What will happen to the property market long term

[Turtlez]

What are peoples estimations for the housing market over the next 5 years, in terms of house prices, interest rates etc? Google seems to suggest interest rates will be dip a little around 2026 but they weren’t expecting them to be at the rates they are now. Do you think property prices will significantly fall for a long period of time?

As my username implies, I'm also very interested in this and have been reading all the predictions/ opinions.
Personally I don't think any of the headline-grabbing 'crash/ collapse' scenarios will happen, but the market WILL be difficult for a few years. My belief is:

• Interest rates may peak at about 6/6.5% this year before dropping back to more typical 3-4% levels in 2024 and beyond.
• House prices will be 'soft' - perhaps fall 4-6% in the next 12-18 months, but this will be highly regionalised, depending on demand/supply pressures. There is still a massive shortage of housing stock, so houses WILL sell, but it might take longer and sellers will have to accept very realistic prices perhaps 4-5% below their original asking price.
• The rental market is going to be the most difficult with a huge number of landlords with only 1-2 properties selling up between now and 2025 (when new legislation will likely be implemented). This means rentals will begin to be concentrated in business landlord portfolios/ student accommodation providers etc and rents will rise in response to shortage of rental properties. I'm afraid I don't believe that the proposed changes in legislation will help the more vulnerable tenants at all, as commercial operators will always find a way around e.g. tenants on benefits/ with pets etc.
• The housing that comes onto the market from ex-landlords may well be the older, less energy-efficient stock which, ironically, new buyers may be unable to afford to renovate/ bring up to scratch with the on-going cost of living crisis.
• 2025 may see a new Labour government, but it will be years before they will have any impact/ be able to make any changes in the property market.

I think prices will drop quickly as the market effectively stops due to the cost of borrowing. If rates keep rising that will make the drops larger as we will see a continued slump and a lot of distressed sellers discounting. Followed by a period of stagnation where many will either not want to buy or have their credit so messed up they can't borrow to buy. Big corps will likely buy up a lot of cheap housing to rent out.

This part of the cycle will probably take 5 or so years. Too early to say what happens after that.

One thing the next government is likely to do is further tax housing, probably a land value tax and higher stamp duty which won't help things.

I am also following every news article and industry commentator. I bought in 2008 and this feels similar. I am expecting at least 10% falls, possibly more over a period of 1-2 years, followed by a period of stagnation or very modest rises. Natural population is due to fall from 2025 and interest rates will remain higher than many are used to for some time. Supply and demand means nothing if people can't afford to borrow what they need, it's an inevitable downward pressure.

My guess is interest rates go a little higher, forcing a moderate recession. House prices 20 to 30 percent down from peak in nominal terms. Inflation settles under target 2% after recession bites. Interest rates quickly reduced to stimulate the economy, but not to emegency levels that became normal over the last decade. House prices rapidly recover to levels not seen before.
The real question is the timescale of the cycle. Again I'm guessing - that 5 years from here prices will have recovered to higher levels than now. Possibly a lot higher if wage inflation doesn't cool off quickly. I think it will, but we all know what thought did - following a shit cart thinking it was a wedding.
Anyone who says they KNOW how this will all pan out is to be ignored and labelled arrogant. It could be better, it could be worse. Depending on your angle.

I think house prices will fall and then stagnate for a while possibly until inflation catches up a bit to the absurd house prices of today. In the long run prices will increase again but unless the government intervenes again and keeps them artificially high (which they probably will to keep the rich getting richer) it will take a while.

Really interesting replies. I generally don’t think house prices will fall significantly long term, I’m one of those that thinks in the long run house prices increase. I do think there will be a correction of house prices though, they were so high, particularly last year (we bought in the peak and pre pandemic our house would have probably sold for 50k less). It’s so difficult to predict I guess, I wondered if house prices would suddenly go through the roof IF interest rates return to somewhere normal (not the 1/2% most people have got used to), i think there might be a mad rush form everyone that put off buying whilst waiting for interest rates to settle that will drive prices higher.

stupid question probably, but why would the government be interested in keeping house prices high? Because there is more stamp duty to pay?

We're in SE commuter belt and house prices aren't falling at the same rate as elsewhere. I think there are still people employed in well-paid jobs moving out of London (WFH trend is helping) who can afford to buy. Perhaps not so many potential buyers per property though?
Also if interest rates fall, but rents stay high (as is likely due to reduced supply) then we may see people trying to buy when otherwise they may have rented.

There are different forces at play compared to the 2008 crash.

This - you've put it better than I could but I agree

In the long term prices I think prices will continue to rise, whether that will be in 5 years or more like 7-8.

