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Property Investment When UK House Price Crash Coming

Property Investment When UK House Price Crash Coming

Understanding when is the UK house price crash coming is crucial for property investors as the potential for a crash is predicted to be in the next year or two.

Staying ahead of the game is vital if a property investor wants to seize the moment and cash in when prices are low.

The Current State of the UK Housing Market

The housing market in the UK has experienced a slowdown due to economic challenges and the significant rise in house prices that started in March 2020.

Many prospective buyers are postponing their purchase plans, waiting for the market to stabilise.

Nationwide’s data indicates that house prices in the UK have decreased by 1.1% over the past year.

This marks the first annual decrease in nearly three years and the lowest point since November 2012.

In February, house prices fell by 0.5%, which is the sixth month in a row of declining prices.

Secondo Zoopla, sellers are now lowering their asking prices to close deals, with an average reduction of £14,100.

This cut represents about a third of the price gains seen during the pandemic period.

The question is: could this further lead to a UK house price?

Property Cycle Theory by Fred Harrison

Fred Harrison, a British author and economic commentator, is renowned for his detailed analysis and theory on property cycles.

According to Harrison, the property market moves in predictable 18-year cycles, characterised by alternating periods of growth (boom) and contraction (bust).

This cycle theory provides a framework to understand the fluctuations in property prices and helps investors anticipate future market movements.

Here’s a simple breakdown:

  • Boom Phase: Property prices rise rapidly due to high demand and speculative buying.
  • Bust Phase: Prices fall sharply as demand drops, leading to a market crash.

Harrison’s theory is based on historical patterns observed in the UK and other countries.

He predicted the 2008 financial crisis by identifying the peak of the previous cycle around 2007.

Harrison’s Forecast

According to Harrison’s 18-year cycle, the next major peak in the property market could occur around 2026, suggesting a possible crash shortly after.

However, predicting exact timings is challenging due to various economic, political, and social factors.

The 18-Year Property Cycle Explained

Harrison’s property cycle consists of two main phases:

Boom Phase: This phase typically lasts about 14 years and is characterised by a steady increase in property prices.

During this period, several factors contribute to rising prices:

  • High Demand
    An increasing population, economic growth, and urbanisation drive demand for housing.
  • Speculative Buying
    Investors and buyers, expecting prices to continue rising, purchase properties not just for living but also for investment, further inflating prices.
  • Easy Credit
    Low-interest rates and relaxed lending criteria make borrowing easier, enabling more people to buy properties.
  • Confidence in the Market
    Positive economic indicators and media coverage boost confidence among buyers and investors, leading to increased activity in the property market.

Bust Phase: Following the boom, the market enters a bust phase, usually lasting around 4 years.

This phase is marked by a sharp decline in property prices due to:

  • Decreased Demand Economic slowdowns, rising unemployment, and tighter lending criteria reduce the number of potential buyers.
  • Market Saturation After years of construction and development during the boom phase, the market often becomes oversupplied with properties.
  • Falling Prices As demand drops, prices begin to fall, leading to negative equity for many homeowners and investors who bought at the peak.
  • Increased Defaults Higher interest rates and economic challenges can lead to increased mortgage defaults and foreclosures, exacerbating the downward pressure on prices.

Harrison’s Forecast for the Future

According to Harrison’s 18-year cycle, the next major peak in the property market is expected around 2026.

If this pattern holds true, we could see a significant rise in property prices leading up to this peak, followed by a potential crash shortly after.

What Does a Property Crash Mean for Property Investment?

Negative Impacts

  1. Loss of Equity: Property values drop, reducing the equity held by investors.
  2. Reduced Rental Income: Economic downturns can lead to higher unemployment, affecting tenants’ ability to pay rent.
  3. Increased Loan Defaults: Investors may struggle to meet mortgage repayments if rental incomes fall.

Positive Opportunities

  1. Buying Opportunities: Lower prices can present opportunities to acquire properties at a discount.
  2. Increased Rental Demand: People unable to buy homes might turn to renting, boosting rental demand.
  3. Long-Term Gains: Investors who buy during a downturn can benefit from significant price increases during the next boom.

Top 10 Best Places to Invest in Property 2024

Despite the uncertainty of a property crash, there are still promising locations for property investment in the UK.

Here are the top 10 places to consider in 2024:

WHY

EXAMPLE

MANCHESTER

Strong rental demand, extensive regeneration projects, and a growing economy.

The £1 billion Northern Gateway project is set to create thousands of new homes and job opportunities.

BIRMINGHAM

Major infrastructure projects like HS2, and a growing population.

The Paradise Birmingham project is transforming the city centre with new commercial and residential spaces.

 

LIVERPOOL

Affordable property prices and a vibrant cultural scene.

The Liverpool Waters project aims to rejuvenate the waterfront area with residential, commercial, and leisure facilities.

LEEDS

Strong economy, excellent transport links, and a large student population.

The South Bank Leeds project will double the size of the city centre, creating new housing and job opportunities.

BRISTOL

High quality of life, strong tech sector, and good rental yields.

The Temple Quarter Enterprise Zone is set to create 17,000 new jobs and 2,000 new homes.

NOTTINGHAM

Affordable property prices and a growing student population.

The redevelopment of the Broadmarsh shopping centre will include new retail, leisure, and residential spaces.

SHEFFIELD

Affordable housing and a strong student rental market.

The Heart of the City II project is revitalising the city centre with new retail, office, and residential spaces.

GLASGOW

Growing economy, affordable properties, and high rental demand.

The Clyde Waterfront and West End Innovation Quarter is a major regeneration project aimed at boosting the local economy.

EDINBURGH

Strong economy, high quality of life, and a thriving tourist industry.

The Edinburgh St James development is adding new retail, leisure, and residential spaces to the city.

CARDIFF

Growing economy, affordable housing, and good rental yields.

The Central Square redevelopment project is transforming the area around Cardiff Central Station with new commercial and residential spaces.

Please note:

Information provided in this article should not be taken as investment advice, it is purely informational only.

While understanding that Fred Harrison’s property cycle theory can provide valuable insights for predicting potential house price crashes, it should also be noted a property crash can present challenges for investors.

It also offers unique opportunities for those prepared to navigate the downturn. Only by making informed decisions can investor potentially maximise their returns in 2024 and beyond.

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