Recent rises in house prices in Scotland don’t indicate a potential market crash compared with the 2008 increases according to our analysis. Although house prices have been increasing rapidly since the start of the pandemic in March 2020, they are still lower than the increases experienced before the 2008 property crash.
In the 28 months since the start of the pandemic up 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 increase in average prices was 35.7%.
In the run-up to the 2008 property price crash average increases across Scotland’s four main cities varied widely from 17.2% in Glasgow to 61.1% in Aberdeen. Average prices in Edinburgh rose 23.6% and in Dundee 31.8% over the same period.
Over the last 28 months there is again a wide spread of average increases but none as large as the 2008 figures. Aberdeen prices have only risen by 4.2% since March 2020 and still remain below the peak of 2008 while Glasgow has recorded the largest increase in average prices rising by 28.9%. Edinburgh has risen by 19% while Dundee has increased by 24.7% over the same period.
There is little doubt that house prices are about to stabilise and perhaps drop slightly in response to higher interest rates, soaring utility bills, and the wider cost of living crisis. However, there are a number of major differences between the housing market now and in 2008 when prices fell substantially.
Our analysis of the figures indicates that house prices have not risen as substantially as they did in the runup to 2008, so they are unlikely to experience as large a fall if the market slowed or went into reverse. Unemployment is at an historic low level so even with mortgage increases and higher living costs there is more room for people to survive a downturn in prices as long as they have a job.
Demand remains high, despite the financial pressures, due to a shortage of properties on the market. This has maintained and may continue to support the high prices being paid. But this will not go on forever, but it could be a factor in producing a much slower rate of price decline than might otherwise be expected.
Although the market has experienced really quite large increases in prices since the start of the pandemic the circumstances are more positive than 14 years ago. It is important to remember that many of the external factors increasing costs may be resolved sooner than expected. The war in Ukraine, while it could last years, may end more abruptly than expected. The resultant easing of gas and oil supplies, the freeing of food production, and the return to more normal markets would change the overall picture substantially and it could occur in a relatively short period of time. Equally the employment market remains robust and is resulting higher wages so people will feel more positive about any mortgage increases in the future. Therefore, while I expect prices in the property market to ease and perhaps slide in the short to medium term, I don’t think this will be a serious correction.
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