Possible triggers for a house price crash

Everyone always talks about what will trigger a possible house price crash. Whilst it is possible that there could be a trigger or a number of triggers conspiring to produce a "perfect storm" about a tipping point, the most likely answer to this question is a gradual dose of reality sinking in and the realisation that house prices are just to high and the servicing of the debt is crippling and long term - houses are simply no longer affordable.

However, having said this we should probably also list other triggers all of which are interlinked and have knock on effects on each other:

  • Rise in UK interest rates (caused by speculative actions on Sterling, rise in inflation, further falls in UK Balance of Trade, or continued rises in European or US interest rates - all causing a fall against Dollar/Euro).
  • More recently the fall out from the US Sub-prime crisis and the so called Credit Crunch or another Financial Crisis
  • Introduction of HIPS (sellers may rush to sell before the July 07 deadline to avoid increased costs). See Articles from LandLord Expert and also from the BBC.
  • Rise in unemployment
  • Continued reported rates of low inflation (whether true or not, this will keep wage demands low and also erode mortgage debt too slowly, leaving the monthly repayments at proportionally high levels for longer than in the past)
  • Rapid and sustained rise in the Stock market (causing speculators to leave the property market)
  • Property over-supply (linked to rush to avoid HIPs, lack of First Time Buyers or properties dumped onto the market by Buy to let speculators)
  • Drop in First time buyers (usually around 30-40% of purchases - now just 7%), and drop in parents willing or able to stump up the deposit.
  • Drop in Second Time Buyers (due to increasing relative cost of "that extra bedroom", leading to families "toughing-it-out" rather than moving) i.e. low affordability
  • Continued levels of low rental income for Buy-to-Let investors and increased costs of being a Land Lord.
  • Evidence of widespread price fixing by Estate Agents See excellent Secret Agent Article by the BBC.
  • Evidence that the banks are as bad as Estate Agents. Mortgage Mistakes
  • Demographics (decreasing birth rate coupled with the passing of the WWII "baby-boomers" into old age care, thereby releasing a lot of additional housing stock)
  • Increases in household inflation (ie what people actually have to pay to live - not the current basket of prices of the CPI). I.E. increases to Council Taxes, end to free banking, domestic fuel/gas prices, water prices, electricity prices etc etc.
  • Reduced flood and coastal protection plans (See article). Huge swathes of England will be abandoned to the seas under controversial plans to cut back coastal flood defences.
  • Evidence that children under 15 living near high voltage power lines could have a 69 per cent increased risk of getting leukaemia (see article). Upto 25,000 homes within 230ft of 400kv and 275kv overhead transmission lines may lose 25% value.
  • Further introduction of regulations on privately rented accomodation.
  • Rise in personal bankruptcies possibly due to high levels of debt
  • Realisation in the banking community that loans at 6-8 time salary are too risky, that 40-50 year mortgages that out-last a working life are not a sensible option and that customers actually need some way of paying off the capital on interest-only loans.
  • Rise in business failures.
  • Sustained high or rising oil prices or food prices
  • Change in income tax or other tax levels, including Stamp Duty levels on property, tax on second homes and the long overdue introduction of Capital Gains Tax on property sales.
  • Rise in Japanese interest rates reducing the global credit supply. see article on BoJ
  • Realisation that house price forecasts are wrong.

At the most extreme end of the scale. These would affect more than just the housing market:

  • Extreme weather e.g. flooding, water shortage
  • Militant action e.g. strikes, petrol blockades
  • Terrorist attack
  • Bird flu pandemic

See also:-