses coming onto the market but as the first wave start to sell and the number of buyers increases then I can see prices starting to edge up not down.