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.

Midlands.

That is an entire postcode prefix area, not a huge market but fairly large. I would guess maybe 50,000-100,000 houses in total. So it isn't a statistically small number.

I have read that the areas that increased the most during the pandemic.will be where we see the most loses, but who knows?! I would like them to come down a bit so can afford something we can live in and suits our needs

It's hard to tell.

All you can really do is keep a watch on the local market and see what properties are selling for. Also the number of reductions in an area on rightmove.

One area I look at has loads of reductions. Another hardly any.

Probably doesn't help that the LR land data I think is lagging a bit atm.

I think within 6 months we should be seeing some more action.

@Playgrind Yes! We are currently renting and hopefully buying soon - sold elsewhere last year. We could wait for potential lower prices but I fear rent will eat up any gains very quickly!

I’m so glad this thread got bumped - has a few laughs reading the responses to Bungalow Bill this morning 😂

The situation in my local area (Berkshire) is that I’m seeing a lot of big family homes selling lately at within 10% of the asking price which is very normal for the area. Most houses seem to sell within 3 months unless there is something a bit unattractive about them. I’m a Rightmove obsessive and can normally predict the ones that will linger on the market. Sad, I know 🤷🏼‍♀️

We have bought property since the late eighties, seen highs and lows of the property market, which always goes in cycles, we have been in negative equity in the past and also made money by buying at the right time. It’s just the way it goes. Money has been cheap, it’s just not sustainable. If you look at the average bank rate over the last hundred or more years there have been peaks and falls but average around 5%, which is exactly where we are now. Property will always be in demand, prices always rise, definitely seems to be more of a buyer’s market than it was for the past couple of years, lots of sales seem to be falling through, but this is not usual in the stressful conveyance process, Dec isn’t a popular time for movers, so I wouldn’t draw too much from the mortgage approval rates.

So I think things are looking considerably worse since this thread was started. Most of the information now seems to be pointing toward base rates of 5.5% by the end of the year - that will be significant and reduce again the amount people can borrow. Inflation seems to be increasing still - if you look at the core inflation it jumped by more than half a percent this month ! That shows that without a doubt rates aren't high enough yet and they have no choice but to continue to raise them. My best guess is that the knock on effect for property prices will take a year or two to filter through from this. Will it be a crash ? Probably not, more of a readjustment of somewhere between 15% and 30% off the peak of last year depending on how your individual area performs. We won't see low rates returning to the levels we used to have - they will probably settle somewhere around what we have now - after staying higher than they are now for a year or two. Property always comes back after a dip but I don't expect this to start to happen until maybe 2025 and its unlikley to shoot up as fast as it has done in the past. I believe the powers that be have realised that holding emergency low rates for a prolonged period, combined with QE, was a mistake and is largely to blame for the huge inflation problem we now face.

Demand is still outstripping supply as there are not enough houses to go round and population increases are high. So this will keep prices high.

Half of all home owners have no mortgage anyway.

did you manage to trade up during the 1990s crash for a lower price(even though I recall you did lose money on your buy to lets). People tell me that it works in theory and mathematically it does make sense, but I am not sure how it works out practically as of course when prices fall, banks also tighten lending criteria...

Inflation may be coming down, however interest rates and headline costs aren't and those will be the things that affect affordability.
OP I think the difference in now than the 90s is that the base demand for housing is much higher. However, the market is much more sensitive to a relatively low level of interest rate rise as house prices are so high.

@Playgrind no ten year fixed rates here. 2/5 are more normal, we also have a common product where you fix a portion and the rest is variable.

There has been media hype of the long awaited mortgage cliff where hundreds of thousands of mortgages expire from their super low covid fixed rates of <2% and are now refinancing at around 6%.

Still hasn't had the impact a lot of us have been waiting for.

We also surpassed the 3% test where applications are approved based on a potential 3% increase in rates for affordability, and that was two months/increases ago.

It's wild, housing shortage is a huge issue, and rents have also skyrocketed due to lack of housing stock.

I don't recall it being devastating in 1990s we moved to an area where values had gone up by 50% in a few years - then they bleated when they fell back by 10%.
It all depends where you are in the cycle.

It would have been devastating for the people affected by it though. We bought in the mid 1990s from a couple who had bought a couple of years earlier but split up.

They'd paid £45k and we paid £32k. They'd spent money on the property too. At the time we both earned around £8-9k so if they earned about the same as we did, they would have not only lost their deposit but ended up in debt by an amount similar to their annual salary. It can take a long time to recover from that sort of setback.

homeowners who have no mortgage are not active in the market. so can be removed from discussions x

The housing market is less about supply and demand than it is about access to finance. It doesn't matter how much someone wants a house if nobody will lend them the amount they need at a rate they can afford.

social, yes we sold the 2 buy to "lose" flats at big losses - I have all the figures because I kept a list and our last house at a loss we had bought in 1990. We sold all 3 properties ready to move to our current house as we needed the money for this one. This one was reduced in price if we could exchange in 7 days. I told our solicitor to do whatever it took. I think she charged 5x the usual conveyancing fee and managed to exchange in a week. Whether we got a good deal or not who knows and I will probably be in the house about 50 years in all so hopefully a long way to go before selling it yet.

Applying ordinary inflation (not house price inflation) to our 1997 price we paid in today's money about £1.6m for the house. It is probably worth more now not that makes any difference to my finances as it is where we live.

@oiltrader you say "homeowners who have no mortgage are not active in the market. so can be removed from discussions x"

This makes no sense. People who don't need a mortgage are active in the market as they do buy and sell houses. I am in this category myself. So are many people I know.

House prices won't crash while there is a huge and ever growing under supply.
What will change is that rich people will own more of the properties whether directly or via investments.

People who become priced out of home ownership will increasingly be forced to rent and will have to live in smaller houses or shared accommodation or with family.

Neither labour nor the tories wish to address this issue. Both have vested interest in perpetuating high housing costs as evidenced by the failure to build anything like the number of new houses required by our expanding population over DECADES.

I think all bets are off now and anything could happen!

If you don't mind me asking why were you desperate to sell and buy a new house

There won’t be a massive crash:

1. all political parties are obsessed with keeping the housing market stable to the same extent they are obsessed with the NHS. It is a mark of British identity;

2. there isn’t enough supply and more and more people come here; and

3. due to cheap finance for a prolonged period, the number of people owning outright is quite substantial. They have no reason to sell in most cases.

social, since I was about 14 I had quite a concrete life plan - lots of children early good legal career and a decent house and able to pay school fees so it was the last stepping stone. Also I set up on my own as a lawyer in 1994 and instead of our having just about no money and barely keeping 1990 house we paid off all the mortgages on the buy to lose flats and our last house (incentive being massive interest rates in the 1990s in part too). I also wanted 2 more children to bring it up to 5 so a bit more space for that was helpful. I also had a home office but it was very crowded and shared with my husband's weekend music teaching business and after school sometimes so wanted more space.

It was not a bad thing to sell at a loss in 1990, buy the next house at presumably a similar discount and I am still very much happy in that 1997 house and hope to have lived in it 50 years by the time I die.

What do you think they will try next to shore up the housing market? Personally I think they are out of options.

Supply and demand is widely used but there is no demand if you can't borrow affordable money.

Immigrants impact rental prices far more than purchase prices.

@electriclight demand is still there
Lots of folk can still afford to borrow
Lots of folk don't need to borrow
Houses will still be purchased at high prices but just not by the less well off. The rich will buy them instead.

What is a cash buyer? Is it someone who doesn't need a mortgage and literally has it all in cash? Can it be someone who has a property, they need to sell but don't need another mortgage to buy again?