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14 Reasons Not To Fear Gravesend House Price Drops

10 months ago
14 Reasons Not To Fear Gravesend House Price Drops

This article will explore 14 key factors that can provide reassurance in uncertain times.

1. Strength of the Gravesend Job Market
The job market is crucial in determining home prices, directly impacting income levels.
Fortunately, the Gravesend job market remains robust, with unemployment hovering near
all-time lows of just 3.6%. Labour shortages are currently a more significant concern than a
lack of job opportunities. As long as the job market remains stable, Gravesend home prices
should be firm and prevent substantial house price falls.

2. 2023 is Different to 2008
Comparing the current Gravesend housing market to the 2008 Credit Crunch reveals
significant differences. The housing bubble that led to the crisis was primarily driven by
subprime mortgages in the USA, resulting in a wave of defaults. This spread to the UK, and
banks stopped lending to each other (and mortgage borrowers).
Today’s Gravesend property market differs significantly for four reasons.
Firstly, Gravesend homeowners have built substantial equity in their properties since 2008.
Secondly, many Gravesend homeowners with a mortgage have taken advantage of re-
mortgaging at lower fixed rates during the pandemic meaning they are immune to the
recent hike in interest rates. Third, the banks are prepared to lend money, unlike 2008 when
there was a severe lack of credit as banks weren’t prepared to lend money. Finally, the Bank
of England in 2014 told lenders to stress test every mortgage application up to 6% or 6.5%
mortgage rates. These four points have reduced the threat of widespread defaults, even if
the UK economy were to enter a recession.

3. The Long Game of Gravesend Homeownership
Most Gravesend homeowners view their household as more than a house; it’s a home. It’s
more than just a financial asset; the home represents a lifestyle choice. Despite potential

house price declines over the next few years, Gravesend homeowners; long-term
perspective should remain intact. Throughout British history, home prices have always
appreciated over time, even after the financial crisis of 2008.
Gravesend homeowners who held onto their properties during the Credit Crunch eventually
saw Gravesend house prices return to their pre–Credit Crunch 2007 peak by June 2014.
…and here is where playing the long game is so important in the Gravesend property
market.
Since June 2014, £139,600 has been added in additional equity to the average Gravesend
home.
It’s so easy to fixate on the short term and forget the medium to long terms gains made by
property.

4. Inflation is Good News for Gravesend Homeowners and Landlords
While inflation may be a cause for concern in various aspects of daily life, it can benefit most
homeowners (and landlords). Inflation often leads to increased house prices and reduces
any mortgage real value, thus acting as a hedge against rising costs. Higher wages
resulting from inflation will improve affordability, thereby supporting home prices. The key
is avoiding inflation leading to a full-blown recession, which could negatively impact the
housing market.

5. Positive Implications for Going Upmarket
A national home price decline can be good news for homeowners looking to move up to a
bigger or more expensive property. Such a decline would reduce the price gap between
selling their home and purchasing the next one.
For example, if you were planning to move from a £300,000 Gravesend home to a £500,000
Gravesend home today, excluding moving expenses, it would cost you an additional
£200,000 to move home. Let’s say, for example, Gravesend house prices dropped by 10%,
the £300,000 house would be reduced to £270,000, and the £500,000 house would be
reduced to £450,000, meaning the gap between the two would only be £180,000 – thus
saving you money!

6. Persistent Housing Shortage
The national housing shortage, which originated during the financial crisis when
homebuilders scaled back construction, remains a significant factor in supporting home
prices. Analysts estimate that the market needs to add around four million new homes to
meet current demand fully. Given the cooling of the market and rising mortgage rates,
homebuilders are still cautious about increasing construction. As long as the housing
shortage persists (which it will without an additional 2 million homes being built), it should
help sustain home prices.

7. Gravesend Rental Market Dynamics

Soaring rental prices, another consequence of inflation, are another reason for homeowners

to be content with their current ownership status. Homeowners with fixed-rate mortgages

enjoy the stability of locked-in monthly mortgage payments. In contrast, Gravesend renters
face challenges with rent increases of 10% or even 20% per annum on new properties
coming onto the market (some types of properties) due to the ongoing lack of properties to
rent. The rise in rental prices is encouraging more Gravesend people to consider
homeownership, maintaining demand and supporting property prices.

8. Anticipated Mortgage Rate Reduction
While recent rate hikes from the Bank of England have affected the housing market, there is
an expectation of easing in the near future. According to the money market’s latest
forecasts based on the 5-year swap rate, the Bank rate is projected to fall in early 2024. A
decline in the Bank of England rate would lead to a decrease in mortgage rates. If the
economy remains stable during that period, declining mortgage rates could support house
price growth.

