Despite the pandemic, a rise in unemployment and a downturn in industry, UK house prices are higher than ever before. John Stepek discusses what determines markets-and wonders if we are moving for a crash.
House prices reached a new record high. That, of course, is just what you would imagine after a global pandemic, and the subsequent increase in unemployment and company failure.
Wait a minute-that ‘s not it!
How could UK house prices hit a record high as job stability plummeted and we just suffered the worst recession we’ve ever had?
This is a really interesting question and I will do it
What causes higher house prices?
Home prices reached a record high in August according to Nationwide. The average UK house is now setting you back £ 224,123, up 3.7 percent on last year’s same month (yes, the idea of a “average” UK house is a ludicrous concept, but we need a way to quantify it).
There’s no point in denying it, though – house prices are rising. The point is: why?
Okay. Let’s have a moment. Before the coronavirus outbreak, it’s worth noting that house prices were ticking higher after a long period of decline, or even dropping in real terms (see our video for a description of “true return”). So you might argue that we see only a return to the pre-Covid-19 pattern
But return to today, Post-Covid. The overseas buyers who were offset by higher prices and Brexit are now more involved again, as it looks like the pound might have plummeted and they still have a deadline of next April before the import costs go up even further (not to mention the Hong Kongers interest increase, for obvious reasons).
Meanwhile, Die-hard landlords can’t see better uses for their money yet, what with low interest rates past. Cut the stamp duty into this mix, and you can see why competition in those sectors could have bounced.
And think about the other people who may just be going. There are those that go ahead with already negotiated transactions.
And then there are people who flee out of town into the countryside, pushed in a bucolic idyll by both fear of another lockout in the city centre and the illusion of a simpler “working-from-home” life. Know that if you move to “the sticks” from central London then you’ll probably have (a) a lot of money to play with and (b) a warped idea of what property is worth. Purchasers.
Is it a ground crash? I don’t believe it
All these drivers could well fizzle out. But could that mean a crash could still occur on the horizon? And I’m not sure yet. Previous crashes included both spiking joblessness and the interest rates (the 1990s). Or in the 2008 event, a complete mortgage market shutdown (which isn’t on today’s cards). Neither are interest rates going