Will The Housing Crash Be More Devastating Than The Early 90s?

[TonyTeacake]

It looks like mortgages approvals have falling off a cliff from last summer.

Morgage Approvals
Aug 22 = 74443
Sep 22 = 66785
Oct 22 = 58018
Nov 22 = 46112
Dec 22 = 35612

You can see from the interest rate chart the rise in interest rates for mortgages has hampered affordability for most people.

The pendulum has now swung from a sellers to buyer's market. With 8% of the market being cash buyers this won't be enough to stop property prices from going down further as there isn't enough demand due to mortgage approvals falling substantially and there is so much more stock coming on the market with not enough buyers. Lower affordability means one thing house prices have to come down much further. Supply is now outstripping demand.
You can see this chart by RICS Chart: New Buyer Enquiries & New Vendor Instructions.

Also if we look at average wages they are not keeping up with inflation which you can see in the chart below.

To sum it up with inflation proving to be sticky we can expect more interest rate hikes this year which is only going to affect the affordability of people buying houses even more. It looks like this crash has already started and I expect YOY average drops for 2023 to be around 10-15% with further drops going into 2024.

Please share your thoughts.

Could it be that people are less likely to move over Christmas? What are mortgage approval numbers in other years across those months?

What is the normal trend in the winter months?

I wonder what the usual comparison would be between August and December figures. The data can’t really be considered without this comparison.

Inflation is coming down - at least in theory. BoE expects it to be 4% by the end of this year and carry on coming down next.

Electricity prices and gas prices are also dropping.

I expect the mortgage approvals to be related to people only moving if they really have to - everyone else is going to wait for as long as they can until the position is clearer.

You can see from this chart it has dropped substantially in comparison to pre-pandemic.

I don't see it being significant.

Inflation is coming down, things will soon begin to stabilise.

We've been in a buoyant sellers market and obviously things are cooling, but I don't see it as being catastrophic.

Time will tell though.

‘It’ being what?

And how do those mortgage approvals compare to previous years over the same months?

I am not sure if you are aware the price cap will go up in April from £2,500 to £3000. Also, energy support for businesses is being reduced.

As for BOE predictions, in regards to inflation, you'd get a more accurate prediction from throwing a dart at a dartboard while being blindfolded

I think the days of low interest rates are over and that means house prices will have to drop

What are your credentials for spouting this “information”? Do you work in the industry or is this just what you think?

House Price Crash forum probably.

All the talk is the fed raising rates again. Furthermore the US inflation is ‘only’ 6.x% , whereas UK is still over 10%.
So yes, low interest rates of the last 15 years are over.

Yes, have seen this myself which will mean more interest rate hikes as inflation is proving to be very sticky. Although it has come down to 10.1% in UK it is proving to be very sticky and we must not forget that means prices for goods and services are still going up by 10.1%. If we use the same metrics to measure inflation from the 70s & 80s it would read well over 25%.

I had a mortgage on black Wednesday. BoE base rate was already at 10%. It rose to 12, then 15% throughout the day. The panic was palpable that day. Horrible. I have never seen so many drunk people in London.

A people don't tend to move around Christmas
B you can prove what ever you want with statistics
C a lot is due with that pillock who Truss thought knew anything about being chancellor with the massive interest rate rises that followed his attempt at the job

Demand is still outstripping supply though. It will drop prices at the top of the market more than the bottom. Larger properties will be the ones stuck on the market for ages but their size and demand for smaller properties (either staircasing to small family home from FTB property or downsizing to small family home for retirees) will still be consistent.

Interest rates will naturally reduce approvals for a short period but it should improve. Where it's more likely to hit the market is in the buy to let as higher interest rates mean that saving rather than gambling on the housing market is more attractive.

What it should mean is more a change in who is buying with a mortgage rather than a crash.

Also cash buyers will increase.

It depends on whether we see a jump in repossessions or not.

In the early 90s there was a spate of repossessions that led to the market being flooded with cheap properties and a big crash.

Following the credit crunch there was no big wave of repossessions so prices underwent a short term dip but there was no crash.

It's not clear what scenario we will get this time.

Agree with RedToothBrush. Also I think there will have been a lot of people, buyers and sellers, sitting on their hands recently with so much uncertainty. The buyers hoping for cheaper prices and the sellers not wanting to drop their asking price when they can’t see what they want to buy coming down…There is also a significant minority of people with plenty of cash/equity who won’t be massively affected by higher interest rates and still think that property is a good investment (keeping it in the bank certainly isn’t). So for me - a reduction yes, crash, probably not.

I agree on Truss and Kwarteng making the situation worse but you cannot solely blame them for everything. It was going to get worse regardless because all of the bubble money is now disappearing from the economy and rampant inflation was always going to be very damaging. This was never sustainable and all of this money has to be paid back one way or another.

Have recently spoken to an estate agent I think the short answer is no, I think it’s being grossly over egged/exaggerated by the media because the housing market has slowed down to a more “normal” pace now, compared to after the lockdown when everything was completed chaos, you would view a property in the morning and by the afternoon the agent was pressuring you to put an offer in otherwise it would be sold the next morning . Of course some people made a fortune out of it and are not very happy about a return to a more sedate market. The government also contributed to the situation by relaxing stamp duty which really stoked up the market , to try and offset other areas of the economy being shutdown for months.

I think it will stagnate/drop for a couple of years then pick up again. Interest rates are no longer expected to get particularly grim. And there is a lot of pent up demand.

Truss was just the catalyst.
Interest rates at 0.5% while inflation is 10% was a result of weakness from the ‘independent’ BoE.
’inflation is transitory’ 😆 Look where we are now. They should have been raising last year, now we have a crash.

That depends on the area as some areas are fairing better than others. Don't forget Help to Buy for FTB also fuelled this bubble and was finished in October 2022.

So here's a question: our house is currently valued at about 140k more than we paid for it 5 years ago. Lovely, but of course anything we'd want to buy has gone up substantially too and we actually spent around 70k on this house. So to "break even" we'd need it to always be valued 70k higher...anything extra is a bonus.

With the outlook as it is, if we keep sitting tight and waiting for the type of step up we'd want to buy to drop in price a bit so that we aren't paying a mortgage for the rest of our lives, are we at risk that the price of our own house crashes so much it goes below what we spent on it (e.g. the market would have to fall so much that our house became worth 70k less than it currently is).

Bailey said in 2021 that inflation was transitory as The BOE where asleep at the wheel. I never liked Truss but you can't blame her for everything.

We have had multiple lockdowns with QE sending the money printers into overdrive., ultra-low interest rates which I hope we will never see again and now we have the war which is escalating. Also, we are now seeing many layoffs because rampant inflation is having a massive effect on many businesses. Don't forget taxes are going up this April.