Many people are likely to remain in their jobs even during the current recession, which leads Britain’s property appraisers to expect that there will be a downturn in the housing market, but they don't believe it will be too deep or long.
The outlook from the Royal Institution of Chartered Surveyors follows two of the nation’s biggest mortgage lenders and three months of declines in house prices recorded.
According to RICS, a 1990s-style plunge for residential property may be prevented due to the labour market continuing to remain tight, and workers in short supply, despite interest rates rising, causing many buyers to become more cautious.
“The likely ‘job-rich’ recession suggests the downturn in the housing market this time could be shallower compared with past experiences,” Simon Rubinsohn, chief economist at RICS, said in a report Thursday.
Overall activity weakened in November. Though rising from a reading of minus 55% in October, new buyer inquiries are still in negative territory, measuring minus 38% on RICS’s measure in November.
A report from estate agents across the country reported a fall in the sales price of houses for the second month running. While performing well after the pandemic, the South East and South West of England have now reported the biggest drops in demand.
Some say this is the start of a more protracted downturn that could rival the property market recession that started in late 1989. That episode left a lot of people living in homes that were now were worth less than the mortgages used to buy them as homes lost a fifth of their value over three years.
Nationwide Building Society Chief Financial Officer Chris Rhodes said earlier this month that the 'worst-case' scenario would include a 30% drop in price, but it's more likely to be closer to a 8% to 10% drop.
While, Bloomberg Economics expects a drop of slightly less than 10%, estimating that the current value is 20% higher than it should be.
The cost of mortgages are the highest since 2008 and 20098 when the property market was last in recession, haven been driven by surging interest rates. The Bank of England has raised interest rates 8 times in the past year from near zero to 3%. Investors expect more increases in the months ahead.
Mortgage rates on two-year fixed-rate deals have been pushed above 6% in the past few months. Which, according to Moneyfacts Group, means that remortgaging now will see payments doubled. The Office for Budget Responsibility expects mortgage costs to remain elevated until the end of the decade.
The push for consumers to move out of city centres to places with home office space, as well as a series of tax breaks and cheap money kept prices soaring during the pandemic. Which lead to a surprise at how long property prices held up, with Nationwide recording double digit growth from a year ago through August.
A strong labour market in the UK helped keep the property market afloat. It was a big factor. Many companies have seen a sharp increase in their number of job vacancies, as so many workers dropped out the labour market during and since the pandemic, which has lead to wages being pushed up and companies scramble to hire new staff.
A shortage of houses for sale is also supporting the property market with RICS saying that there is an average of 35 properties on estate agents books in November.
Another contributing factor is the fact that despite the expanding population, builders are also starting fewer new homes than they did in previous decades.
The housing rental market remains even tighter. Rents are likely to be increased further, says RICS, due to an imbalance caused by a decline in landlord instructions, even as tenant demand continues to swell, the net balance of estate agents reporting a decline of minus 27%/
“This is a distorted market, and such levels are not sustainable,” said Alison Whitfield at Whitton & Laing in Exeter, England. “Tenants are not only unable to afford the higher rents but are no longer prepared to pay higher rents.”