Property market crisis with 8% price reduction
The current economic difficulties have prompted widespread anxiety that a housing market crash is imminent, which will cause homeowners to witness a decline in the value of their investments and, in extreme cases, force them into negative equity. However, a thorough examination of past data on housing prices indicates that the predicted crash is extremely unlikely to occur.
The UK government imposed the Stamp Duty Land Tax for what reason exactly?
As a preventative measure against a complete and economic shutdown, the UK government instituted the Stamp Duty Land Tax (SDLT) holiday, which offered a sizable tax discount for homebuyers and thus sparked a rush on the market.
Buyer demand skyrocketed as a result, while supply remained unchanged. The predictable and extraordinary effect was a meteoric rise in housing prices.
Despite the fact that high prices offer their own set of problems—for example, by pricing out many first-time buyers—there is legitimate concern that current economic issues, not least the cost of living crisis, could cause prices to plummet in 2023. Many homeowners would be forced into "negative equity," a financial situation in which they owe more on their mortgage than their home is worth, and would therefore be unable to sell their property.
UK property prices have fallen historically
Not surprisingly, the largest of these four price declines occurred after the 2007–2008 financial crisis, when reckless mortgage lending led to the collapse of the global banking industry.
The average home price in the United Kingdom was £185,782 in January 2008. This dropped to £160,954 by the end of the year, a decrease of -13.4% in the course of a year. Such a decline was unprecedented at the time, and it hasn't happened again. When gauging the likelihood of another decline of this magnitude, it is important to remember that the economic woes of today pale in comparison to those of 2008.
Home values dropped by -5.8% from January to December 1992 as a result of the economic recession that year, making it the second largest loss after the initial drop in 1990.
There were two more decreases, in 1990 and 2012, but at -0.6% and -0.2%, they were too small to be noticed by the typical homeowner or property buyer. Furthermore, these annual decreases were more than compensated for by positive growth in the years that followed.
To sum up, the UK housing sector is a very stable institution, and a complete housing market meltdown is quite improbable. Because investments nearly never lose value, at least during the normal ownership horizon of five to seven years, and because value recovers quickly when it does, the associated risk is minimal.
Investors have a much better chance of seeing a return on their money if they own their own business. And the potential for these rewards to outweigh the risks is substantial. Consider the 28.8% growth saw in 2002, or the 27.5% growth seen in 1988. Also, they increased by 14.4% from January 2020 to December 2021, the height of the COVID-19 pandemic. All of these numbers are larger than the largest price reductions in history.
One consistent factor in the years with the greatest price increases is the prevalence of historically low interest rates that have made borrowing money quite attractive. After an unprecedentedly extended period of exceptionally low interest rates, borrowing costs are on the rise in the United Kingdom. Because of this, costs will inevitably rise.
Historical evidence suggests that any price decline in 2023 would be small and a normal response to the exceptional expansion and activity of the previous two years.
Which is to say, a housing market crash needn't be one of the many things we might legitimately worry about in 2023.
According to The CEO of easyMoney: The UK real estate market has shown tremendous growth during the past half century. Real estate is now considered a low-risk investment option due to not just the positive growth experienced but also the constancy of this growth year after year. It appears that nothing short of a severe economic downturn is necessary to cause a decline in property values, and even then, the effects don't last long. It's quite improbable that home values will have dropped below their current levels by December of this year, despite the fact that the market is currently exposed to a great deal of fear-mongering due to a monthly decline in the rate of house price rise.