Plan Insurance Blog

Will There Be A Housing Market Crash

House prices have been steadily rising but is the old saying, “What goes up must come down” about to strike?

Inflation is at a 10-year high, due to factors such as the price of petrol and a global chip shortage. To combat this, interest rates are rising from 0.1% to 0.25%, which is the first increase since the start of the pandemic. Rumours of further adjustments can’t been ruled out by the Bank of England and a cost of living crisis looms. With these issues affecting the wider economy should landlords be getting nervous?

Experts say the future is flat

Experts are Halifax urge that there’s nothing much to worry about. The banks market commentators have stated that though prices have risen over the pandemic (6% in 2020 and 8% in 2021), growth will be “broadly flat” in 2022.

Though the combined effect of inflation and interest rate rises should have a significant impact on household budgets, and as a result, people’s ability to move house. There’s no evidence right now to indicate that a crash is coming. The more likely scenario being touted is a period of market stagnation. This is terrible news for estate agents as lack of movement is bad for their property based business but not the end of the world for most landlords with a long term outlook.

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If the market isn’t crashing, has it stopped rising?

The average house price in the UK is £272,992. At the start of the pandemic, it was around £238,992.

Estate agents readied themselves for a market slowdown at the end of the year. However agents reported that there simply wasn’t one in the last months of 2021. Instead, things were surprisingly active.

“As a result of demand outstripping supply, the market has seen a 30% drop in sellers willing to lower their asking price. Looking ahead, we are still seeing plenty of unsatisfied buyer demand.”

Guy Gittins – Chief Executive at the real estate agent Chestertons

These figures beg the question – why are major commentators predicting a snail-like property market?

The temporary stamp duty reductions during the pandemic life into the property market. They have ended and inflation is on the rise with further financial difficulties expected this year, mortgage deals may also be harder to find.

According to a report by Zoopla, Annual house price growth was 6.6% at the end of September 2021 but is expected to slow to 3% this year.

We are in a time of change

Many house purchases during the pandemic were fuelled by savings collected during more fruitful times.

This, much like the furlough scheme, created the appearance of a market in good health. The effects that businesses suffered during lockdowns remain to be seen in the years following the pandemic. Even now, our economy’s future is tied to the future of the virus.

In pre-pandemic 2019, the concepts of flexible working times and working from home were taking shape. However, not every employer liked these new ideas. They were mainly associated with forward-thinking tech companies.

Today, Zoom calls and never-meeting-your-colleagues are normal parts of the modern work culture.

An unforeseen effect of the home office means that living near major cities (where the jobs historically are) is not as important as it once was. As a result, people now view living outside urban centres like London as a long-term option.

Zoopla’s research shows that 22% of people currently want to move, significantly higher than the usual 5% in a regular market. House price growth is expected to end 2022 at 3%, with growth likely to be strongest in the East Midlands and North West and weakest in London.

The property market is as uncertain as everything else right now

Many home buyers’ priorities have shifted towards securing greater living space (to accommodate a home office) and closeness to open green areas rather than the ease of their commute. This will continue to stimulate movement in the market even if the purchases are the traditional move up or down the ladder, rather more of a sideways step. Prices in rural areas that have traditionally been overlooked due to the absence of strong transport links to big cities may go up, as people can work from home without having to worry about transport links.

Property prices are still being held up by the limited supply of places for people to live. The true fate of the property market is, like everything else, tied to how Covid affects our lives in the next 5-10 years. If further restrictions on social interactions are introduced in coming years, people will spend less again but they may be able to save for those hefty deposits and stamp duty payments. As it stands the impact of the Omnicron variant appears to be subsiding and forecasting market movements by the experts should be a slightly more straightforward task.

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