House prices and recession

[Mumof22020]

Whats everyones thoughts on house prices are they likely to come down in price if theres a recession? The prices are crazy at the moment and with the cost of living going through the roof we're surely going to hit a recession.

Yes I get the confidence thing. I aim to buy again this year, have already sold. Last yr I would have stretched myself, not now.

Just had a look at Rightmove. We are in a seaside town in the south west. Prices have gone mad but looking tonight quite a few houses have had the prices reduced and things don't look like they have been going fast. Maybe it is a sign, maybe just a local thing but interesting as throughout 2021 the market was going mad here.

I would agree that consumer confidence will have an impact, just like with the stock market. if people think they will lose significant amounts of money on a new house, they will be more likely to hold off buying.

Of course, the interest rates are a key factor.

@rainingsnoring

I would agree that consumer confidence will have an impact, just like with the stock market. if people think they will lose significant amounts of money on a new house, they will be more likely to hold off buying.

Of course, the interest rates are a key factor.

Yes like any gamble you have to weigh up everything. I remember years ago I was offered a 5 year fix with British Gas, I wondered if I'd been reckless when I was over paying in year 1, by year 5 I was saving a fortune. A gamble that paid off, they don't always.

[quote rainingsnoring]@Lightscribe- are you suggesting that the Bank of England are likely to raise interest rates significantly even if we enter a recession? They have raised them extremely gingerly despite inflation far exceeding all their predictions. Do you think they are likely to raise them more sharply in a recession? The levels of individual and government debt make for difficult decisions for them...[/quote]
The Bank of England will do whatever the Fed does as the $ is the reserve currency (for now). The Fed is raising rates (meeting next week) so the BoE will do the same. House prices and those with high leveraged debt won’t even be a factor in anything. The danger of a hyper-inflationary spiral is the priority. They need inflation to inflate away their debt but have to raise rates to avoid inflation running away. In the 70’s that lasted most of the decade.

@Bringsexyback

There is absolutely no way the interest rates will rise causing people to not be able to pay their mortgages …. we have a population it’s almost doubled since the 90s crash and about one third of the available social housing, combined with 1.5 million refugees about to descend on this country there’s no way the government will allow the indigenous population to lose their homes as well they’ll be literally riots in the street.

This. It would be completely nonsensical - the government would suddenly be responsible for housing thousands of families. Also, inflation is caused by global supply issues, so raising interest rates in the uk would do little.

House prices won't fall, they haven't been related to wages for a long time. There are plenty of people with money (inheritance, bank of mum and dad etc) and too few houses.

The current Inflation wasn’t caused by global supply issues (that was caused by shutting the world down and reopening it again). That’s the middle part of the chain.

Inflation began at the beginning of the chain as a result of the central banks having to print trillions. It eventually headed into stimulus checks/bounce back loans, furlough etc directly into the economy which in turn directly effects the costs of resources/materials (commodities rising) instead of going into the stock market and growth assets (like after 2008) which is why the US stock market has been doing so badly this year. That then slowly feeds into the logistics (supply chain/shortages) then out to the consumer at the end which we’re seeing now.

We were going from a 40 year disinflation cycle into an inflationary one, covid just happened to be the catalyst.

'The Bank of England will do whatever the Fed does as the $ is the reserve currency (for now). The Fed is raising rates (meeting next week) so the BoE will do the same. House prices and those with high leveraged debt won’t even be a factor in anything. The danger of a hyper-inflationary spiral is the priority. They need inflation to inflate away their debt but have to raise rates to avoid inflation running away. In the 70’s that lasted most of the decade.'
@Lightscribe

I'm not sure this is quite right. The B of E have clearly been spinning the transient narrative because they do not want to raise interest rates and have the whole system come crashing down. I think they will be forced to raise interest rates but will hold off until the currency is a being devalued significantly.
Also, the QE money has ended up in assets, stock markets in 2020-21. It was only at the end of 2021 that the stock market started to do badly. The housing market still hasn't turned yet, presumably because of the super low interest rates which are likely to rise but who knows by how much or how fast. Perhaps they will go up to all of 0.75% next week!

