UK house prices are ‘On the Brink’ of a massive a 40% collapse. Is that not an omen for the future of Ireland’s house and apartment price bubble? Yes it is a flimsy bubble and you all saw how quickly and how devastatingly the last housing bubble burst.
This is good news for the UK’s first time buyers and it is bad news for the UK banks and the economy. Meanwhile Ireland’s prospective first time buyers are promised much and given nothing. The following is how the UK’s housing market is seen. What can we learn from it
- The UK is at ‘edge of worst house price collapse since 1990s’
- Two leading economists are warning of a property crash
- The UK is due for a significant correction in house prices
- Brexit and the failing of wages to keep up with inflation to trigger collapse
- The trend is starting in London before fanning out to the rest of the UK
- UK homeowners are unconcerned – 58% still expect prices to rise
- Over 1 million mortgages are under threat in UK
- There is concerns of the return of a new “negative equity” generation
- There is huge denial amid recency bias and endowment bias – emotional attachment to expensive purchases – especially homes
Warning
Leading professors of economics are warning that the UK housing market is on the brink of a 40% collapse exasperated by inflation and falling wages, 10% inflation and massive increases in energy and fuel prices. This is an echo of the early 1990’s and the 2008 property crisis. With the bank’s mortgage exposure we could see another Northern Rock creating a domino effect. Paul Cheshire, a professor of economic geography at the London School of Economics told the Mail on Sunday, “We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting” Two primary factors are said to be the catalysts for a massive crash – Brexit and a fall in real wages that fail to keep pace with rising inflation. Brexit is also being blamed as an additional blow. Political instability is not helping either.
A Severe Downturn Predicted
Both Professor Christian Hilber the former Government housing adviser, and Professor Paul Cheshire have both warned that Brexit could be a catalyst for the correction which will see thousands of homeowners plunged into negative equity. Professor Hilber warned that the crash won’t be short and sharp: “If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.” The Bank of England’s Financial Stability Report pointed towards an ‘adverse shock’, such as Brexit and how it ‘may amplify a negative feedback loop.’ That was before the UK and the EU shot themselves in the foot with the imposition of counterproductive sanctions on Russia. Watch out Ireland for what is coming here.
The Centre Cannot Hold
Both Professors explained how wage growth’s failure to keep pace with inflation could result in a fall in house prices. The OECD painted a bleak picture of the UK economy as far back as June 2018 when it showed that ‘inflation at 2.7% during 2018 would dwarf wage growth of 1.5% and result in the UK have the weakest real income performance, alongside Finland, of any of its 34 rich member states.’ With consumer price inflation for the year to July 2022 running at 8.8% and rising rapidly the situation is now many times bleaker. The centre cannot hold but it can collapse.
London Leads the Way
“Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain,” Cheshire told the Mail on Sunday.
The weakening of prices in the London housing market are setting the trend for the rest of the country with its coming crash likely to be much worse. The Council of Mortgage Lenders said the housing market had ‘stalled’ and houses in London are already selling for much less than the asking price.
Recency Bias
Instead of looking at the rampant inflation, falling incomes or Brexit the UK’s homeowners are boosted by the denial factors of bias and herd behaviour. They have completely forgetten the the crash in the 1990s or 2008 or that the booms and busts exist and instead they choose to remember the most recent good times of climbing house prices. That thinking is called recency bias. This recency bias is spurred on by the local herd (estate agents, media property advertising, and plain gossip in the pub where they are telling themselves that house prices should be this high and that their area is most desirable which is confirmation bias.
Confidence boosts equity release schemes
It Couldn’t Happen to Me
The 1990s UK crash saw house prices fall nearly 40% over six years sending over one million people into negative equity. Economic downturns or worse ‘crashes’ hit households hardest because of their uncanny belief that such things won’t happen to them. We no longer live in a society where people prepare for the worst. A Psychologist who doesn’t wish to be named told me the following. In Britain today a Yuppy generation followed by a herd of millennials are unduly influenced by the Public School privileged who are cushioned by old money. Those whose education enables them to mix to some extent with the Public School privileged are deluded by their influence into a false sense of financial security that doesn’t allow their thinking of or perceive a downturn let alone a crash and their behaviour as a result is s major contributing factor leading to a crash. They have been led themselves to believe as well as being encouraged to believe the boom times are here to stay and the bad times are just a minor blip, which is most unlikely to happen. Unfortunately this leads to poor and damaging financial decisions, such as leveraging yourself and your family to the hilt when it comes to buying a house or releasing equity in your family home. Denial is like a pressure cooker with the release valve blocked. With the blind leading the blind politically, economically and financially the UK is in for a financial ‘Weeping and gnashing of teeth’.
Different conditions – The Same Results
While the conditions are different in Ireland the results are most likely to be the same if not worse. Although the pain and the suffering of the 2008 crash which the politicians and economists told us would be a soft landing is still an open festering wound for so many a whole new generation are intent on repeating the same.
Absentee Landlords
Irelands house and apartment prices are being driven to dizzy heights by foreign speculators with unlimited funds and who are intent on becoming parasitic absentee landlords with the governments encouragement. That will result in bitter tears for all concerned as it did before as anybody who have read their history will tell you. House prices will likely exceed the levels observed at the previous peak of the market in April 2007, the boastful report from the Banking and Payments Federation Ireland (BPFI) said. Are they all insane? Our prospective home buyers cannot compete with those globalist parasites. New Zealand stopped this and stabilised house or home prices by banning foreign speculators but anything foreign is welcomed to the head of the queue with this Irish government. Meanwhile young Irish people who want a home are leaving Ireland as they see no prospects here. Inflation is making the situation progressively worse. Without going into government contrived supply and demand and the economics of the situation Ireland is in for as big if not a bigger housing crash. There will be more ‘Weeping and gnashing of teeth’ here. Is this a looming 2008 all over again with the government sitting tightly on their well cushioned asses as before? Politicians proud and grand, these are the scum of Ireland.
