Property market aims to define a housing crash

Property professionals and commentators have begun pondering an official definition of a house price crash.

It comes amid forecasts that house prices and transactions will eventually drop as the cost of living crisis worsens, while others have warned against the market talking itself into a crash.
However, while stocks have their own definition of a boom or bust, known as a bull or bear market, there is no official way of defining a housing market collapse beyond historical data and commentary.

There is plenty of data to consider such as asking prices, sold prices, demand and supply levels as well as transactions and downvaluations.
Much of this data is often two months old or more once published though.

We posted this query on social media and among Estate Agent Today contacts yesterday and got a variety of responses on how to define a housing market crash.

Martin Stewart, director at mortgage broker London Money said on Twitter: “It is such an illiquid, slow moving market by the time you’ve got some data it’s already probably moving in the other direction.

“One fool proof gauge though is to monitor how many property professionals are blaming someone else form their woes.”

Other mortgage brokers suggested lender activity was a good indicator.

Lewis Shaw, founder of Shaw Financial Services, said: “A crash for me is when 50% of new mortgage applications are downvalued by 10% or more over three months. There's no science behind that but I'd think that if we saw that then the game is up.”

Others said a sign of a crash would be if lenders start pulling their 95% loan-to-value mortgages, which hasn’t happened yet.

Buying agent Henry Pryor quipped: “You know the market has crashed when... journalists stop asking if the market has crashed and now want to know how long prices can keep rising.”

David Robinson, co-founder of Wildcat Law, added: “A property bear market is where the supply of property outstrips demand. 

“It is usually caused by a wider economic recession and lags unemployment rates. 

“Why? Because it takes a few months of non mortgage payments to trigger repossessions. 

“True bear markets in residential property are rarer therefore than recessions and with the current shortage of housing stock in the UK compared with previous recessions, a bear market is still not a forgone outcome currently. Stagnation not crash is more likely.”
 

It comes as property data company TwentyEA revealed this week that asking prices have dropped across the UK over the past two months, with falls of 10.4% in London.

BestAgent founder Charlie Lamdin has been warning of a crash since February and has been urging agents to advise their clients of the risks in the current sales market.

He said: “There’s no official definition of a crash, but 10% drop in asking prices in two months is pretty precipitous.

“More worrying is what this suggests has been happening to agreed prices for the past six months.”
But property commentator Russell Quirk disagrees.

He said: “We’ve only ever seen house prices drop by 10% or more twice in the past 40 years - 1990 and 2008/2009.

“Those circumstances were a) high interest rates, much higher than we’re going to see in 2023 and b) financial market Armageddon with the prospect of ‘casino’ style banks failing and unmitigated debt mountains abound.

“Neither of those dynamics apply here.

“We’ve shrugged off the doomsayers’ predictions of housing market crashed for years now. Brexit, no-deal Brexit, Covid.

“These were all triggers for the pessimists and sensationalists to crawl out of their holes to tell a salivating media that property prices would crash. Instead, values are about 30% higher than before the Brexit referendum. Indeed, 20% higher than two years ago as the pandemic started to bite.

“Ignore the doomsters or we risk actually talking ourselves into the very downturn that we’re worried about. Self-fulfilling prophecy alert.”

Sarah Edmundson chief executive of Agents Together and chair of Boomin’s strategic board added that rising house prices can’t be sustained forever.

She said: “Realistically we have seen sustained growth in house prices and transaction levels on the whole over the past few years. It was never going to sustain forever but I would speculate that we are entering ‘bear in a bull.’

“One thing I do believe is - the more we sensationalise headlines, the faster those headlines will come true. We must maintain good business practice and operate with optimism and proactivity.”