@Lightscribe

The current Inflation wasn’t caused by global supply issues (that was caused by shutting the world down and reopening it again). That’s the middle part of the chain.

Inflation began at the beginning of the chain as a result of the central banks having to print trillions. It eventually headed into stimulus checks/bounce back loans, furlough etc directly into the economy which in turn directly effects the costs of resources/materials (commodities rising) instead of going into the stock market and growth assets (like after 2008) which is why the US stock market has been doing so badly this year. That then slowly feeds into the logistics (supply chain/shortages) then out to the consumer at the end which we’re seeing now.

We were going from a 40 year disinflation cycle into an inflationary one, covid just happened to be the catalyst.

Finally - someone who understands how the economy works! Loads of posts here about "no, the BoE/government would never do that!". We're at the beginning of a runaway inflationary curve unless BoE acts. I'm willing to bet they will still sit on their hands and do nothing till late October/November when the official inflation gauges start hitting 9-10% and the sterling sell off begins.

Yes to this. They will only raise rates when they are forced to do so, they clearly don't want to now because of the consequences.

'I'm willing to bet they will still sit on their hands and do nothing till late October/November when the official inflation gauges start hitting 9-10% and the sterling sell off begins.'

I don't know about the rest of the country but I just don't think it applies to London. Friends bought in the not-so-nice part of Clapham in 2007 for £600k. Sold in 2014 for £930k. House sold at the end of 2020 for £1.2m. Houses near us in a very undesirable part of London have gone up by £250k+ in 7 years (up by about 30-40%). If you look back at recently sold prices everywhere and then look at what these places sold for in 2008/2009 after the last crash then they've always increased.

I do think the price of our flat has stagnated because of Covid, but we have made £100k in 8 years (bought for £365, selling for £465). I do think high end flats on big developments are a little different but on the whole, still up.

Raising interest rates won't curb the type of inflation we have.
Our inflation is caused by commodity prices being too high and rising, making goods more expensive.
Raising interest rates to curb inflation only works if the cause of the inflation is too much cash sloshing around the system due to rapidly rising wages etc. This is clearly not the case
Ergo Raising interest rates will do nothing to curb inflation so I doubt there will be a rush to do so by the boe regardless of what the fed do

@Lightscribe

The current Inflation wasn’t caused by global supply issues (that was caused by shutting the world down and reopening it again). That’s the middle part of the chain.

Inflation began at the beginning of the chain as a result of the central banks having to print trillions. It eventually headed into stimulus checks/bounce back loans, furlough etc directly into the economy which in turn directly effects the costs of resources/materials (commodities rising) instead of going into the stock market and growth assets (like after 2008) which is why the US stock market has been doing so badly this year. That then slowly feeds into the logistics (supply chain/shortages) then out to the consumer at the end which we’re seeing now.

We were going from a 40 year disinflation cycle into an inflationary one, covid just happened to be the catalyst.

Inflation resulting from covid was expected to be temporary. The problem now is expected supply issues (fuel, wheat etc). Fuel costs have a knock on effect on everything else.

As prices rise people are likely to stop spending on non essentials leading to recession. You can't raise interest rates if the economy tanks.

I've noticed a difference there's an estate agent who markets themselves as premium with over the top lifestyle staging and pictures of cheese boards. He normally markets about 30-40k above other estate agents because of his marketing he's not selling houses as quickly and I'm noticing he's reducing. I think it's telling consumer confidence is going down and people don't want the premium life style staging.

Just had a look at rightmove to compare with last night. No more reductions but there is one house "unexpectably" back on the market and I think it is listed lower than it was a few weeks ago. Wonder what went wrong.

