House prices have been very firmly on an upward swing for months now .... despite a very slight retraction last month (based on HM Land Registry figures). At the start of Covid many people thought that the housing market was likely to crash. So now could be a very good time to ask the question: Will (or even can) house prices keep on rising?
First let’s look at the evidence for house prices continuing to rise over the coming year:
* Cheap mortgage money. Mortgage rates are at an historic low. Most experts don’t expect them to rise before late 2022 or even 2023.
* Affordability. Some people have saved money during Covid, due to reduced spending on commuting, travel and leisure. There seems to be a willingness to spend those savings on housing. This seems especially the case amongst affluent second steppers – those who already own a house and enjoy a good income.
* People are very motivated to move. Many feel that they need more space, or want to move to a more rural areas. There could also be an element of house ‘panic buying’. Some might feel that if they don’t move now they’ll never be able to afford to.
* Help to buy type incentives are continuing if not expanding. .
Now let us look at some evidence in the case against future house prices rises:
* Forecasts for the economy aren’t that good. Inflation is becoming a concern.
* Furlough has come to an end. Unemployment is likely to rise. This is likely to hit buying confidence even amongst those who aren’t unemployed.
* Tax rises are looming. National Insurance is already set to increase and other tax rises are more than likely.
* Affordability. Just how far can house prices rise before they become unaffordable to most people? Many areas are already unaffordable to first time buyers and more are likely to be added to the list if prices rise further.
* Supply issues. The buying frenzy has exhausted the supply of property in many cases. In some areas there isn’t much property to buy at any price.
Interestingly, the end of the Stamp Duty holiday is predicted by many not to be as significant as thought. Some commentators suggest it actually pushed the cost of buying a house up not down.
Having run through a few of the fundamentals let’s take in a few forecasts from experts as to whether house prices will continue to rise or not.
* Hamptons’ latest Market Insight Sales Market Forecast Autumn 2021 says that it’s likely that Summer 2021 marked peak house price growth across Great Britain, which is now expected to slow. However, they still expect prices to keep on rising and forecast a 13.5% rise in house prices nationally over the next four years. They forecast 4.5% growth overall in 2021, 3.5% in 2022, 3% in 2023 and 2.5% in 2024. They say that northern regions are likely to lead house price growth until 2024.
* Savills’ recent Residential Property Forecast for mainstream property market values also makes similar forecasts that house prices will keep on rising. They forecast 9% growth overall in 2021, 3.5% in 2022, 3% in 2023, 2.5% in 2024 and 2% in 2025. They say house prices will rise 21.5% overall over five years. Savills also suggest that regional prices will rise by more than London.
* The latest RICS UK Residential Market Survey for August reports that the pace of house price growth is just starting to ease. Respondents to their survey continued to report strong rates of house price inflation – with a net balance of +73% saying they’d seen prices increase since the previous month’s survey. Looking to the year ahead, a net balance of +66% said they don’t expect house prices to continue rising at a national level.
* A report on financial news and analysis website MarketWatch says that the current level of house price rises is unsustainable. It says that over time house prices can’t rise faster than household incomes and that in the long term they barely keep up with inflation. It says that in recent times house prices have been rising around 100 times faster than is normal. (This report is based on the US market but there are some parallels with the market in most western economies including the UK.)
* A report by This Is Money quoting housing market economist Fred Harrison predicts an upcoming housing market crash. Harrison, who predicted house prices falls in both 1990 and 2008, says that house prices run in roughly 18 year cycles. He believes that house prices will continue to boom before crashing in 2026.
So to answer the question, will house prices keep on rising?
Our quick tour of a few selected expert opinions seems to suggest, yes, they will keep rising for several years yet. Beyond that house prices could come under downward pressure. However the housing market has proved to be very unpredictable over the last 18 months, so it is probably not a good idea to take any predictions you read too seriously.
