Are we heading for the biggest housing crash in history?

[Xenomorph]

Well, this is where it could get a lot worse. The stock market has had its worse beginning to a year since 1939. Could be an interesting year.

A bad year means nothing to the average 'investor'. And by that I mean the thing most people are concerned about is their pension funds. And these will generally be managed to progressively switch from equity assets to safer gilts/bonds which are less volatile, as you approach retirement.

 

[rustybin]

A quick Google says that:-

74 per cent of homeowner mortgages are on a fixed rate contract, with 96 per cent of new borrowers choosing this option since 2019.

So the vast majority of people should be able to ride out any fluctuations to the housing market in the short term at least.

 

[TonyTeacake]

Yes but if share prices do fall and we have a crash this can have an effect on the economic growth

A quick Google says that:-

74 per cent of homeowner mortgages are on a fixed rate contract, with 96 per cent of new borrowers choosing this option since 2019.

So the vast majority of people should be able to ride out any fluctuations to the housing market in the short term at least.

That is providing they don't lose their jobs, if the economy falls into a recession we will most certainly see this happening. Many people have already cut back on their spending so this will for sure have a big impact on jobs. This is the biggest squeeze on household incomes since the mid-1950s.

 

[rustybin]

Yes but if share prices do fall and we have a crash this can have an effect on the economic growth

That is providing they don't lose their jobs, if the economy falls into a recession we will most certainly see this happening. Many people have already cut back on their spending so this will for sure have a big impact on jobs.

So many ifs and buts. Employment levels are doing extremely well at the moment. Why would people suddenly lose their jobs? Energy bills are going through the roof and people's weekly shop will go up, but that doesn't = mass unemployment.

You're literally describing a worst case scenario.

I'm not saying it's not going to happen, but for it to happen things will have to get considerably worse across several areas.

 

[TonyTeacake]

Let's look at it this way.

I have an IT business and I deal with many companies who have seen their turnovers drop up to 75% for March & April. I know they are already thinking about laying people off if this carry's on this way. This cost of living crisis is only going to get worse in the near future, it is not going to get better.

So for the people who do lose jobs they may find employment elsewhere who knows. But I see a lot of businesses going to the wall later this year. Yes, many businesses will prosper and some will manage to stay afloat. But once we start seeing mass layoffs this will have a domino effect.

 

[rustybin]

Let's look at it this way.

I have an IT business and I deal with many companies who have seen their turnovers drop up to 75% for March & April. I know they are already thinking about laying people off if this carry's on this way. This cost of living crisis is only going to get worse in the near future, it is not going to get better.

So for the people who do lose jobs they may find employment elsewhere who knows. But I see a lot of businesses going to the wall later this year. Yes, many businesses will prosper and some will manage to stay afloat. But once we start seeing mass layoffs this will have a domino effect.

That's purely anecdotal - My wife's business literally can't hire people quickly enough so swings and roundabouts.

Business often go to the wall. It happens all the time.

UK firms report fastest growth in labour market since pre-pandemic

BDO index rises for fifth consecutive month but inflation and Ukraine war could curtail jobs boom

www.theguardian.com

 

[TonyTeacake]

That's purely anecdotal - My wife's business literally can't hire people quickly enough so swings and roundabouts.

Business often go to the wall. It happens all the time.

UK firms report fastest growth in labour market since pre-pandemic

BDO index rises for fifth consecutive month but inflation and Ukraine war could curtail jobs boom

www.theguardian.com

Yes I read the full article but here is the first paragraph which echoes what I have just said.

Employment growth in the UK returned to pre-pandemic levels in March, but the jobs boom looks set to be short-lived amid rising living costs and the impact of the war in Ukraine, a report says.

Businesses are being hit by higher material costs and lower sales as consumers cut back.

 

[rustybin]

Yes I read the full article but here is the first paragraph which echoes what I have just said.

Employment growth in the UK returned to pre-pandemic levels in March, but the jobs boom looks set to be short-lived amid rising living costs and the impact of the war in Ukraine, a report says.

Businesses are being hit by higher material costs and lower sales as consumers cut back.

The article says the boom is likely to be short-lived - that's reasonable, you're suggesting that we're heading for the biggest housing crash in history. Those two things are poles apart.

 

[noiseboy72]

I think on the jobs front, we've had the "Great Resignation", we're now entering the "Great Regret" and we'll soon be back into "Great Jobs Shortage"

Many people took lower paying jobs, went self employed or simply stopped working altogether, and now with rising prices and less job security for some wage earners, a fair percentage of these people will be looking to return to work.

..and keeping this on topic, that will have at least a ripple through the housing market.

 

[TonyTeacake]

Just pulled this up from the same newspaper where that you sent to me.

Stephen King, a senior economic adviser at HSBC, said central banks had been caught out by rising inflation and there was still an assumption that it would come back to target with only modest increases in interest rates.

“History suggests that once you have got an inflation problem there is quite a lot of economic pain you have to go through to get rid of it,” King added.

