According to Paul Hodges, an established expert in the economic impact of demographics, housing prices could be set for a significant decline in the next few years. A proposed drop in the region of 50% has been mooted, although this would depend on whether the forecast global recession takes hold as expected in 2016.
If the Chairman of IeC, who has also predicted a range of ground-breaking economic events over the course of the last 18 months, the impact of a worldwide recession could be devastating and trigger a chain of events that replicate what took place after the subprime mortgage collapse of 2008.
In many ways, the prospect of a global recession has loomed for over a year. The decline in oil prices could be considered as a precursor for this, as this underlined the weak performance of commodities and the impact that geo-political conflicts are continuing to have on the global economy. After this, the Chinese economy has experienced a sustained and significant slump, and one that is unlikely to be addressed any time soon. Even in economies that have experienced growth in the last year (such as the UK and the U.S., for example) may struggle in 2016 as interest rates begin to rise in small increments.
This brings us onto the UK property market, which remains the key driver of growth in the British economy. The Bank of England (BoE) is expected to confirm two incremental interest rate increases of 0.25% in 2016, following the example set by the Federal Reserve in America. While this is indicative of growing sentiment and remains excellent news for savers, however, it will increase the typical mortgage rate in the UK and force home-owners to pay for their homes.
While this is not catastrophic in itself, the onset of another recession would change the financial and real estate landscape beyond all recognition. As interest rates and property prices rise, for example, existing home-owners and home buyers will be forced to invest higher amounts when purchasing real estate. Once the recession hits and prices begin to fall, however, this will leave a plethora of individuals burdened with negative equity and mortgage agreements that they can no longer afford.
While the circumstances may be different, this state of affairs would almost certainly bring back harrowing memories of the 2008 recession. The impact would certainly be similar, with thousands of home-owners facing the prospect of either selling their properties quickly or simply foreclosing on their mortgage and relinquished their most valuable asset.
This is especially true if house prices are slashed by 50% in some regions, as this would generate huge levels of negative equity that would arguably be more pronounced than during the last recession. Properties in London, the South East and the South West would be most at risk, as these areas have recorded the most disproportionate growth over the last 18 months and thrived on the back of an imbalanced market.
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