Home Real Estate A housing crash is not now inevitable

A housing crash is not now inevitable

by Ozva Admin

Recent growth in residential property prices in Scotland does not indicate a possible market downturn compared to 2008 increases, according to a new market analysis of the data by DJ Alexander.

The agency, part of the Lomond Group, said that although house prices have risen rapidly since the start of the pandemic in March 2020, they are still lower than increases experienced before the 2008 property crash.

In the 28 months from the start of the pandemic to the latest figures for June 2022, average prices in Scotland have increased by 27.6%. In the 28-month period from February 2006 to the market peak in May 2008, the average price increase was 35.7%.

In the run up to the 2008 house price crash, average increases in Scotland’s four major cities varied widely, from 17.2% in Glasgow to 61.1% in Aberdeen. Average prices in Edinburgh increased by 23.6% and in Dundee by 31.8% over the same period.

Over the last 28 months there is again a wide range of average increases, but none as large as the 2008 figures. Aberdeen prices have only risen 4.2% since March 2020 and are still below the 2008 high , while Glasgow has seen the largest increase in average prices, with a rise of 28.9%. Edinburgh is up 19.0% while Dundee is up 24.7% over the same period.

David Alexander, CEO of DJ Alexander Scotland, commented: “There is no doubt that house prices are about to stabilize and may fall slightly in response to higher interest rates, sky-high utility bills and the broader cost-of-living crisis. However, there are a number of important differences between the real estate market today and that of 2008, when prices fell substantially.”

“Our analysis of the numbers indicates that house prices have not risen as substantially as they did in the run-up to 2008, so they are unlikely to experience such a large drop if the market slows or pulls back. Unemployment is at a historically low level, so even with rising mortgages and higher costs of living, there is more room for people to survive falling prices as long as they have a job.”

“Demand remains high, despite financial pressures, due to the scarcity of properties on the market. This has maintained and may continue to sustain the high prices being paid. But this won’t go on forever, but it could be a factor that produces a much slower rate of price decline than you might expect.”

He continued: “Although the market has seen really quite large price increases since the beginning of the pandemic, the circumstances are more positive than 14 years ago. It is important to remember that many of the external factors that increase costs can be resolved sooner than expected.

“The war in Ukraine, although it could last for years, may end more abruptly than expected. The resulting decline in oil and gas supplies, the release of food production and a return to more normal markets would substantially change the overall picture and could occur in a relatively short period of time.

“Similarly, the job market remains strong and is resulting in higher wages, so people will feel more positive about any future mortgage increases. So while I expect prices in the real estate market to decline and perhaps decline in the short to medium term, I don’t think this is a serious correction.”

28-month average price change from February 2006 to May 2008 peak price

Location Difference February 2006 May 2008

Edinburgh £42,191 (23.6%) £178,540 £220,731

Dundee £28,124 (31.8%) £88,441 £116,565

Aberdeen £63,580 (61.1%) £104,052 £167,632

Scotland £38,286 (35.7%) £107,355 £145,641

Glasgow £18,231 (17.2%) £105,818 £124,049

Average price change 28 months from March 2020 to the maximum price of June 2022

Location Difference March 2020 June 2022

Edinburgh £52,191 (19.0%) £274,512 £326,703

Dundee £30,422 (24.7%) £123,029 £153,451

Aberdeen £5,990 (4.2%) £141,192 £147,182

Scotland £41,619 (27.6%) £150,625 £192,249

Glasgow £38,672 (28.9%) £133,366 £172,038

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