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.

Forgot charts

Well given the credit crunch had very little impact on the market i reckon we will be fine for another few hundred years

The credit crunch precipitated a 20% drop in uk house prices. They recovered eventually of course, they always do, but in the medium term it affected an awful lot of people. Anyone thinking of buying now, who didn't have to, would be daft to do so until the direction of travel is clear imo.

This! All day long

The 08 credit crunch was 'fixed' by QE. The BoE printed shed loads of cash and gave it to the banks (at the tax payer's expense), flooding the system, creating liquidity. They also dropped interest rate significantly.

Now it's a very different situation because of inflation. They can't 'fix' the crunch QE and lowering rates because this would drive inflation higher, making our woes even worse.

Some said 'oh the government won't let a recession happen - they'll lower rates and suffer the inflation. Well, the government doesn't want to turn the uk into Argentina with uncontrollable hyper inflation and Jeremy Hunt confirmed that this week saying he was ok with recession in order to beat inflation.

So, it's at your own risk if you think this will go the same way as 08. That recession was indeed bad for many - homes & jobs were lost and values lost 20%. But i hope it's crystal clear that this time round it's different: it's 08 with the safety nets and no cavalry on the way.

House prices are going to keep falling for a couple of years and don't be surprised if when it finally reaches bottom it's a lot lower than you expect. My guess? 65-70%

While that's hard for many to stomach or get their head around (it always is), it does at least mean that our children/grand children may be able to afford a home

Forget about 2008, this is much more 1992.

You think a 65/70% drop?! Or that they are currently at 96% of peak, and they’ll hit 65/70%.

“As for the availability of lending, see my post above, the government are gonna kick the banks arses and get them lending as they’ve done many many times before.”

Government already guarantee 85000 cash in bank accounts and we have seen lots of “international” banks now tap into the UK retail saving sector via platforms such as Raisin or Active Savings (Hargreaves Lansdown).

All governments need to do is somehow guarantee those potentially defaulting borrowers who have recently taken out loans. Of which there are not that many proportionally speaking. So many people now have small mortgages or own outright. https://www.thisismoney.co.uk/money/mortgageshome/article-11922413/More-people-England-homes-outright-mortgage-rent-figures-reveal.html

If there is now back up in the rental sector and nowhere for people to go if they default and their houses are repossessed, government will somehow step in to calm the markets. They have to and it is to confidence build. It impacts the banks too so they will do it somehow.

https://www.scmp.com/news/hong-kong/society/article/3206837/hong-kong-migrants-choosing-new-homes-near-good-schools-drive-property-prices-some-uk-cities

Where we live in London we have had an influx of Hong Kongers buying up property. So not all people coming here are poor. These are typically skilled middle class workers with capital who push their kids and pay high taxes. They are most welcome to come here.

“BTR and pension funds will be the ones building and providing rental accommodation as landlords are increasingly being forced to sell up and withdraw from the market through government taxes/policy.”

That would be a good thing long term and people should invest in property via funds rather than being small time landlords.

A lot is going to change in the next 20-30 years and people won’t be able to retire early relying on a free NHS to look after their very expensive health needs in old age. There is a current generational anomaly and that will sort itself out in due course as the youngsters now get to the age where they end up in power.

A nominal 65-70 from 2022 prices. But over 2-3 years. Personally i don't see the UK getting back to real growth and house prices moving consistently north again until the 2030s.

But that's not a professional opinion, just that of someone with an avid interest who's been working in the UK since Black Friday. This all feels far more like that, with the added twist of war motivated hyperinflation

Intergalacticcatharsis,

"government will somehow step in to calm the markets"

We saw with Truss that the gov have no control in the markets. The gov's hands are tied, since any liquidity help they could offer to banks to 'kick them up the...' and persuade them to lend (as they did in 08) is off the table because of inflation. Don't bet the farm on the gov saving the day unless you can afford to lose the farm

I'm interested in how you see what happened then and what is happening now as the same thing.

During the credit crunch the BOE lowered rates to near zero, and printed almost a trillion pounds to push into the system (QE).

At the moment the BOE is increasing rates rapidly and effectively withdrawing money from the system (QT).

You would reasonably expect that these two different actions will result in two different outcomes for the economy as a whole.

Currently out of 64% of homes in the UK we have 36% that are owned outright, with 28% which is owned with a mortgage or a loan.

That demographic is vastly swayed to the older generation. The older generation are mostly retired, have help towards energy costs and have had inflationary pension uplifts (10.1%).

