Are house prices going to drop? – According to the Professor of Economic Geography at the London School of Economics, Paul Cheshire, “the warning signs are clear!” when the professor suggested that the UK property market is heading for a plunge of at least 40%!
Speaking to the Mail on Sunday last week, the Professor, who is also a former government housing advisor, said:
We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting.
Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.
If Professor Cheshire’s predictions are correct, the UK could see a property crash as bad as the early 1990’s, which saw millions affected by negative equity which resulted in thousands losing their homes.
What are the signs we are heading for a property crash?
- Property trends often filter out from the capital. For the third consecutive month, London property price growth has dropped significantly on average.
- House price growth is starting to slow down across all regions of the UK
- Inflation is outgrowing incomes. Last month inflation hit 2.9%, while incomes only grew by 2.1%
- Average time to sell a house is growing in length
Inflated house prices and general economic uncertainty have also played their part in the stalling market, with estate agents claiming homeowners are willing to wait up to 10 months to secure a sale. Inflated time on market has been attributed to the rise buyers unwilling to pay overly ambitious asking prices.
Should homeowners be worried about these predictions?
If we were to see a sharp drop to house prices in the UK, recent property buyers would be the most affected. Property often takes years to recover after a big price drop and unfortunately recent buyers would most likely see their properties enter into negative equity.
Should I still sell my house ahead of a property crash?
If you are selling a house in order to downsize or move into rented accommodation, it is advisable you sell sooner rather than later to ensure you achieve the maximum offer.
If you are selling a house to buy another, unless you are in negative equity, the asking prices should all be relative as your onward purchase will also have dropped in worth.
A house price crash is simply a collapse in house prices and whether the house price index falls by more or less than 10% determines whether there is a house price correction or a house price crash.
Property price corrections happen fairly frequently and are necessary for balancing out the housing market supply and demand. A house price correction is a minor drop in the market. Where the house price index falls no more than 10% from the highest price within the same year.
A price crash happens less frequently. In fact, house prices in the UK have crashed just twice in the last 20 years, between 1990 and 1992, followed by another between 2007 and 2010. A crash is defined as being when the house price index falls by more than 10% from the highest value month in the same year. This can mean that for millions of home owners, their house is worth less than their mortgage (sometimes known as negative equity).
The housing market is currently showing a drop in the house price index for three consecutive months with some speculating that a house price crash is imminent. Others are more of the ‘don’t believe the hype’ philosophy.
The data causing the headlines is from the Nationwide Building Society and reports that prices across the country dropped by 0.2 % in May compared to the previous month. Prior to May, there was a 0.2% drop in April and a 0.3% fall in March. Though house prices are still 2.1% higher than they were at the same time last year. (Though this is the lowest growth figure in four years)
The reasons behind the recent house price index drop could be a number of things. Having a sudden election bang in the middle of EU negotiations may have had an impact. But mainly the drop in house prices is a result of the situation where house prices were continually rising at a much faster rate than earnings and this pattern was simply unsustainable in the long term. Inflation reached 2.9% in May, yet incomes only went up by 2.1%.
The housing market is cyclical. What goes up must always come down. In some parts of the UK, house prices have risen at 10% a year and in some parts of London, homes are worth twice as much as they were in 2010. A correction will always be required to stabilise the market and some suggest, this is what is happening right now.
Reports of house buyers price crash predictions will always be the headlines when house prices begin to lose momentum. Though with recent figures from the National Association of Estate Agents revealing that more than three quarters of homes are selling for under the asking price backed by research from Rightmove which shows that house prices fell too in June for the first time since 2009, the future of the housing market certainly looks ambiguous. Others however put a brighter spin on the situation believing these latest predictions to be pure sensationalism. After all demand for housing will always be higher than supply.
Property markets outside of London have shown substantial accelerated growth as people are priced out of London into surrounding commuter belts. This has meant locations such as Luton, Milton Keynes, Bedford have seen substantial property value increases
Danny Luke, Managing Director of the UK’s leading home buyer, Quick Move Now has commented that there are options for home sellers worried about prices dropping:
It’s easy to get caught up in national headlines, but in order to get a realistic idea of what your property might be worth in the current climate it’s important to know your local market. Before we make an offer on any property, we speak to independent local experts to ensure our offer is reflective of today’s market and is fair.
There’s no doubt that the property market is showing signs of a major slow down. The uncertainty surrounding Brexit has definitely played a part in this stall, and with talks just at the beginning, I expect this level of instability to continue.
If you are currently trying to sell your home and are worried about the impending price drop, you could always look to an alternative house sale method like selling to Quick Move Now.
Quick Move Now are the UK’s original and largest cash home buyer. We specialise in directly buying residential property for cash. The offers we make are based on today’s valuation, meaning, we take on all the resale risk. There are no fees or obligations and if you expect the offer we make, the money could be in your bank in as little as 7 days.
We shall keep you posted!
If you’re keen to secure a quick and guaranteed house sale, Quick Move Now are still buying properties despite the price decline, speak to one of our property purchasers today to discover how Quick Move Now can help you – Call 0800 068 3366 or simple complete our online estimate request form.