Price correction on newish houses in last financial crisis

shurik2020

Hi All,

We are in process of buying a house in North East. We have not exchanged yet but everything else is in place. I am getting slightly concerned about the house dropping in value after COVID impact is felt by the housing market. However, the house we are buying was built 4 years ago and only raised in value by circa 10-15%, and that includes some works done to a garage and a garden. There is always an option of re-negotiating the price but it needs to be weighed up against risks of more prohibitive mortgage application rules if this sale falls through etc.

We are not going to be bothered too much with 15% price correction in a short to medium term but more might become a problem. So we are trying to guesstimate it based on the previous credit crunch. Can anyone advise whether it was normal for house prices for 3-5 year old houses to get below the initial purchase price during the last financial crisis? If there are any articles on this topic, please post those too. 

Thanks!

[Deleted User]

What were the reasons for the last price drop?  I would imagine the impact would also be influenced by the area.  How identical is this period to then?
i.e. is there any point in doing a comparison - no point in comparing the price of apples now with oranges two years ago.  This situation is happening for unique reasons..., we don't know if there will be a price drop for certain, can't possibly guess by how much.  Its not simply a price correction if it does happen.

Davesnave

deannatrois said:

What were the reasons for the last price drop?  I would imagine the impact would also be influenced by the area.  How identical is this period to then?

Good questions! The two times aren't comparable, but if you want a tiny piece of data, we sold our house during 2008 @ 16% below the previously agreed sale price in 2007, before the Northern Rock debacle b*gg*red everything up.

The area was highly desirable and therefore it bounced back 'quickly,' with all houses, regardless of age, recovering their former prices by about 2013. In other places, price  recovery took much longer; some hadn't recovered by 2020. Location is paramount.

We purchased again in a less desirable area during 2009, right at the bottom of the market, paying roughly 25% less than similar properties had gone for, but our seller was what they call 'highly motivated' i.e. she had to move. Most people just sit tight in a crisis. There weren't many similar bargains about and those which existed usually required cash.

I don't think anyone, even those in government, could predict the full effects of the current financial maelstrom. It really is different this time!

[Deleted User]

I pulled out of buying a 1 year old house at £330k.  I just couldn't take the risk that the house would be worth less next year and Id be risking my 25% deposit if prices do go down as my equity would be gone. Many people could lose their jobs, businesses shut and far less money around and mortgages may be tougher to obtain. We just dont know. 

Mine was a BTL so I didnt “need” to buy it and I have somewhere to live. 

If I was paying high amounts of rent then I might think differently 

numbercruncher8

In my view it really depends on the area, and not really possible to generalise. 
If you're getting a decent deal relative to older properties then the chances are better. At 4 years old much of the new build premium could have disappeared.
People get obstinate and say 'I ain't interested in older properties, irrelevant', but it is, because if you come to sell that will form indirect competition and if the value gap is too big then either the older property appreciates or the newer one depreciates.
Clearly in many places the former has happened: newer properties and HTB vastly increased this premium and older properties were dragged up with it.
To generalise it was the case on average that most properties suffered a fall in prices in the last recession, but then they recovered all that and much more over the next decade. 
But that is of no consequence if you bought somewhere like this:
https://www.rightmove.co.uk/house-prices/detailMatching.html?prop=62697843&sale=11087914&country=england
So perhaps bigger clues may be to assess local affordability and comparison to other properties irrespective of age.

bucksbloke

If you look at a property, compared to the last crash - most property prices today are well above the prices then. 
The converted flat that I purchased for 94k in 2005 in Luton, and sold in 2013 for £110k is on the market for £170,000 today. There are new builds built over the last few years that are reselling at £200k and I won't even tell you what they are marketing a brand new build at today as it is ridiculous. 

I don't think that house prices are going to drop as much as people think. 

MobileSaver

bucksbloke said:

I don't think that house prices are going to drop as much as people think. 

+1

There's a growing opinion (even on the HPC site!) that nicer properties (more rural and/or bigger houses and/or with decent gardens) could actually see a boom once this is all over.

Thrugelmir

This isn't a financial crisis. Different scenario. Different outcomes. 

edgex

"However, the house we are buying was built 4 years ago and only raised in value by circa 10-15%, and that includes some works done to a garage and a garden."

Usually there's a 'new home' premium, which means that prices usually drop once the place has been sold for the first time.
Why would this house be worth more than a new one? Are the works done really worth £10-20k+? What have similar properties in the area sold for?

steampowered

There are official stats here: https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/jan2017.

As you will see, nationwide, there was a  15% drop in 2008. However this was followed by a 10% recovery the following year. 

Some areas of the country would have performed worse than that though. Particularly some parts of the North and, especially, Northern Ireland.

Are you moving from an owned property or a rented property? If you are moving from an owned property, you are still exposed to house price fluctuations now, so moving wouldn't change that. If house prices do go down that will reduce the value of your current property but will also affect the value of other properties you might wish to buy, so as long as your mortgage is at a healthy LTV so you aren't risking going into negative equity, that's fine.

princeofpounds

We have no idea, although 2008 may give a yardstick for a margin of safety. It's still too early for any real statistical evidence.

It's quite possible that the eventual effect is minimal, given the slashing of interest rates. Once/if that filters through into mortgage rates, houses will be even more affordable than before the virus shock. But who knows.