Housing market crash: World Bank recession warning – will prices fall?

0

Real estate prices have soared to astronomical heights, with average house prices continually breaking records and bringing hardship to budding homeowners. But that could soon be over as a recession could be on the cards for the UK, sparking speculation that house prices could finally come down after two years of hyperactive growth.

The World Bank has warned of an impending recession thanks to Russia’s war in Ukraine, and the UK is certainly not immune to the effects.

World Bank President David Malpass said: “The war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation are hammering growth. For many countries, recession will be difficult to avoid.

The real estate market would not be out of whack from such an economic event, as real estate buyers from the 2008 recession will remember.

In 2008, desperate sellers had to sacrifice thousands of their homes to sell, with some sellers lowering prices by up to 40% of the property’s value two years before the financial crash. But could it be the same for the real estate market today?

READ MORE: Will house prices ever drop? A “green blow” for buyers on the horizon

Will there be a real estate crash?

David Hannah, Group Chairman at Cornerstone Tax, said: “I don’t foresee a real estate crash in 2022. Rising demand, even with rising interest rates, represents an adequate amount of cash, which is a good sign.

Mr Hannah argues that the current UK market is much healthier than the market before the crash of 2008, making it better able to survive another economic free will.

He said: “The crash of 2008 happened because of a sudden loss of liquidity in the international banking market and we are no longer in the same situation.

He continued: “If we look at what has happened – the growth in property prices, retail inflation, soaring energy prices, this is going to put pressure on employers to they raise wages. I think wages will go up, which means real purchasing power won’t go down.

“If you borrow a hundred thousand pounds today, the fixed figure of a hundred thousand pounds does not increase with inflation.

“So in five years, that debt is probably worth half what it is today. In times of high inflation with relatively low interest rates, it makes sense to borrow.

“Debt is eroded by inflation, as the value of the asset (the house) increases in line or ahead of inflation. That’s one way to make real returns.

But even with a market in great shape with high prices and demand, there are still obstacles that could lead to stagnant or even lower price growth.

Mr Hannah explained: “The problem we have is the rate of demand and supply. If builders build and oversupply, this will dampen the increase and appreciation in asset values.

“But, if the number of people wanting to buy homes continues to outstrip the supply, those prices will go up.

“We have an open market in the UK which means not only are domestic buyers and investors looking to buy, but we have inbound investors.

“We also have a number of people moving to the UK. Overall, I expect UK housing demand to continue to outstrip supply – pushing price increases ahead of inflation and provided wages rise, housing affordability will remain at the same pace.”

Share.

Comments are closed.