No Prospect of Crash for Housing Market
Despite the warnings of pro-EU campaigners that a Leave vote would affect the state of the housing market, prices have remained stable. The balance of supply and demand has remained largely unaffected, showing that excessive fears of a property crash have not manifested.
This is great news for the UK economy as a whole, mainly because a major slump in house prices would indicate a bleak post-Brexit outlook. This hasn’t been the case however, and there’ are some encouraging signs for the housing market as the country prepares for the onset of Article 50.
A short-term forecast model from BI Economics shows that, although no market crash is forthcoming, the steady incline of house prices has subsided since the Referendum result. House values are still going up, but not at the rate they were before 23 June 2016.
However, this could be a positive sign for first-time buyers looking to get on the property ladder. Less expensive properties with the potential to still increase in price is a desirable outlook for average buyers, especially against the previous state when house prices were rising more rapidly than earnings.
Although activity in the domestic market was expectedly cautious in the initial Brexit aftermath, recent indications show that this may be changing. A former chairman of the Royal Institution of Chartered Surveyors (RICS), Jeremy Leaf, has noted:
“Since the beginning of September we have seen an increase in activity, although buyers are still relatively slow to commit until they are sure they have achieved what they think are the best possible terms.”
The initial slowdown in activity didn’t put the amount of pressure on house prices many experts expected – this shows that confidence remains in the UK market. There could be further reasons for this however, notably that mortgage rates remain cheap and we are likely to be in a low interest environment for an extended period.
A large nationwide survey completed by estate agent Jackson-Stops & Staff also validated that no market crash occurred post-Brexit. They actually found the number of properties put up for sale made a marginal increase from mid-June to mid-September. However, the survey also showed that the proportion of properties sold did decrease, but only by 2.5% – a figure certainly nothing for investors to worry about.
With a liquidity injection from the Bank of England, there’s been no financial market dislocation and despite a drop in the pound, the stability of the housing market goes a long way in proving that the UK will avoid recession. On top of this, promises by Theresa May to build a far greater number of houses over the next five years are also encouraging signs for the housing market.
In conclusion, a BI Economics forecast anticipates that house price inflation is set to slow but remain positive. The fact that it doesn’t forecast any sharp regressive behaviour, something that would be likely to standout in the analytics, is a strong indication that a crash isn’t forthcoming in the foreseeable future.
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