The housing market is not set to ‘crash’

November 25, 2022

Looking beyond the doom-and-gloom headlines in mainstream media, a closer examination of the figures and forecasts reveals a correction rather than a crash.

In property investment, it is important to keep a close eye on house price trends, both historic and predicted, in order to gauge the potential efficacy of a purchase under consideration. This, alongside projected rental income, is what will determine your return on investment.

House price predictions are based on a broad and varied range of factors, including the mortgage market, general economic confidence and political influences, among others.

There is also the natural cycle of the property market to take into account - over the course of many years, prices are unlikely to only rise, or only fall, but will oscillate steadily upwards. This is why the most successful property investors tend to be those who target long-term gains and look at the bigger picture.

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This ‘crisis’ is different

From a homeowner’s perspective, there is panic in the market at the moment based on dark predictions of ‘house prices falling’. However, analysts at JLL have released their quarterly report that explains why a crash is extremely unlikely, and instead we are set to see a correction over the next couple of years.

Looking back at previous financial crises and housing market difficulties, the report points out that even during the worst of times, there were more extenuating factors. For example, during the recession in the early 1990s, unemployment levels were above 10%, whereas they are currently at a record low of 3.5%.

What’s more, when the global financial crisis hit in 2007/2008, lending practices were unstable to say the least. This left people with insurmountable mortgages, leading to many to fall into negative equity and causing house prices to plunge as banks failed and unemployment soared.

Today’s mortgage market has been completely overhauled since then, with significantly tighter lending practices and criteria. This is something we saw stark evidence of in the last quarter, when bearish banks pulled products from the shelves in response to economic uncertainty.

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City centre property markets are robust

The Office for Budget Responsibility (OBR) has set out its house price projections for the coming years, indicating that we will end 2022 with average house prices at 10.7% higher than last year, despite this year’s difficulties. It believes 2023 will see house prices inch down by 1.2%, followed by 5.7% in 2024, before returning to growth; so certainly not what you would describe as a crash.

The UK housing market is an extremely ‘local’ market, with vast differences in performance over time. While some locations accelerate, others back-pedal. However, one location type that is set to outperform the rest in the current climate is city centres.

According to JLL, many of the larger city centres in the UK are actually expected to defy the trend and continue to flourish, with rising house prices. London, Manchester and Birmingham are highlighted as the top performers in JLL’s outlook, buoyed by high demand, low housing supply and mounting interest from overseas buyers.

Although city centres were hit during the Covid pandemic, with amenities and businesses closing and many even choosing to move away from urban areas towards rural ones in the ‘race for space’, it wasn’t long before a reversal of this trend took effect. With more and more people returning to the office, aspects of city centres may have changed, but most have regained their buzz and appeal.

Manchester city centre is particularly popular among young professional renters, having one of the fastest-growing economies in the country. JLL predicts that the city will see the strongest rental value growth out of anywhere in the UK over the next five years, as demand soars for rental homes; particularly in the new-build market as renters seek to minimise their bills and prioritise energy-efficient properties.

At The Prestbury Advisory, our current focus is on new-build developments close to city centres, which benefit from value for money alongside the upward price and rental trajectory. This keeps pricing realistic for investors, in areas where rental demand is forecast to continue to climb.

If you want to speak to us about your next investment opportunity, give us a call on 01625 725 779, or email us at contact@theprestburyadvisory.com

The housing market is not set to ‘crash’

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