Are UK House Prices about to peak?

[vand]

Labour market tends to lag the economic cycle.
Monetary policy throttles economic activity ->companies contract, lay off -> mortgage defaults -. repossessions - > collapsing house prices.

A more important question than whether house prices have peaked is how much of a drop is already in the pipeline?

My estimate is 25% baked in.

And a corresponding rents rise of maybe 20%.

Are you predicting any hare-brained gubmint interventions to either of those?

If the cost of living crisis is making purchasing a house unaffordable such that house prices are going to fall by 25% then how on earth would people be able to afford 20% higher rents ?

Like it or not, housing subsidy puts a floor on the rental prices, which is why I'm not that pessimistic about rent falls. Maybe they'll fall a bit in real terms, but housing doesn't suddenly become more affordable during a recession - quite the opposite, usually.

[vand]

Nationwide -1.4% in Nov.

The property bear market is building a head of steam now.

[dealtn]

Nationwide -1.4% in Nov.

The property bear market is building a head of steam now.

I wish I was lucky enough to suffer bear markets in my investments of only 1.4%. That's noise not a head of steam.

[vand]

Nationwide -1.4% in Nov.

The property bear market is building a head of steam now.

I wish I was lucky enough to suffer bear markets in my investments of only 1.4%. That's noise not a head of steam.

Give it 5 years

[Steveam]

https://www.bbc.co.uk/news/business-63886983

Further drop … they add up!

Best wishes, Steve

[bruncher]

The cost of housing is very high, but there is huge demand. Many people would like to buy rather than rent, and lots of families want more space. Not sure how a crash happens when there is scarcity?

[Arborbridge]

The cost of housing is very high, but there is huge demand. Many people would like to buy rather than rent, and lots of families want more space. Not sure how a crash happens when there is scarcity?

By turning off the tap of liquidity. The price boom was caused by cheap money flooding a hot and ready market.

Turn off the tap and eventually prices would fall because some people will need to sell into a market short of cash. It's the interest rate mechanism bearing down on inflation in practice.
Incidentally, I've noticed this effect with cars too. People are finding that PCP or leasing costs have increased by nearly double due to interest rates, so this has the effect of "mopping up" spare cash chasing goods in the system, thus prices are held back - even where there is potential demand.

Arb.

[Steveam]

Yes, I agree with Arborbridge. I think the first thing is a significant drop in volumes as people a have a view of value of their house and are not willing to drop the price despite not getting offers near the asking price. Eventually, those who MUST sell will accept lower prices. Housing prices are sticky and I think there will be only a modest drop in apparent prices but inflation will do its work and they’ll be a significant drop in real prices over two or three years.

I sold earlier this year and a very similar property has just been reduced by 8% (the owners believed they could get rather more than I sold for and are now asking what I got … I suspect they’ll struggle). After a bit of a gap I’ve now bought a smaller place and as a cash buyer was seen as very desirable by the sellers (I didn’t take advantage of this in anyway) who have treated me with kid gloves.

Best wishes,

Steve

[bruncher]

Yes, I agree with Arborbridge. I think the first thing is a significant drop in volumes as people a have a view of value of their house and are not willing to drop the price despite not getting offers near the asking price. Eventually, those who MUST sell will accept lower prices. Housing prices are sticky and I think there will be only a modest drop in apparent prices but inflation will do its work and they’ll be a significant drop in real prices over two or three years.

I sold earlier this year and a very similar property has just been reduced by 8% (the owners believed they could get rather more than I sold for and are now asking what I got … I suspect they’ll struggle). After a bit of a gap I’ve now bought a smaller place and as a cash buyer was seen as very desirable by the sellers (I didn’t take advantage of this in anyway) who have treated me with kid gloves.

Best wishes,

Steve

Glad to hear you didn't try to take advantage. I have a family member who was gazundered quite severely last year. The buyer knew too much about their situation, that they were also buying and needed to complete on both transactions. Your strategy of avoiding getting into a chain - selling first and making yourself a cash buyer, seems good even if it means an additional move into a rental or staying with friends/family.