For Tasker, the situation is complicated by Brexit, as higher shipping costs and delays make it harder to sell to customers in the EU. During the coronavirus pandemic she had benefited from booming domestic demand, although that is drying up.

“I’ve seen a drop in sales since the news announced there would be energy price increases. It’s not just me, it’s across the Facebook groups I’m in with people that have small businesses,” she said.

“If people aren’t spending, businesses will close. I’m not sure that’s helpful for the economy at all.”

‘I can’t see it getting any better’: could the UK be heading for a recession?

Small business owners are already being hit as consumers cut back on non-essentials

www.theguardian.com

 

[rustybin]

Just pulled this up from the same newspaper where that you sent to me.

Stephen King, a senior economic adviser at HSBC, said central banks had been caught out by rising inflation and there was still an assumption that it would come back to target with only modest increases in interest rates.

“History suggests that once you have got an inflation problem there is quite a lot of economic pain you have to go through to get rid of it,” King added.

For Tasker, the situation is complicated by Brexit, as higher shipping costs and delays make it harder to sell to customers in the EU. During the coronavirus pandemic she had benefited from booming domestic demand, although that is drying up.

“I’ve seen a drop in sales since the news announced there would be energy price increases. It’s not just me, it’s across the Facebook groups I’m in with people that have small businesses,” she said.

“If people aren’t spending, businesses will close. I’m not sure that’s helpful for the economy at all.”

‘I can’t see it getting any better’: could the UK be heading for a recession?

Small business owners are already being hit as consumers cut back on non-essentials

www.theguardian.com

Yes, things will likely get worse again before they get better.

But that still doesn't mean we're heading for biggest housing crash in history.

 

[TonyTeacake]

I think on the jobs front, we've had the "Great Resignation", we're now entering the "Great Regret" and we'll soon be back into "Great Jobs Shortage"

Many people took lower paying jobs, went self employed or simply stopped working altogether, and now with rising prices and less job security for some wage earners, a fair percentage of these people will be looking to return to work.

..and keeping this on topic, that will have at least a ripple through the housing market.

On a monthly basis, prices increased by 0.3% in April. This marked the ninth successive monthly rise but was also the smallest gain since September last year.

Price appreciation is now starting to slow down. Once this cost of living truly deepens and affects businesses which has already started, factor in low consumer confidence, expect some big drops in house prices over the next 2 years.

 

[TonyTeacake]

Yes, things will likely get worse again before they get better.

But that still doesn't mean we're heading for biggest housing crash in history.

If I am wrong, I will hold my hands up and everyone on here can tell me I was stupid and I will accept it.

But if my predictions are correct please don't say "but it was because of this or that and we didn't see this coming".

 

[noiseboy72]

I think we need to separate a housing market crash and a drop in house value. A crash will only occur if more people need to sell than there are buyers for. That will need a huge change in the economy, with mass redundancies, high numbers of repossessions and let's face it, a massive drop in demand for housing.

What's more likely is that people's houses - and more importantly, commercial property will be worth less. This will affect things like pension returns and other investment products more than it will the availability of housing, as most people will simply stay put and not consider up or downsizing until things stabilise again. This has always been the pattern.

 

[TonyTeacake]

I think we need to separate a housing market crash and a drop in house value. A crash will only occur if more people need to sell than there are buyers for. That will need a huge change in the economy, with mass redundancies, high numbers of repossessions and let's face it, a massive drop in demand for housing.

What's more likely is that people's houses - and more importantly, commercial property will be worth less. This will affect things like pension returns and other investment products more than it will the availability of housing, as most people will simply stay put and not consider up or downsizing until things stabilise again. This has always been the pattern.

People will stay put as long as they can service their mortgages, but in bad economic times, this is not always the case. You can always argue the case people will always need somewhere to live, this only works if you have the resources to pay for the house.

I am not saying yourself but I do find it truly amazing for some people to think it's like we have never had house prices crash in the past. At the moment we are in a superbubble like we have never seen before, not just for housing but assets too. The pandemic has only created a world that none of us has ever seen before. I do believe we are going to pay a high price for all this QE and money printing for years to come. Not just here in the UK but globally.

 

[tapzilla2k]

I think we need to separate a housing market crash and a drop in house value. A crash will only occur if more people need to sell than there are buyers for. That will need a huge change in the economy, with mass redundancies, high numbers of repossessions and let's face it, a massive drop in demand for housing.

The Economy looks to be heading into recession with the spectre of Stagflation on the horizon. If Stagflation were to happen, we'd see a housing crash of some kind. Biggest in history ? We wouldn't know until after the fact.

The buy to let market is the one to keep an eye on. If people can't afford the high rents, you could see a lot of buy to let landlords either panic selling properties to pay off mortgages (causing a price crash) or defaulting on them. You'd end up with a homelessness crisis and house prices tanking.