9. Expected Moderate Decline
Economists generally predict that any potential home price decline will be modest. With the
current support from the housing shortage, inflationary trends, and well-capitalised
mortgage owners, a moderate single-digit decrease is more likely than a severe crash like
2008. Such a moderate decline should be less intimidating for Gravesend homeowners.

10. Potential for Renovation Costs Dropping
The demand for home improvement during the pandemic led to a surge of 41.9% in
construction materials in the two years after lockdown. However, in the last 12 months,
overall building costs have fallen by 1% (despite inflation). Some notable drops include
timber dropping 27.6% over the previous 12 months, although cement is up 13.7%. Price
reductions in new construction might lead to even more easing of renovation costs. The
trajectory of renovation costs will depend on the housing market and broader economic
conditions.

11. The Property Market Loop of Recovery
If home prices were to fall, it would likely be driven by weakened homebuyer demand
rather than an oversupply of homes. Such a decline would indicate an economic slowdown
or recession, prompting the Bank of England to respond with interest rate cuts. Lower
interest rates would subsequently reduce mortgage rates, giving homebuyers a boost in
affordability and ultimately contributing to the market’s recovery.

12. House Price Drops Only Affect You if You Sell
A decline in Gravesend home prices might psychologically impact homeowners, even
though it may not affect them directly if they do not plan to sell soon. House prices can only
affect you if you are moving. 96.54% of homeowners will still be in their homes in 12
months, so they won’t lose money if the property market dips. Price change only affects
those looking to buy and sell. Don’t be held hostage by market trends – know when to buy
and (just as importantly) when to sit tight.

13. Actual Value of Homeownership
The pandemic has brought heightened attention to the value of homes, with widespread
discussions on the housing market and price speculations. However, Gravesend
homeowners’ connection to their homes goes beyond financial considerations. It is often
rooted in the relationships shared with loved ones, the sense of community, the peace of
mind derived from home ownership, and the efforts invested in the property. The true value
of homeownership transcends mere monetary figures.

14. The Rarity of Prolonged Price Declines
Prolonged home price declines lasting five-plus years, especially those as severe as the early
mid-1990s-era housing bust, are infrequent. Throughout the last century, national home
prices have only declined occasionally and typically required unique combinations of events.
While recent price surges have led to speculation about a potential decline, numerous
market tailwinds and the reasons above should prevent a sharp plunge and potentially avert
any significant house price crash.

But What if Gravesend House Prices Do Drop?

Ignoring the 14 points mentioned above, let us see what a price reduction would mean for
Gravesend homeowners.

The peak of the property market (just before the Credit Crunch hit) in our local authority
area of Gravesham was September 2007, when the average value of a property was
£199,512.

The Gravesend property market bottomed out in March 2009 when Gravesend property
prices dropped to £158,469 (a drop of 20.5%).

Today, the average property in Gravesend and the local authority area stands at £341,354.
So, if Gravesend house prices dropped by 10% (to £307,218), they would only return to the
levels that were achieved in Gravesend in September 2021 … and nobody was complaining
about those!

Now, don’t get me wrong, if house prices drop by 10%, a tiny percentage of homeowners
(2.83% of all homeowners that have bought in the last two years) will be in negative equity.
However, that is only an issue if they decide to sell the property, and as we all know,
homeownership is a long-term thing, and most of those who would have negative equity
will probably be on five-year fixed-rate low-rate mortgages.

But what if Gravesend house prices dropped by the same percentage (20.5% as mentioned
above) as they did in the global financial crash in 2008? If that were the case, Gravesend
house prices would return to the house price levels achieved in January 2017 (although the
number of people in negative equity would increase slightly).

As Gravesend homeowners face uncertainty regarding potential house price drops, it is
crucial to recognise the various factors that support the housing market’s resilience. While
economic conditions can fluctuate, history has shown that housing values tend to
appreciate over the long term.

Gravesend homeowners can take comfort in the differences between the 2023 market and
the 2008 housing bubble, including stronger equity positions and a more regulated lending
environment.

As we navigate through market cycles, Gravesend homeowners should remain focused on
their long-term goals, the strength of the job market, and the true value that their homes
bring beyond monetary considerations. By acknowledging these factors, Gravesend
homeowners can confidently approach potential price declines and adapt to the market.

These are my thoughts, what are yours?

Maxine

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