House price growth over recent years has been strong, but what are the predictions for the coming years and is the housing market primed for a crash? - Nova
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The UK housing market is a hot topic right now with UK average house prices increasing by 9.6% in the year to January 2022. Many first-time buyers are now being priced out of major cities and others are buying homes in a rush due to fear of missing out.

It begs the obvious question: Is this a housing bubble, and if so when is it likely to pop? This is a tough question to answer as nobody knows for sure, and to try and pinpoint a date would be foolish after all we have just gone through the most unlikely property boom in history where prices have surged throughout a global pandemic. Whilst house price growth in recent years is far from sustainable, that does not in itself mean a housing market crash is around the corner.

The supply-demand imbalance is the primary reason home prices have escalated so rapidly, and after not building nearly enough houses for the last decade, homebuilders will take several years at least to add enough new supply to balance the market. It is a promising sign that new home construction rose at an annual rate of 6.8% in February, however the nearly 1.8 million new homes starts are unlikely to put a dent in prices due to the current housing debt that has built up.

So how similar is the current market to the situation in 2007/08 and is the market primed for a crash? The simple answer is that it seems as if lessons have been learnt.

Relatively fewer properties are now held on high loan-to-value(LTV) ratios than in the past. The era of 95 percent mortgages effectively ended with the crash in 2007. Only a limited number of these such schemes exist today and they are only available to first time buyers backed by taxpayer money. Compared to 2007 the percentage of homes with an LTV of over 75% is down almost 20% and on top of this, far more homes are now mortgage free compared with the same period 15 years ago. The impact of all this is that when rates do rise, there will be far less distressed sellers meaning less supply flooding the market, and less instances where homes have to be repossessed which we all know was a major contributing factor to the housing crash in 07/08.

A further reason why uncertainty in markets doesn’t necessarily mean a house market crash is just round the corner is due to the nature of housing as an asset class. Where stock price movements are seen instantly on screens across the globe, house prices move at a comparatively glacial pace.  On the whole property owners see their asset in a very different way to those that own stocks and shares, meaning that selling off a house when the markets are down and consequently causing a downward spiral is far less likely. When people invest in property it is often with a long-term view and not just to make a quick return, thus investors can be expected to ride out a lot more pain than in other investments.

If you are waiting for a housing crash in order to get into the market, however, don’t get too excited. Homebuyers are faced with tough choices in today’s market. Predictions indicate that new home construction will continue to lag behind demand, causing house prices to rise even in the face of interest rate increases. For some buyers, that means setting sights on more affordable cities across the UK and moving away from the capital. For others, it means stretching their budget or compromising on size or other amenities.

On the other hand, snagging a house now, even if it means sacrificing other purchases, could mean saving money down the road if home prices and equity continue to rise. There’s a chance they could also save by getting a house and locking in a rate before both rates and home prices increase.

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