House prices dropped more than was expected this month, falling 5.3 per cent compared to August last year. The value of the average home in Britain has, on average, fallen by £14,600. This marks the biggest annual decline on record since the financial (and housing) crash of 2008/9. So, is a housing crash imminent? Could we be seeing one right now?
There are a few reasons to be cautious about the data. Nationwide’s metrics are based on mortgage approvals (cash purchases are not included), which have dropped significantly – by about 20 per cent this year, compared to 2019. Higher interest rates have meant that fewer people want to sell right now, and fewer people are in a position to buy. This leaves more room for the numbers to be skewed: there simply isn’t as much data as would normally be available to make grand conclusions about the trajectory of the housing market.
Of course, fewer mortgage approvals are a sign that the housing market is weak – or certainly weaker than it has been the past few years. Interest rates currently sit at 5.25 per cent and are expected by markets to keep rising. The biggest lenders have been hiking their mortgage rates for months now. This has put hundreds of thousands of mortgage-holders who are expected to renew their agreement before Christmas in jeopardy of having to pay a far higher bill in the years ahead.
But unlike other sectors of the economy, where it’s taking time for the interest rates to be fully felt, the housing market may be closer to a turning point. As market expectations for peak rates have dropped below 6 per cent, some of the lenders, including NatWest and Nationwide Building Society, have marginally cut their rates. It’s expected other lenders will follow suit.
With some of that uncertainty that rates might hit 8 or 9 per cent gone, we could well see a pickup in the housing market, but under very different circumstances to the last decade. Even with a bit more stability, wannabe homeowners will be committing to rates that are double, perhaps even triple what they were a year or two ago. This is a big additional cost many weren’t expecting and explains why Nationwide has reported a 25 per cent fall in the number of first-time buyers so far this year.
But others are predicting a much bigger fall in housing costs – especially if the UK does find itself in recession. Capital Economics, which has been forecasting a recession as early as this year, predicts house prices could experience a serious drop over the next year, telling Sky News this morning that by ‘mid-2024, house prices will be 10.5 per cent below their August 2022 peak’.
Still, house prices remain at a near-record high, making any talk of a ‘crash’ seem strange, especially to those who have seen the huge spike in house prices put the dream of homeownership out of reach. Whether prices go up or down, the politics of housing remains fraught as ever.
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