House price crash: How house prices could plummet amid coronavirus chaos

THE HOUSING MARKET has come to a halt amid the coronavirus lockdown, and this could lead to house prices crashing and a recovery period which could span into 2025. Here is how house prices could plummet amid coronavirus chaos.

Amid lockdown conditions across the UK, the property market has ground to a halt. While some moves solidified before the lockdown have gone ahead, both buyers and sellers remain unable to transact due to Government-imposed restrictions.

As yet it is unclear as to how this will hit the housing market, but there are wider fears a recession could be on the horizon.

Jon Bell, a research analyst at Deutsche Bank, told The Times: “UK house prices could fall by 20 percent or more. Although prices in London fell by about 32 percent in [the recession of] 1989/1993, greater than 20 percent would be unprecedented for the UK at large.”

Peer to peer lending platform Source Capital analysed market data from previous recessions to look at the potential decline caused to the UK property market due to the economic impact of the current COVID-19 pandemic, should COVID-19 bring about another recession.

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Early 1980s Recession

  • Duration: 1.25 years
  • Property Price Change: +8.6 percent
  • Repossession Change: +440 percent

Brought on due to deflationary government policies which included spending cuts, the pursuance of monetarism to reduce inflation and a switch from a manufacturing economy to a service-based economy, the recession of the early 1980s saw GDP fall across five consecutive quarters.

However, the property market remained resolute where house prices were concerned at least, with an increase of 8.6 percent.

But while prices continued to climb, the number of homes being repossessed across the UK spiked by a huge 440 percent between the first quarter of 1980 and the first quarter of 1981.

Early 1990s Recession

  • Duration: 1.25 years
  • Property Price Change: -1.4 percent
  • Repossession Change: +616 percent

The recession seen in the early 1990s was largely a result of the US savings and loan crisis, which brought about high rates of interest from the banks.

This was due to the Lawson Boom and attempts to maintain British membership of the European Exchange Rate Mechanism.

Again lasting five quarters, property prices fell marginally by -1.4 percent.

However, the number of homes being repossessed soared by +616 percent, the highest increase during any recession.

When the recession ended in quarter three of 1991, it took five and a quarter years for house prices to recover and exceed the pre-peak highs of £58,773.

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Great Recession of 2008 to 2009

  • Duration: 1.25 years
  • Property Price Change: -13.8 percent
  • Repossession Change: +445 percent

The global financial crisis in the late 2000s was a result of rising global commodity prices and the subprime mortgage crisis infiltrating the British banking sector.

This is the most recent recession to date, and arguably had the biggest impact on the UK housing market.

Again lasting five quarters, this economic downfall saw prices drop by 13.8 percent on average, while the number of homes being repossessed again climbed by 445 percent.

As with the recession which preceded it, it took five years for prices to recover to £185,362 in the second quarter of 2014, marginally higher than the pre-crash peak of £183,082 in second quarter of 2008.

Founder and Managing Director of Sourced Capital, Stephen Moss, said: “The current state of the market may bring cause for concern to many but at present, it sits in limbo and any impact of the current pandemic will be easily rectified once normality returns.

“However, the real worry is that any prolonged period of national lockdown could bring about a recession and it is at this point the market could begin to struggle.

“We know from market data on previous recessions that such an event will cause property prices to drop and with current market conditions and values most similar to that of the previous recession, this could mean a drop of ten per cent and upwards.

“Not only this, but those taking such a hit will be looking at a lengthy recovery time before their property regains its current value, a recovery that could stretch until 2025.

“That said, a decline in property values would be the preferable option when you consider that for tens of thousands of homeowners, the reality could be the repossession of their home.

“With uncertainty and fears around the pandemic impact on the property market rife, many investors are turning to peer to peer lending platforms for a safer option when investing.

“Not only do they generally offer a higher annual return when compared to most property investment options, but they also allow a lower risk in terms of the sum of money invested, as well as the opportunity to diversify across a number of sectors and options. Something that is always advised.”

How long could it take the property market to return to pre-pandemic levels?

According to research from Sourced Capital found it could take between 3.25 to six years (39 to 72 months) for the housing market to bounce back.

It took UK property prices 72 months to exceed their pre-crash peak of £183,082, having fallen to a low of £157,806 at the end of the last recession.

However, property investment is all about location and in London, this recovery time fell to just 39 months with the market returning to form far quicker.

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