[vand]

The cost of housing is very high, but there is huge demand. Many people would like to buy rather than rent, and lots of families want more space. Not sure how a crash happens when there is scarcity?

"Huge demand" is the sort of proverbial "housing always goes up" language that has no fundamental basis behind it, only froth and EA speak that casual observers tend to throw around.

How about:

people dying
People losing their jobs
People emigrating
Newly built houses
People downsizing
Peoples liquid net wealth declining

All these will reduce demand for housing and/or increase the supply

[vand]

Prime Central London is down 25% in real terms since 2017

https://www.ft.com/content/4b657525-4ee ... 6c686fc60f

Note that for those who make the argument "cash buyers will support the market" that most of these properties do not have residential mortgages against them

I have said it before that the peak in London was 2016-17 and many homes today would not fetch prices they were commanding 5 years ago. My neighbours still officially own the most expensive house on our street and they bought it at the back end of 2016.

[dealtn]

Prime Central London is down 25% in real terms since 2017

https://www.ft.com/content/4b657525-4ee ... 6c686fc60f

I haven't read the article.

Mortgages are presumably down (around) 25% in real terms since 2017 too. Not every property will have a mortgage. The service costs of any mortgage will rise with interest rates (correlated to an extent to inflation).

However, inflation works on both sides of a balance sheet. Liabilities reduce in real terms too.

[Lootman]

Prime Central London is down 25% in real terms since 2017

https://www.ft.com/content/4b657525-4ee ... 6c686fc60f

I haven't read the article. Mortgages are presumably down 25% in real terms since 2017 too. Not every property will have a mortgage. the service costs of any mortgage will rise with interest rates (correlated to an extent to inflation).

However, inflation works on both sides of a balance sheet. Liabilities reduce in real terms too.

The percentage of properties bought for all cash is probably higher in London than elsewhere in the country. Not least because of wealthy foreigners buying homes. And for them interest rates are irrelevant. What might be more relevant to them is sterling, which has been on a fairly steady decline for 15 years now.

So homes may be down 25% but only in sterling terms. If you are a buyer from Asia, the middle East or North America, they may look like a bargain at these levels and that may keep demand higher than one might think.

[1nvest]

Looks like a repeat of the 1970's to me. Energy price driven inflation, discontent and strikes, until wages spike up sharply along with house prices recovering (and more). -20% to -25% real dip, 33% real rebound type cycle.

The calamity parliament we have have missed yet another opportunity. Whilst the UK could move closer to energy self sufficiency when that energy is sold to the UK via the global markets there's no benefit (other than tax revenues) - might as well not bother producing any of our own energy. Higher energy prices impact right across the economy, and already food prices etc. have settled at those higher levels, which enforces wages catching up again - is ingrained.

As a incompetent parliament drives yet further declines/disincentives so the Pound will decline and incite more foreign purchases, which will make it even harder for domestic citizens being able to get onto the property ladder. GP's retiring early at having hit pension allowance levels, graduates with massive debts rising ahead of inflation making it increasingly undesirable to earn any more than the minimum wage, inward investment other than buying houses dissuaded (indeed the opposite, higher taxation is more inclined to see investments moving elsewhere).

[vand]

Red hot housing market? Not any more.

Halifax monthlies since the summer:

Jul-22 -0.1%
Aug-22 +0.3%
Sep-22 -0.1%
Oct-22 -0.4%
Nov-22 -2.4%
Dec-22 -1.5%

[vand]

Nationwide's Feb figures show a -0.6% change in January and now put annualized growth at just 1.1%.

https://www.msn.com/en-gb/money/other/u ... r-AA16ZBf6

I guess any day now all that "pent up demand" is going to jump out of the woodwork and propel us back to reclaiming the 7% annualized growth trendline that the property porno podcasts tries to brainwashing their listeners with.