Will There be Another House Price Crash
Nearly 6 years after the 2008 economic crisis that was driven by a series of housing bubble collapses in countries around the world, signs of housing bubbles are reappearing in markets in Switzerland, Canada, Germany, France, Sweden, Finland, Norway and the United Kingdom, specifically London. Emerging markets such as Hong Kong, Singapore, India, Brazil, and Indonesia bubbles are also developing. Is there another global housing bubble crisis in the near future and is the situation in the United Kingdom cause for concern?
Many Buyers are already Priced out the Property Market?
In the above mentioned countries around the world the real estate market is experiencing recognizable signs of a housing bubble that is ready to collapse such as rapidly increasing home prices, high amounts of mortgage debts, and negative price to income relationship. Developed economies central banks and several emerging nations are hesitating to use policy rates to combat bubbles and therefore rely on mortgage regulation and supervision to fight the superficial housing markets. By using financial policies like having lower loan-to-value ratios, stricter mortgage loan standards, increasing restrictions on finances for buying a second-home, and limiting the ability to use pensions for down payments on properties, governments and banking institutions attempt to stabilize the market and prevent house prices becoming too high for the average income.
Unfortunately, these policies are often inadequate. In most countries these policies are moderate at best and often face scrutiny claiming that they are interfering with the free market and property rights and therefore hamper any potential to be effective. Although these regulations and restrictions are essential to a balanced market, with both short and long-term interest rates being extraordinarily low, the intentions of these credit restrictions for mortgages may not be effective at decreasing the incentives to borrow easy money from banks.
The United Kingdom Takes Steps To Prevent a House Price Crash
In the past few years, the United Kingdom housing markets supply and demand has been off balance, which is substantially destabilizing the housing market. Over the past 6 months the market has increased by more than 10% in housing demand but at the same time the supply has decreased by 0.6%. This fierce competition drives up house prices and prices are increasing at their fastest rate in more than 3 years and have risen by more than 6% in the past 12 months.
Is Now a Good Time to Sell your House?
The housing market in the United Kingdom varies greatly from region to region and experts say in most regions around the United Kingdom the circumstances are far from a bubble, as the market largely remains unchanged. London and the Southeast region of England have the greatest disparity between supply and demand and prices have grown by up to 4.2% and many are able to quickly sell their home. On the other hand there are many regions where prices have only risen by 0.5%.
In November, The Bank of England took a giant step towards preventing another housing bubble in the U.K. by halting Funding for Lending Scheme (FLS), a scheme that encourages mortgage lending. The U.K. market has surprisingly robust turnover since the scheme was introduced in 2012 but as Bank of England’s Governor Mark Carney stated that, “Given the access to credit for households now, it would no longer be appropriate or necessary for us to have our foot on the accelerator. It’s better to shift into neutral.” This shows great progress that the Bank of England and U.K. financial policy committee are taking the right steps to prevent a repeat of 2008 and help reinforce strength and stability in the U.K. housing market.
The global housing market’s shallowness might not quite be a bubble just yet because they are still being amply fueled by easy money and the need to prevent inflation. However, the outlook is grim for the global economy as the trends in the housing market continues to create higher property prices that don’t reflect average incomes and the higher the prices the greater the economic and financial sectors will feel the collapse. Fortunately, the United Kingdom and the Bank of England are trying to learn from their mistakes and prevent yet another disastrous housing bubble collapse but for many countries it looks like history is slowly repeating itself.
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