Up until the ‘credit crunch’ there had been two schools of thought regarding the way that house prices would go in the UK.
The more traditional was that house prices would continue to increase into the future with 50 year mortgage terms and mortgage loan amounts based on 20 plus times annual income becoming the norm. Those that believed this advocated buying now or be priced out for eternity.
On the other side were those that said a huge correction was coming, that house prices would plummet back down to at least half their valuation at the time if not a lot more. These people said don’t buy now. In fact sell up, bank the money and rent. Then in a couple of years you can have your pick of a house at a knock down price and keep a goodly part of the banked money. Lovely Jubbly!
The former group scoffed at the latter for many years. Now the latter group are waiting for the last act to be played out so that they can have the last laugh. But they may have a very long wait for something that may not happen in real terms.
The argument still goes on with many seeing this recent drop as a short term event, which will change once the lack of real housing supply kicks in. Many others point to the lack of available mortgage credit and rising unemployment that will drive prices inexorably down.
But neither of these two predicted scenarios has actually played out. House prices started to correct then recovered, albeit on the back of reduced sales figures. But prices then recently started to show signs of slipping again.
So where are prices really likely to end up going?
The trouble is the house price bulls forget that only people who can afford to buy do buy, whatever their dreams. Also, that the Buy-To-Let purchasers have to look at rental yield, which is driven by such factors as unemployment etc. The bears forget that not everyone sees the world in the way they do and will do almost anything they can to own their own home as soon as it comes within affordability. Those that sold to rent may now be wondering if they got it right.
So, as the economy stagnates house prices may start to fall, but as those prices just fall within the grasp of buyers they will be snapped up so prices go up again. Therefore I see prices slowly falling in line with the economy. I also believe that they will fall in real terms but not in a sudden rush, more likely a gradual erosion over time. A long time.
And then, when the maths makes sense some bright spark will wake up one morning with a wonderful money making idea about how to make dosh from the rising price of property. And we’ll go through it all again! Probably at about the same time the UK government finds itself way behind with EU driven ‘eco-house’ building and start a massive investment programme to catch up. Loads of money will be pumped into house building, which will further fuel the fire.
The UK housing market is not a dead parrot, it’s just a bit sickly and will be nursed back to full squawking colourful health again however long it takes.