Experts have warned that we could see a massive 40 per cent fall in UK house prices in 2018. The Professor of Economic Geography at LSE has cautioned that the property market is on the brink of a collapse. The plummet echoes that of a similar crash Britain faced in the 1990s.
What could a house prices crash mean for homeowners?
The coupling of a recession alongside a fall in earnings could cause major concerns for homeowners. Despite the warnings surrounding a potential crash, many homeowners seem unfazed by what lies ahead. Parallels between today’s market and the 2008 house prices crash are being disregarded by over half of Britain’s homeowners. 58% of UK residents are expecting to see a rise, despite much evidence suggesting otherwise.
For many, their view on the position of the housing market doesn’t come from an economic and political perspective. Instead, it is based more on emotional ties to property, more specifically, their own homes. Many homeowners are still basking in the recent positives we’ve seen as house prices have been rising. This acts as a wall, preventing homeowners from remembering the negatives of the 2008 crash. The damages and busts that came along with the house prices crash seem to have all but faded from a lot of people’s memories.
Estate agents and word on the street only encourage the acceptance of this thinking. Supporting that the idea that the UK property market is attractive and high house prices as normal, many are affected by the confirmation bias. Often people place more value on an item they own themselves, especially expensive ones. This is no exception when it comes to property, as houses become both a home and long-term investment we all get sucked into. Nobody likes to picture their home being worth less than what they paid for it.
We’ve seen house prices rise and fall in the past
This denial of an upcoming collapse isn’t uncommon, and we saw it happening both in the early 1990s and mid 2000s. After the housing boom in the 1980s, many experts were adamant a crash would not happen. This left only a few experts having predicted the decline of the housing market – even as the crash started.
So, what is pointing to a potential house prices crash?
There appear to be two main reasons:
- The effect of Brexit –
The unknowns surrounding Brexit remain a concern and the housing market may face serious problems because of these.
- Wages falling short of inflation –
Christian Hilber of the London School of Economics also said that house prices could fall due to wage growth’s inability to keep up with inflation.
You can out a great deal more about Hilber’s paper here.
At Slater & Brandley we have seen real stability with very few investors choosing to sell their investment properties. This is despite the government imposing a raft of new legislation in recent years to curb the Buy To Let market.
Final words of optimism
Not everybody expects a fall in house prices any time soon. Indeed, many predict that UK property prices will continue to rise for the forseeable future. The main reason behind this thinking being that we live on a relatively small island and with a growing population.
What are you thoughts on UK house prices? Are you concerned over where they may head next? Let us know your thoughts by simply posting a reply to this post. We’d love to know what you are thinking.