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House prices to crash? Your house may still be making you money, but not for much longer – MoneyWeek

You might be losing money hand over fist in your investment portfolio – the FTSE 100 is down 5% in the year to date and the S&P 500 is off nearly 20% – but I bring you the kind of news that will surely more than make up for…….

You might be losing money hand over fist in your investment portfolio – the FTSE 100 is down 5% in the year to date and the S&P 500 is off nearly 20% – but I bring you the kind of news that will surely more than make up for these disappointments: your house is still making you money – and lots of it. 

The latest house price index from Nationwide came showed prices up 10% on August last year – and £50,000 on average over the past two years. Other indices show something similar: Zoopla has prices up 8.3% over that last year and the last lot of numbers from HM Revenue & Customs show strong volumes too: property sales were up 7.2% month-on-month in July and 32% year-on-year. 

There is some distortion from the incomprehensible stamp duty holiday policy, but even so sales volumes are still higher than pre-pandemic – up 6% from July 2019, notes Hargreaves Lansdown. 

Look at these numbers and I know you will feel reassured: if all else fails your property will be your pension. 

Rising house prices won’t last

On to the bad news. You should not feel remotely reassured – the truth is that this happy looking state of affairs cannot possibly last. 

You can argue – and the house price bulls never do stop arguing – that there is limited supply of houses in the UK and that strong labour market conditions – record vacancies and very low unemployment – will keep demand up. Tight supply; firm demand – what could possibly go wrong? 

The answer to that question is demand; it can disappear in a flash of pricey gas. Let’s start with the cost of living crisis. 

You’ve heard a lot about the rise in energy costs but one of the best ways to look at it is in terms of its income tax equivalent: the coming rise, said Greg Jackson, chief executive of Octopus Energy on the BBC’s Today programme, is equivalent to adding 9p to the basic rate of income tax. 

Can you imagine steady demand for houses at current prices under those circumstances? Quite. And that’s before you start adding in the rising costs of absolutely everything else – the British Retail Consortium has the price of food up 9.3% in the past year. 

Next, note that the labour market might look strong, but it isn’t getting any stronger: the UK’s unemployment rate is no longer falling – it was steady at 3.8% in June – and the number of job vacancies is no longer rising. 

The supply of labour usually picks up in a cost of living crisis (for obvious reasons) and that might work against the push for wage …….

Source: https://moneyweek.com/investments/property/house-prices/605293/house-prices-to-crash-house-may-still-be-making-money-but-not-for-long

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