The general view of the whole Brexit circus is one of doom, gloom, anger and dissatisfaction. But could there be a silver lining for house prices? Are we set for a Brexit property boom?
All the talk seems to be about Brexit crashing house prices.
Bank of England Governor Mark Carney set the tone when he warned of the possibility of a 35% house price fall over three years in the event of a disorderly Brexit.
Homeowners and investors are certainly worried – most noticeably in London where stamp duty increases, a hostile tax regime for buy to let landlords and Brexit uncertainty have led to fewer sellers and a small fall in house prices.
Parts of the South East have also experienced modest price falls.
The fundamentals certainly don’t point to any sort of property boom.
Although Halifax’s house price index for October 2018 showed prices climbing 1.5% compared to October 2017, that was the slowest level of growth in five years.
That evidence of a slowdown was strengthened by Nationwide’s October 2018 house price index which showed that annual growth fell from 2% to 1.6% from September to October 2018.
Other evidence of decline includes:
- Fewer new house starts
- Developers warning about their profit levels (notably Berkeley and Crest Nicholson)
- Indications of land banking by developers
- Fewer properties coming onto the market
- Falling asking prices (Rightmove’s House Price Index for November 2018)
- Homes taking longer to sell (the Centre for Economics and Business Research )
Against this backdrop, talk of a house price boom seems at best positively crazy.
However, it only needs a little digging to realise it may not be such a mad idea after all.
IS A PROPERTY CRASH AROUND THE CORNER?
Contrarians rule always (the accuracy and strength of contrarian thinking)
Is the property crash almost here? (listening to the experts is not necessarily wise)
Selling before a crash (should you hold or sell if you fear big house price falls? )
Post Brexit landscape
Whatever the final Brexit deal, no-one is going to be happy and the predictions of impending economic crises and disasters are certain to continue.
There are bound to be tremors and fears of one kind or the other – the pound, the stock market, trade deals.
Whoever is in charge post-Brexit will want to manufacture a feelgood factor and it seems likely that interest rates will be cut in the short and medium term to stimulate growth.
Who knows, the government – especially if it is of the blue colour – could finally listen to the property industry and take the sting out of the 3% stamp duty surcharge which, in the South especially, has gobbled up and spat out thousands of buy to let landlords and sent hordes of foreign investors packing.
With not enough homes being built and the UK population set to increase by 3.6 million (5.5%) over the next 10 years – according to the Office for National Statistics (ONS) – the pressure will be on house prices to go up not down.
No one should be surprised therefore if property prices experience a Brexit bounce post 29th March next year.
All the sellers who have been putting off moving since the Brexit referendum could be finally tempted to cut and run and see if they can get the asking prices they consider as their entitlement.
With credit cheap, a spending boom of sorts seems likely and so too a climb in house prices on the back of relatively cheap mortgages.
The key words are “of sorts” – any post Brexit boom cannot be expected to be spectacular and long-term; too many doubts, uncertainties, known unknowns and unknown unknowns are likely to remain.
Above all, we must not overlook the overriding risk that no Brexit or a disorderly Brexit is likely to bring disaster across the entire economy – including the housing market.
Against a background of growing uncertainty as to how Brexit will pan out on the back of a stark lack of political consensus, the Bank of England’s report of the 28th November 2018 identified worst case scenarios where the economy could rapidly shrink by 8%, house prices could fall by a third and the pound could fall by a quarter against the dollar.
In such dire straits, the government would probably have to raise interest rates significantly and that would almost certainly send house prices tumbling fast.
If Brexit goes wrong – and negative indicators are increasing daily – there will be no Brexit property boom; expect instead a Brexit property bust.
The house price cycle
Further there is something else to consider…the matter of the house price cycle.
Whether it is described as the “18 Year Property Cycle” or something else, history tells us that there is a property cycle where house price rise greatly before crashing – roughly every 18 years.
The last crash was in 2008.
History suggests that the next couple of years are likely to be a period of downturn pending aggressive growth leading to a crash in about 2026.
A Brexit boom however may mess that up royally.
Instead of continuing their fall-back, the Brexit bounce could send house prices climbing high at a time in the cycle when they should be falling.
A big bounce or boom in house prices post-Brexit will please homeowners and investors alike.
However, when the next crash inevitably arrives the steepness of the fall in prices could make it the bloodiest and most severe house price crash ever.
For anyone hoping for a post Brexit property boom – think twice – it could be a frightening case of “careful what you wish for”.
What’s your thoughts on the matter – boom, bust or much to do about nothing? This is big stuff – I would like to hear from as many readers as possible….please…thanks.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com