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5 Reasons not to panic about house prices

5 Reasons not to panic about house prices

No one, not even the most pessimistic forecasters, has predicted a house price crash

By Carol Lewis - The Sunday Times Homes Section - 03.07.2022

“Don’t panic Mr Mainwaring,” Lance Corporal Jones used to shout as he ran around doing exactly that in the classic BBC sitcom Dad’s Army. Something similar happened last week, after statistics were released showing property price growth had slowed. A number of industry figures did the modern-day equivalent of shouting “Don’t panic!” – they tweeted about an imminent housing market crash,

Storm clouds are gathering over the economy – but there is no reason to panic, yet, about property prices going into freefall. So in the spirit of not talking ourselves into a housing recession, here are five reasons to be cheerful.

1.       House prices are not falling.

The rate at which house prices are rising slowed for the third month in a row in June, increasing by 0.3 per cent, Nationwide reported. Meanwhile Zoopla said prices had remained almost static, with a 0.1 per cent rise in May. House prices are still much higher than they were this time last year, with Nationwide reporting annual growth of 10.7 per cent and Zoopla 8.4 per cent. To put the figures in context, in February 2020, before the pandemic, there was monthly growth of 0.1 per cent and annual growth of 2.3 per cent and we were excited about the “Boris bounce”.

2.       We are in robust financial health

Before the previous housing market crash, in 2008, when house prices fell by 15 per cent, interest rates were much higher (the base rate now is 1.25 per cent compared with 5.75 per cent in July 2007), and people tended to have higher loan-to-value mortgages, with fewer fixed-rate deals. At the end of last year 75 per cent of mortgage borrowers were on fixed-rate mortgages. What is more, the number of people in arrears with their mortgages is declining, UK Finance reported last month.

3.       Demand remains high

Estate agents report that more sellers are listing properties, possibly as they sense the peak of the market approaching. However, demand remains strong, with lack of stock still helping to prop up price growth. But there is a trend away from the coast and country moves seen during the pandemic.

Savills reports that, for the first time since December 2020, annual growth in urban markets is higher than the surrounding countryside – up 7 per cent on the year, compared with 6.7 per cent.

4.       Lenders remain confident

“The answer to the direction of house prices may well lie with the Halifax, specifically the fact that they have just increased their exposure to new-builds to 95 per cent LTV across the board,” says Lewis Shaw, founder of the Mansfield-based Shaw Financial Services.

“Until now, almost every mainstream lender would want a minimum of 15 per cent deposit for a new-build house. They must think or know something we don’t, namely that house prices aren’t going anywhere anytime soon.”

5.       Economists aren’t panicking

No one, even the most pessimistic forecasters, has predicted a house price crash. Gabriella Dickens, a senior economist at Pantheon Macroeconomics, says house prices will “fall by around 2 per cent in the second half of the year” before “a renewed 2.5 per cent rise for 2023”. Similarly Karl Thompson, economist at the Centre of Economics and Business Research, expects annual price growth to drop from 10.5 per cent in the first quarter of this year to a 1.7 per cent fall in prices in the last quarter of the year – bringing annual growth down to 5.8 per cent.

No one is denying that the cost of living crisis will squeeze affordability, but for now no one is panicking about a devastating market crash.

Original article by The Sunday Times which appeared on 03.07.2022

Pictured: 25 Hollybush Green, Collingham – sale agreed last week by our Wetherby office before launching fully onto market