The cynical side of says it's best for the government to keep house prices high because it creates a wide pool of well behaved workers. Well behaved workers who pay lots of income tax and fear loosing thier jobs. Well behaved workers who feel they are investing in something tangible. I don't think stamp duty revenue really comes in to it.
Add to that the financial services sector - arguably has the most influence over government policy. They need to make more money by lending more money.

It does give government plenty of revenue in stamp duty and things like Capital Gains Tax. But also, it gives property owners the feel good factor. They feel richer than they really are because they feel like they have lots of money invested in their property, (even though they can only realize that profit if they downsize), so they are more forgiving of other things being a bit crap. And home owners are likely to vote so governments want them to be content.

Thanks both for clarifying - i understand what you both mean. Seems absurd really, we have some equity in our house (minimal, about 40k) but like you said we can’t use it 🤷‍♀️ if house prices do keep increasing at these levels our teenage kids have no hope of getting on the ladder without a hefty deposit which it’s unlikely we’ll be able to help with.

The Government needs to keep house prices at a good level as a good portion of the population has invested its pension pot in their property. Difficult for the government not to take care of old, homeless people and there is no social housing that can meet their needs.
That is a major expense.

I know what you mean. We're lucky to have quite a bit of equity in our house but we're older (50s & 60s).

I did get an inheritance & gave most of it away to the kids to help them save/get on the property ladder. They would be waiting until their 40s if they had to wait for us to downsize or potentially into old age themselves if they had to wait for us to die. We were fortunate that the elderly family member who died didn't need to go into a care home. Hoping Euthanasia is legal in the UK by the time I'm really old. Maybe the Government will introduce it soon to help with the housing crisis!

@Twiglets1 I shouldn’t laugh at your comment but I did! We were lucky that we were given some early inheritance to use as a deposit (about 10k) and we managed to save about 5k, but I often wonder how we could do the same for our kids as the deposits they will need are likely to be much higher.

Haha well it was tongue in cheek 😄

Nothing. Lack of supply and demand will win the day.

My predicitons:

There will be a slower paced property price correction first. Then a sudden and massive crash due to wider economical factors. The people that will be hit the hardest will be buyers from more recent years already paying for over priced properties with high interest rates. FTB will have a very difficult time and wish they never bought.

The main factor will be the over priced houses so it's crucial people NOW and TODAY get that property as low as possible.

I see swathes of legal issues and sellers being sued for poor properties too.

@Translucentwaters

Nothing. Lack of supply and demand will win the day.

Um, have you not seen what's happening globally including in China? Their property market has crashed.

First time buyer last year.
Already wish we hadn't due to fear and forecasting our financial future.

Forecasting at best to break even in 5 years.
Worst case of depreciation is owing bank/housing association nearly 70k.

Utter worst case is unmortgageability due to some land quirk I didn't think much of when we brought but may be a huge problem but I can't think of that as a feasible thing or it'd terrify me beyond all reasonable action.

Hindsight is a wonderful thing eh.
Our house is nice tho. For now.

Prices will recover and another period of sustained increase is almost certain. BUT we are probably early on in the downward curve for now.

Crashing even harder today. This is what happens to demand when cheap credit dries up....

https://www.cnbc.com/2022/11/28/uk-property-demand-down-44percent-since-market-rocking-mini-budget-zoopla.html

House prices won't fall significantly in the longer term.

We had a global crash in 2008 and prices fell, but they were back up at the same level inside three years.

In the end, land is a finite resource. The UK is one of the more stable economies in the world, one of the more tolerant societies, English is the language of business and work is relatively easy to find, so we aren't short of visitors.

Our office has one French, one Aussie and one Italian out of 12 because they cannot find appropriate work in their own countries. Regardless of Brexit or Covid.

"We had a global crash in 2008 and prices fell, but they were back up at the same level inside three years."

We all know the reason for that though, right?

Take a flight from London to Scotland, see how much land weve got, that isnt the driver of prices.

I reckon we will see a narrowing gap between London prices and attractive neighbourhoods across the country as working from home continues to mean people can relocate. Depending on future government policies and other socioeconomics, it's possible that they will be a deeping of deprivation in towns where poverty is already entrenched. House prices in these poorer towns will remain low and rural and leafy neighbourhoods will attract more affluent people thus commanding higher prices.

As these neighborhoods continue to revive and attract high earners. I imagine the 1 bed apartments in London will be in oversupply and fall in value more than say property in Tunbridgewells, York, Hale etc.

Basically I'm saying look at the area and make predictions about where house prices will go in the future. Is there good transport links, schools, picturesque streets, good housing, an influx of young professionals etc. My money is on these prospering neighbourhood being the safest bet when it comes to buying a home.