Prices did fall in the 2008 crash, by a fair amount in some places.
I live in Scotland and bought my first property (a new build) in March 2008 right before the markets crashed.

Within around 8 weeks the builder who built my house had gone into administration and was selling the exact same house as mine for £82,500 (I paid £115,500) so I had lost £33k in a matter of weeks. I stayed in the house for 10 years and had to move in 2016 due to marriage breaking down and sold for £99k so still a 15k loss despite staying there for 10 years waiting for the market to recover a bit.

I've been renting since then as the loss wiped out what little equity I had and I'm still struggling to get a deposit together to buy again. It's so frustrating and I feel like I'm never going to get there again now.

Not sure how much impact but there are people who have had sales fall through because of the safety certificate issue to do with fire safety. Mortgages were not being approved in time. So they will be ready to move when they can.

@Alexalee “ Raising interest rates to curb inflation only works if the cause of the inflation is too much cash sloshing around the system due to rapidly rising wages etc”

We’re on track for quantitative easing (money being printed by BoE) to exceed over £1 trillion. 99% of Covid funding was done through QE.

So you think the inflation in food and energy prices is to do with qe.....

Asset prices yes... but they aren't in the inflation basket of goods

Yes absolutely. QE money that ends up in investors hands then chases commodities (agricultural, energy and metals) which in turn, creates a downstream effect of manufacturers who use these materials passing on increased raw material prices to consumers.

The global economy isn’t a collection of isolated, hermetically sealed industries; money flows across investment classes and sectors and that’s why we’re seeing “broad inflation” across multiple categories of products.

@ledbydonkeys

The global economy isn’t a collection of isolated, hermetically sealed industries; money flows across investment classes and sectors and that’s why we’re seeing “broad inflation” across multiple categories of products.

No money doesn’t broadly go equally across investment classes. The last 40 years (disinflation cycle) has been based on cheaper and cheaper goods. Say a computer or TV in the 80’s was more (inflation adjusted) to what is is now. Chicken for example was more expensive but mass farming drove the costs down with cheaper labour for processing etc. This is disinflation. During disinflation money/investment goes mostly into growth assets like we have seen in technology stocks, FAANGS and Tesla. That’s mostly where the QE from 2008 went into growth assets so say a Vanguard passive fund will be made up of 60% US equities (mostly growth). The QE money this time went directly into the economy this time (stimulus, furlough, loans globally) this pushed up the the growth stocks for 2021 (skilled professions with large pensions were able to retire early). But by putting the QE directly into the economy this also caused the inflation catalyst (like in second hand cars). The world economy closed down which meant supply chains were effected, so then demand for resources were in short supply which aided inflation spiralling for the resources available. Treasury Yield curves inverted in early 2019 then repo rates spiked which has preceded every recession in history, covid just happened to be the catalyst. But now the inflation cycle is here (it’s not transitory despite whatever they may be telling you) that’s why you now see the US growth and tech assets been declining since the start of the year. The UK FTSE is commodity heavy so is faring far better.

@ancientgran

Just had a look at Rightmove. We are in a seaside town in the south west. Prices have gone mad but looking tonight quite a few houses have had the prices reduced and things don't look like they have been going fast. Maybe it is a sign, maybe just a local thing but interesting as throughout 2021 the market was going mad here.

Where we’re looking to buy it’s the same: things coming to market with very confident prices, then lingering. There’s one just on that last sold 2 years ago, no changes made in that time, that wants another £150k – I’ll be interested in seeing if it lingers as that just seems cheeky. Quite a few that start off with a “POA” have also now faltered and admitted the price, then reduced it.

On the other hand, we’re in the crew that wants to leave London but didn’t manage it during Covid (fixer upper halfway through being fixed up, was an impossible sell) and are now ready: feels like the worst time to sell/buy, with prices as high as anxiety, war looking, cost of living and energy crises… We’re getting valuations this week and will report back, in our area Rightmove is really stagnant and tumbleweedy.