It’s the younger generation who make up most of the PAYE tax payers. They are the ones who are first time buyer, upsizing (due to having familes etc) moving areas. They are the ones most impacted by the cost of living crisis and will be the demographic most likely to be in negative equity. If the market lower down the ladder freezes over then house prices at the top come down too.

The government haven’t got the money to bail out the indebted. Our debt to GDP ratio in 2023 is nearly 100%. What’s more likely is they will work with the mortgage companies to offer lower interest only solutions for those in trouble over longer mortgage timeframes.

In regards to Hong Kong, it was a one off situation offered to a limited amount of people in certain circumstances. We had a total number of 144k so far in two years out of a total migration number of 1.1 million last year with millions more expected over the forthcoming years.

https://hongkongfp.com/2023/02/01/over-144000-hongkongers-move-to-uk-in-2-years-since-launch-of-bno-visa-scheme/#

It’s a straw man argument which will not be applicable going forwards (and certainly won’t hold house prices up) as people generally migrate to better economically better themselves as they have little money.

https://www.telegraph.co.uk/politics/2023/05/11/net-migration-million-home-office-government-conservative/#:~:text=Net%20migration%20is%20on%20track,the%20year%20to%20June%202022.

https://12ft.io/proxy?q=https%3A%2F%2Fwww.telegraph.co.uk%2Fpolitics%2F2023%2F05%2F11%2Fnet-migration-million-home-office-government-conservative%2F%23%3A%7E%3Atext%3DNet%2520migration%2520is%2520on%2520track%2Cthe%2520year%2520to%2520June%25202022.

@ddc70 - Government will make sure people are housed. If it is temporarily cheaper to help people with mortgage payments than pay landlords extortionate amounts via housing benefit then it can be done. As Rents have gone up so much the latter may be cheaper.
Government are already propping up a large amount of the working age population anyway with benefits.

For example, they can give tax reductions for those with high mortgage payments under a certain age. Everything can be done. We may see more 40 year mortgages - if the pension age keeps going up, so can the mortgage term.

They will find ways to calm the situation. Because the alternative is far more expensive.

They didn't help the thousands repossessed in the early 90s and likewise i don't see them splurging the cash to do that now. Even if they'd wanted to covid furlough has rinsed the finances already and inflation prevents them QE-ing more cash into the system by paying mortgages and/or rents.

How they may try and help - only avenue left to them - is provide alternative temporary shelter. This could be anything from B&B, to 'camps' as used for immigrants, to turning unused office space (vacant due to recession and WFH) into 'nightingale accomodation'.

I can see the latter appealing to the Tories and Starmer's business friendly New Labour because it could be handed of to corporations to fund and later profit from, as temp becomes permanent for many and rents are slowly introduced.

In short there's other ways to skin a cat, but anything involving adding liquidity to the markets of a no go while inflation is above normal

I kind of agree with that.

Basically if a house gets repo'd and a family gets kicked out then the government (or local authority) just will have to end up housing them, so it probably makes more sense to help.

The question is what for that help might take. For example the government taking an equity stake it the house, the housing forced to be sold to the local authority, there are a number of ways of doing it. I don't think the government really likes direct intervention because when things go wrong it doesn't like the bad publicity (coming soon we will see this on Help to Buy).

In the past we have had support for mortgage interest that gives mortgage holders money to stay in their homes, but I don't think the state of the economy is now good enough to give away free money like this. So my guess is that any support that is forthcoming will involve some sort of payback eventually.

What this means is that people lower on the ladder won't lose their homes, but will be unable to progress up the ladder in the usual way because they will not have enough equity. What this will do is cause a reduction in prices higher up the ladder as the buyer pool disappears.

The bottom line is that money is going to be pulled out of housing equity due to higher rates. Whether this occurs over a short timescale (no government intervention) or longer timescale (because the government decides to try to intervene to spread out the pain) it's still going to happen.

It's also worth noting that government support for BTL landlords/property investors and single people is likely to be much less generous than for people with children.

at the same time, prices falling will mean families may find it easier to upsize (if they have been saving or overpaying). The gap between the first and second step of the ladder have doubled since 2008 which is esp significant in places like London. Larger properties fall more than smaller properties which mean that people may save money when they upsize. That was how my MIL upsized in 1996 from a 1 bed flat to a 3 bed house in z3 north london.

I can only speak from my experience but the mood music is definitely on the turn with EAs.

We were looking to buy a house and having been viewing quite a few properties. We live in Devon and there's still the covid greed factor built into a lot of prices but the difference now is there just isn't the same demand. It seems like a lot of homeowners are yet to come to terms with how things are changing, understandably to be fair because its all happened so fast. But, unlike previous decades, all the data is there to see on the Internet, so buyers are much more savvy about over pricing now. Properties bought 3-4 years ago that now have a £100k mark up with no evident home improvements to support the rise are standing out like a sore thumb.

