The rumoured 2022 Property Crash
What people are questioning is how long can house prices keep rising as the current market shows no signs of them slowing down. People will begin to struggle to afford houses and that will create a bubble which will burst. Then because house prices are so high already, people think that we are already in that bubble. But are we really?
In the last property crash in 2008, people were borrowing more than they could afford, with mortgage lenders willing to throw money at anyone who asked for it. They didn't do any stringent checks on people’s income levels and affordability so that when the job market began to fall due to the recession, people couldn't keep up with payments and hence the crash came falling down. But right now we are simply not seeing this.
A strong job market — for now
The job market is still strong and if anything there is still a shortage of skilled professionals in most industries from nursing to construction. This will begin to slow down in the near future when the recession hits (rumours are we are already in a recession) but this doesn't necessarily mean a fall in house prices. House prices only fall when unemployment reaches a staggeringly high number and there are not enough people in circulation that can afford payments on mortgages.
During a recession, many people will begin to lose their jobs but the housing market will stay strong because not only are there other people with jobs still in the hunt for houses, but people are in equity on their properties which they can use to keep them going whilst they find a new role. With there still being a vast number of roles out there, it shouldn't be too long for someone to obtain another source of income to pay their bills and that shouldn't lead to them defaulting on their home.
Tight money lending restrictions remain
Lenders are still undertaking a number of stringent checks on people who want to borrow money to review their affordability in line with mortgage payments as well as other bills that they would need to pay. As mentioned above, back in 2008, this was a completely different story and banks were lending to people without the checks who simply had no chance of paying them back.
Although we are seeing some signs of this changing with the recent news that some residential mortgage checks are being wavered in order to get more purchasers through the door, which will eventually lead to more checks being wavered as mortgage companies compete with each other to gain custom, we are still a fair bit away from being back at 2007/8 levels at the moment. Lending is still very high and very easy to get your hands on following the checks and with the amount of money flowing around in the industry at the moment, there are no signs of this credit slowing down. Making it easier and easier for people to get the funds they need to purchase the properties they want, keep putting higher bids in and drive prices up further.
These lenders are still only lending 90% or less on the property and this means that many householders, especially as house prices are rising are in positive equity on their homes. Back in 2008, lenders were lending 100% and in some cases, even 110%+ meaning the banks were paying other people to lend money off them. That just seems ludicrous when you look back on it now and it meant that people were actually owing on their houses from the outset. Then, when they couldn't keep up with payments, the banks had nothing to fall back on because they were left with an asset that was worth less than the money they had lent out to buy it. What amazing business these bankers were doing…
Now on to the big one, which is the talk of the town at the moment.
Inflation is and will continue to rise.
I hate to say it, but inflation is here to stay, at least for the short-term future. We are seeing record levels of inflation across the globe and this is for a number of reasons from supply-chains not being able to keep up with demand, a global conflict, to the aftermath of that money tree the governments found during COVID-19 (who said money doesn't grow on trees hey?).
Properties generally rise in line with inflation, as do wages (vaguely) and currently, both of these are still rising in line with the inflationary pressures around them. Why are house prices so high? More like, why is the price of everything so high? Talk about a cost of living crisis… It is when property prices begin to decouple from these inflationary pressures when… well… people feel the pressure, and they cannot afford to purchase the houses anymore because they have become so inflated that they’re simply unaffordable to the average person.
At the minute, there is nothing showing that inflation will slow down in the near future and this means that property prices will just continue to rise in line with it. That is especially enhanced when governments continue to do the minimal to battle inflation which can lead to either the nasty terms ‘stagflation’ or ‘hyperinflation’, both of which I won't go into here, but it is likely that we will see one of these play out. Speaking of which…
Governments cannot raise interest rates too high
This is the one that many people are struggling to realise and that people think could be the catalyst to the next property crash. “When the government put interest rates up to 15% as they did in the ’80s and ’90s to battle inflation, people won’t be able to afford their mortgage payments” blah, blah blah…
But what people are failing to realise is that this isn't the ’80s and ’90s and the economic outlook we have at the minute is very different. Since COVID-19, government debt has never been higher and this simply restricts the amount that the government can raise the interest rates or risk defaulting on their debts. So in reality the government are stuck between a rock and a hard place; raise interest rates to battle inflation and default on their debts and claim bankruptcy, don't raise interest rates to battle inflation and risk the chance of hyperinflation which in turn will reduce the value of the debts that they have. In reality, which one do you think the government will pick?
With interest rates likely to remain low and inflation likely to remain high, the future couple of years looks like the perfect time to be owning property because as mentioned earlier, property prices rise in line with inflation whereas if you retain your cash, it will be being devalued as time goes on. So don't worry about what other people are saying, review the economic outlook for yourself and decide for yourself which way the property market is going. You can use this article to help you but my predictions are we have at least another 4 years of property growth before things change. I am not saying them 4 years are going to be easy if you own property, in fact, the economic outlook looks quite bleak and worrying from my perspective and it will be tough. But property, right now, is one of the best ways to battle the risks that are coming and can help to store your wealth against inflation.