Is the current house price crash worse than that of the 1990s?
As most people are only too aware the value of property has been falling month on month for the past year, and property prices have plummeted since they hit their peak last October. Many homeowners have seen thousands of pounds wiped off the value of their homes in the space of just one year, and those that bought their properties more recently are facing the threat of negative equity, where they end up owing more on their home than the property is actually worth.
Many people will remember a similar situation at the end of the 1980s and start of the 1990s, where property prices crashed, leaving many homeowners tied into negative equity. Whilst the situation all those years ago was considered disastrous, there is now evidence to suggest that the current house price crash is worse than the one that was seen in the 1990s. This comes from figures compiled by the Halifax, using its House Price Index.
In fact, according to officials from the Halifax, over the past year house prices have fallen at a faster pace and by more than they did throughout the whole of the crisis period between 1989 and 1995. Since September of last year the average property value has fallen by £26,500, and this reflects a fall of 13.3%. between 1989 and 1995 the fall that was registered by the Halifax came to 13.2%, a figure that was lower than the one for just the past year.
In September of this year the house price fall for the month was 1.3%, and this figure was lower than it has been for some months, sparking hopes that house price drops may at last be stabilising. The average house price according to the Halifax is now £172,108 compared to £198,522 a year ago. One economist recently stated that by the first half of 2010 house prices could have fallen by up to 33% in all.
Howard Archer from Global Insight said: ‘House prices seem poised to fall substantially further as the fundamentals remain largely negative even though tracker mortgage rates have fallen following the Bank of England’s 50 basis point interest rate cut. Credit conditions remain extremely tight and this continues to exert upward pressure on many mortgage rates and limit the amount of mortgages available. Meanwhile, affordability ratios are still very stretched despite the double-digit fall in house prices seen so far.’
It is hoped that the surprise 0.5% base rate cut applied recently by the Bank of England would help to boost the markets.
One industry official stated: ‘The markets, economy and confidence all needed a major shot in the arm, a clear statement of intent. And that’s what, in this surprise cut, they’ve got. Hopefully, this will bring some sanity back to a right now schizophrenic global marketplace.’
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