The current state of the housing market has left many scratching their heads.
Despite economic indicators suggesting a potential downturn, house prices seem to defy gravity, showing resilience against the expected declines.
In this blog post, we aim to dissect the intricate web of factors influencing the housing market, focusing on the recent trends and attempting to answer the pressing question: Why Are House Prices Not Crashing?
The Landscape: A Brief Overview
As we navigate the labyrinth of housing market statistics, two major indices, Halifax and Nationwide, stand out, reporting an unexpected uptick in house prices.
In the face of economic challenges, it’s crucial to decipher the factors contributing to this anomaly.
Before delving into the specifics, it’s important to understand why the expected crash hasn’t materialised.
Economic Fundamentals: A Tug of War
The traditional economic playbook suggests that when demand dwindles, and supply surges, prices should follow suit and decline. However, the current housing market challenges this simplistic narrative.
Interest rates, a significant player in the market dynamics, have risen, putting pressure on both buyers and homeowners.
Buyers find themselves able to afford less home for the same money due to the increased cost of borrowing.
On the flip side, homeowners face escalated mortgage costs, with an 18% spike in the last 12 months alone.
Despite these financial hurdles, the expected large nominal declines in prices haven’t materialised.
The Nuances of Homeownership
To understand this phenomenon, we must examine the makeup of home ownership in the UK.
A staggering 40% of the total housing stock is owned outright, shielding these homeowners from the immediate impacts of interest rate hikes.
Among the 8.8 million homes owned outright, 4.1 million belong to individuals over the age of 65, a demographic less swayed by market fluctuations.
Complicating the narrative are sellers clinging to outdated price expectations.
Sellers, particularly those who witnessed soaring prices during the COVID-19 era, find it challenging to align their asking prices with the current market dynamics.
This reluctance to adjust prices contributes to a growing inventory of unsold homes, further skewing the market.
Unpacking the Motivations: Are Sellers Ready to Capitulate?
While anecdotes of house prices being reduced, especially in areas like London, suggest a potential shift, it’s essential to scrutinise the motivation behind such reductions.
Tools like the Chrome extension “Property Log” reveal these price adjustments. However, the data indicates that motivated sellers, ready to significantly reduce prices, may not be prevalent yet.
A closer look at mortgage arrears provides a telling sign.
An 18% increase in the number of individuals significantly behind on mortgage payments in the last year raises concerns. However, this doesn’t necessarily translate to an imminent wave of motivated sellers.
The intricacies of mortgage arrears classification warrant attention, as not all overdue cases carry the same weight.
Repossessions: A Barometer for Market Distress
Examining historical data on repossessions offers insights into the market’s health. The current figures, notably lower than the peaks seen in 2008, indicate a more resilient landscape.
Stricter lending criteria, coupled with political pressure on lenders to assist struggling homeowners, contribute to the decrease in repossessions.
However, caution is warranted. The full impact of rate rises is yet to manifest, with around 100,000 individuals per month transitioning from fixed-rate deals.
Economists project that only 25 to 50% of the rate rise impact has permeated the economy. As rates continue to stay elevated, the number of motivated sellers is expected to rise gradually.
Navigating Economic Ships: The Housing Market’s Stern
Comparing the UK economy to a large ship, the housing market emerges as the stern, taking longer to react to changing economic winds.
With rate rises taking time to fully affect the market, predicting the housing market’s trajectory requires a nuanced understanding of economic dynamics.
The tight labor market serves as a buffer, preventing an immediate collapse.
Unemployment, while rising, remains historically low. However, signs of economic instability, such as the collapse of companies like Wilko, pose a potential threat.
A rise in unemployment could trigger a cascade effect, leading to more forced sellers and increased market distress.
The Unpredictable Variable: Local Market Dynamics
Amidst national trends and economic indicators, the local housing market emerges as a wildcard.
Average figures presented by large institutions may not accurately reflect the nuances of specific regions.
Observing five houses for sale on a single street or recognising unique characteristics like a surge in probate sales highlights the importance of localised expertise.
Asking whether the average house price is rising or falling becomes a futile exercise when considering the complexities of local dynamics.
Seasonal adjustments and reliance on data from high-value transactions further muddy the waters.
Acknowledging these limitations becomes imperative when interpreting housing market trends.
Looking Ahead: Navigating Uncertainty
In forecasting the future of the housing market, it’s crucial to approach predictions with a healthy dose of skepticism.
Discrepancies between major institutions like Nationwide and Halifax, each reporting different average house prices, underscore the challenges in obtaining a clear snapshot of the market.
Nationwide and Halifax rely on valuations at mortgage approval for their averages, drawing attention to the market’s dependence on buying and selling activity.
As transactions decrease, the reliability of these averages diminishes, potentially leading to skewed interpretations of market trends.
A Call for Local Expertise
In conclusion, navigating the enigma of the housing market demands a balanced approach.
While economic indicators provide a broad overview, the real pulse lies in local dynamics.
Aspiring homeowners and investors should resist the allure of sweeping national trends, opting instead for a granular understanding of their target areas.
Amidst the uncertainty, one certainty remains—local expertise reigns supreme.
Whether observing the five houses for sale on your street or recognising the unique characteristics of your region, the housing market’s true story unfolds at the local level.
So, rather than succumb to the allure of average figures and sweeping forecasts, become an expert in your area, and let the nuances guide your decisions.