What's more likely is that people's houses - and more importantly, commercial property will be worth less. This will affect things like pension returns and other investment products more than it will the availability of housing, as most people will simply stay put and not consider up or downsizing until things stabilise again. This has always been the pattern.

Commercial property value is already worth less due to businesses moving to a work from home model (It was happening before the pandemic). If we do enter stagflation, the normal way of riding out a house price correction probably won't work.

 

[fluxo]

This sounds completely crackers:

Bank of England ‘duty bound’ to trigger recession to curb inflation

Ex-official says policymakers must shrink the UK economy to limit upward pressure on prices made worse by Brexit

www.theguardian.com

“Britain’s central bank policymakers are “duty bound” when they meet this week to push the UK into recession to cap rising inflation, a former Bank of England (BoE) official has said.”

 

[TonyTeacake]

This sounds completely crackers:

Bank of England ‘duty bound’ to trigger recession to curb inflation

Ex-official says policymakers must shrink the UK economy to limit upward pressure on prices made worse by Brexit

www.theguardian.com

“Britain’s central bank policymakers are “duty bound” when they meet this week to push the UK into recession to cap rising inflation, a former Bank of England (BoE) official has said.”

I read this a few days ago.

But here's the thing a recession probably won't be the worse outcome in the given situation because if inflation keeps getting higher it will be a lot worse for our economy.

I will give you 2 scenarios. There is a bad choice and a worse choice.

The bad choice is to fight inflation and let interest rates go up so everything will collapse.

The worse choice is to continue to create inflation to avoid that and postpone to consequences of hyperinflation.

If we only have tiny interest rate hikes and provide cheap money, it will not be cheap enough to keep this bubble going. A lot of the bubbles in the stock market are already down, some by 50%. We are going to have the worse of both worlds inflation & recession. Inflation will drive the cost of living up so high, that we are going to spend a very high percentage of our incomes on basic necessities, food, energy, rent, mortgages, etc, so people won’t have any money left over for anything else. This will drive unemployment up and lead to very tough times.

Unfortunately, the government won’t be able to print any more money this time around because this will drive inflation much higher. They don’t really have the tools to get us out of this one. This crisis we are going to have is manufactured just like the one in 2008 but this time around this one is going to be a lot worse. It will be even worse than what we had had in the 70s-80s because the government have so much debt this time around.

 

[TonyTeacake]

The Economy looks to be heading into recession with the spectre of Stagflation on the horizon. If Stagflation were to happen, we'd see a housing crash of some kind. Biggest in history ? We wouldn't know until after the fact.

The buy to let market is the one to keep an eye on. If people can't afford the high rents, you could see a lot of buy to let landlords either panic selling properties to pay off mortgages (causing a price crash) or defaulting on them. You'd end up with a homelessness crisis and house prices tanking.

I agree as I've mentioned this in an earlier post. We may see a lot of BTL exit the game as they won't be able to service their mortgages due to tenants not paying rents.

 

[niceguy1966]

I'm loving the eternal pessimist arguing with the eternal optimist!

I'm staying out of it as I'm assuming this will go on until one of them dies.

 

[Tynnie Todgers]

Central banks are under pressure to do something and there's only one something they can do - raise interest rates.

Yeah.. that'll get the supply chains moving and stop Putin's tanks.

 

[domtheone]

It’s not the BOE’s job to do anything about Putin.

US Interest rates going up in 30 mins. Ours going up tomorrow.

Up and up and up. Been far too low for far too long.

 

[Tynnie Todgers]

It’s not the BOE’s job to do anything about Putin.

Or, indeed, supply chain bottlenecks. Raising interest rates (the price of money) will not help with either and might actually hinder investment in more robust supply chains.

US Interest rates going up in 30 mins. Ours going up tomorrow.

Up and up and up. Been far too low for far too long.

Certainly "been far too low for far too long". Doesn't mean a global economy addicted to cheap money will recover by pulling that plug. Need to turn the other tap on - fiscal policy.

 

[domtheone]

Inflation Inflation Inflation. That’s all they should concentrate on.

All this cheap money has come at a hugely negative cost.

If we had some brains in government, they could mitigate some of the carnage ahead.

Unfortunately, all that matters is propping up the housing market.

Which is why the government/BOE (same thing) will ultimately bottle it (raising rates) way before time.

 

[TonyTeacake]

Inflation Inflation Inflation. That’s all they should concentrate on.

All this cheap money has come at a hugely negative cost.

If we had some brains in government, they could mitigate some of the carnage ahead.

Unfortunately, all that matters is propping up the housing market.

Which is why the government/BOE (same thing) will ultimately bottle it (raising rates) way before time.

I totally agree with you.

This inflation monster is getting totally getting out of control. I believe by the end of the year the state of the economy is going to be so bad we will be seeing mass job cuts due to many people cutting back on their spending and only buying the essentials.

I expect to see bonds crash, the housing market will crash and the biggest one of them all to crash will be the stock markets, this will send shockwaves through to the global economy.

This will be carnage.