Expert believes the worst may now be behind us
A research briefing by the consultancy Oxford Economics defines a housing crash as a 10% peak-to-trough fall in prices.
As prices have already fallen this far since the highs seen following the introduction of the stamp duty holiday, the question of whether we are on the brink of a housing crash, or if it has already happened, has been posed.
Dominik Lipnicki (pictured), director of Your Mortgage Decisions, believes the year ahead looks stable in terms of house prices, however he has not entirely ruled out further declines.
Housing crash – stability
Unsurprisingly, following on from rising inflation as well as higher mortgage costs, we have seen some downward house price adjustment.
“The correction, however, has been very modest; I think that when it comes to prices, the year ahead looks quite stable and the worst may well be behind us,” said Lipnicki.
Lipnicki said what the pandemic and the war in the Ukraine have taught us is that drastic and unforeseen events can change everything and very quickly, hence why he believes there must always be a caveat to any predictions being made.
“There are many signs that when it comes to inflation, the worse may well be behind us and while financial pain will still be felt by many and for a long time to come, the shortage of homes and mortgage rates, which have fallen from their recent peak, mean that demand is still likely to be there,” he said.
Stability is returning to the market, and Lipnicki said the Bank of England is talking in much milder terms when it comes to base rate rises, with most in agreement that we are at, or near, the peak now.
Lipnicki added that this bodes well for the cost of mortgages, hence his expectations for stable house prices this year.
To many borrowers used to the sub 2% rates of the past, the current 4% might seem high; historically, however, Lipnicki said this is still cheap money, and he believes that mortgage rates are also now stabilising, which is welcome news when compared to what we witnessed following the mini budget.
“Indeed, we have seen a real fall in mortgage rates since Q4 2022 - this is to be welcomed, but recent swap rate increases may suggest that we will not see many further falls any time soon,” he said.
Housing crash – future reductions to be minor
Lipnicki said that while the worst of the housing crash is likely behind the market, he believes current house prices may still fall a little further over the course of the year, although he expects any reductions to be minor.
For those hoping for a price rebound later in the year, or in 2024, Lipnicki said this is also unlikely due to the cost of borrowing, and while inflation might fall, many will still be poorer.
Recent, sizeable increases in rents, together with the cost-of-living crisis, Lipnicki said, have depleted potential borrowers’ savings, which would have been used for deposits.
“The government can, of course, affect the market by making changes to stamp duty or taxation, and time will tell if further help will be provided to those wanting to buy a home,” he said.
Lipnicki said having a stable housing market is not a bad thing - indeed, he believes huge increases over a prolonged period of time are really unhealthy and risks boom/bust cycles.
“If property prices end up where they were pre-pandemic, for most, that would be totally acceptable, especially when compared to what we experienced in the 2008/2009 economic crush,” Lipnicki said.
What are your expectations for house prices over the course of 2023? Let us know in the comments below.
