Is The House Price Crash Over?

Is The House Price Crash Over?

There’s a pattern to House Price Crashes. The size and timescales of the rise and subsequent falls vary, but in a nutshell, this is what happens:

Stage 1:

House prices rise on the back of a combination of a strong economy, affordability and availability of mortgage finance. These factors combine to make buying property an attractive choice. Positive sentiment and media exposure fuel this further. Prices continue to rise as demand increases. First Time Buyers buy, as they see prices are likely to exceed what they can afford if they don’t buy now.

Stage 2:

Then there’s a trigger that causes the crash. We all know that in 2008 it was the Economic and Banking Crisis. The previous crash in 1990 was attributed largely to the Government removing a considerable tax benefit (claiming tax relief on mortgage payments).

Stage 3:

There follows a period of several years where buying a house seems like a bad idea. House prices fall, and no-one knows now much further they’ll fall, or for how long. Positive sentiment has changed to negative and the media report on how many people are now in negative equity. Inevitably this coincides with a tough economic climate.

Stage 4:

Then, slowly, sentiment starts to change. Lower house prices make property more affordable. There’s political influence – Politicians know that that the man in the street is much happier when he sees the value of his biggest asset rising.

Stage 5:

The media start to talk positively about property values. Potential buyers who have been sitting on the sidelines become confident that this is the time to buy. House prices start to rise, and the fear of them rising beyond an affordable level creates high demand from first time buyers. These first time buyers enable existing owners to trade up and the market really starts to move again.

Eventually the market overheats and we’re back to the peak and subsequently another house price crash (Stage 1).

The question is where are we now?

I believe we’re at Stage 4, for the following reasons:

The market always recovers, given time. It’s nearly 6 years now since the last crash started in late 2007. The previous crash also lasted for 6 years (1990 – 1995).

Property is more affordable. The average house price (according to Nationwide) is nearly 10% below the peak in 2007. Strip out London and prices are considerably lower – 20% or more in many towns and cities in the North and Midlands.

There’s a General Election in May 2015. So Government initiatives like Funding for Lending and Help to Buy are guaranteed vote-winners.

All the conditions are in place for a period of house price inflation. Based on recent data from the likes of Nationwide and Halifax it has just started.

Don’t ask me when the next house price crash is though. There will be one, and there will be a trigger, but when it will happen and what will trigger it, no-one knows!


By Richard Watters

Related posts:

House prices set to soar

How much is my house worth?


Related posts:

How Much Is My House Worth? (part 2)
House Prices Continue To Rise – But What’s Happening Where You Live?
House Prices up 6.9% according to Halifax – but can you believe them?

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