EAs still try to pitch the 'but X area is a bubble and has its own economy' are just spouting BS. The fact that properties are now hanging around on the market for much longer bears this out.

I had an EA phone me recently for feedback on a viewing. When I said the property wasn't for us they asked me to be honest about the price and I said if I were to offer I would take £75k off, they didn't even blink and actually agreed with me, which I was a bit surprised at! They then tried to get me to offer that but I said it still wasn't for us at the lower price. A lot of people have their heart set on the next move and it's dependent on achievements a certain price, in this market I'm not willing to subsidise that by overpaying. So I agree with the PP point that FTBs and cash buyers aren't going to be the suckered to prop up the market. That is wishful thinking.

I think the extent of government intervention will be kicking the lenders to keep people in their homes - mortgage holidays, move to interest only, longer terms. I don't think we'll see repossessions on the scale of the last crashes. But it will still be expensive and painful for many.

The 75,000 homes repossessed in 1991 (worst year on record for repossessions) still represented less than 1% of the mortgaged properties.
Many people struggling at that time did get help either in the form of benefits or the lenders being patient in not rushing to repossess people as soon as they experienced difficulty. I know people from that time who had to extend the term of their mortgage for example, or who were allowed to take a payment break if they had some equity in the property.
Lessons have been learnt from that period with regard to stress testing for affordability, so I don’t believe that the high number of repossessions in 1991 will be reached again in the U.K.

They didn't stress test to the rate levels we're heading into and tests didn't include the current exorbitant inflation and COLC. They're as good as moot!

All true about the attempts to help in the 90s, yet even with that help 75,000 homes were repossessed, as you pointed out.

UK's in greater financial difficulty than it was then, with the points i've made above as to why there won't be anywhere near as much help this time round. So that's 75,000+++

That's a big whole to climb out of and while it's true that housing on an Island, such as the UK will in the long run rise in value, the dips vary depending on macro economics, which have not been this bad since the great depression; plus the wages to house price ratio being the worst in around 150 years).

Property will once again find value, but probable not back to 2022 levels for a decade

“Currently out of 64% of homes in the UK we have 36% that are owned outright, with 28% which is owned with a mortgage or a loan.

That demographic is vastly swayed to the older generation. The older generation are mostly retired, have help towards energy costs and have had inflationary pension uplifts (10.1%).”

The fact that some people in the older generation mainly are sitting on completely untaxed housing wealth is a problem. Government should get rid of the CGT exemption on main residences. At least introduce e.g a flat 5% rate on sales initially (so as not to collapse the whole thing at once). Once they start with that, the elder generation will start shifting and downsizing further too.

Neither main residence housing equity nor housing wealth is taxed properly. That is where Governments should be looking to tax, not on PAYE. The younger generation needs to live and breed for the next generation.

No, you clearly like to catastophise the housing market. Affordability tests are not as good as moot and 75,000 +++ repossessions is a dark fantasy.

You’ve shown your true colours, now scuttle back to that silly house crash website.

That's a bit rude, isn't it?

I'm not from, nor taking part in any house crash website. And i'm not catastrophising, just calling it as i see it.

If anyone's shown their true colours it's obvs you, Twiglets by resorting to nasty, spurious condescension in lieu of facts relating to the current economic situation which support your analysis.

I would like to see recession averted, since it means job losses and that undermines house buying for all but the cash buyer. But making plans based on 'hope' and ignoring the reality is a fools errand, which by your ignorant response to me you appear to be well suited to

She always does this any time a poster is very negative about the state of the housing market/ economy. The accusations about being on HPC always start.

I can only assume that she and another poster who does exactly the same are heavily invested in property or have some sort of 'skin in the game' and so are overly sensitive. Whatever their situation, it does not justify these sort of false accusations. The only true colours being shown are entirely theirs.

The fact that some people in the older generation mainly are sitting on completely untaxed housing wealth is a problem. Government should get rid of the CGT exemption on main residences. At least introduce e.g a flat 5% rate on sales initially (so as not to collapse the whole thing at once). Once they start with that, the elder generation will start shifting and downsizing further too.

It's a huge problem because we have a shrinking income tax paying population, unforeseen drop in birth rates & an ageing population with the impact that has on social care & the NHS. I think the gov will start to target that housing wealth tbh, they don't really have any other option.

The younger generation needs to live and breed for the next generation.

I think that ship has sailed. I pretty sure natural population is declining. By the mid 2040s the no of people over 85 is expected to be double that of 2020.