Economic storm clouds gather on the horizon. The unions are back on strike. And the Bank of England (BoE) predicts inflation will soar to 10% by the end of the year, a huge decline in real incomes, and a rise in unemployment.

It all feels very familiar. After all, we’ve been here before in 2008, 1980, and 1973. It’s often fruitless to compare crises; 2022 is not 1973, no matter what the tabloids might say, the socio-economic conditions are very different. However, when it comes to the housing market, past economic slowdowns can be instructive in what to expect this time around.

But first, let’s deal with whether a recession really is inevitable.

Is There a Recession Coming?

Well, the good news is that the BoE is yet to announce that the UK is in a recession. However, that’s about where the good stuff stops. The UK is currently in a period of ‘stagflation’, a term that brings economists and financiers everywhere out in a cold sweat. 

Typically, when a country gets locked into a period of low growth and high inflation or ‘stagflation’ (as the UK is) the only way out is a recession. This can be a long, hard recession like 2008 or a relatively short one a la April to June 2020 but the rule of thumb is that some sort of economic slowdown must follow.

And the figures aren’t promising. Consultancy KPMG predicts that GDP growth will more than half this year, with further decreases in 2023. This is also backed by the figures coming out of the Office for national statistics, which show decreases in GDP for March and April. When you consider that the definition of a recession is ‘two successive quarters of decline in GDP’ this is already edging towards that territory. 

How Bad Will the Recession Be?

While there’s a broad consensus among economists that a recession or, at least something that feels very much like one, is coming, as yet, there’s no agreement on how bad it’s likely to be. 

Some experts, such as KPMG, are predicting a mild recession. The BoE is clinging to the technical definition and stating two consecutive quarters of decline are unlikely. Meanwhile, the CEBR is suggesting that we could see a ‘widespread recession’.

Whatever happens, it now seems near-certain that we’re headed for a major economic slowdown, so what does that mean for housing?

What Will Happen to the Housing Market?

First of all, let’s tackle the obvious. Higher bills for energy, goods and services, as well as interest rises (both from the BoE and mortgage lenders), are likely to act as a brake on housing market growth. 

It’s a simple question of buyers having less money in their pockets. The growth of recent years has largely been driven by incentives for buyers, be that low-interest rates or the stamp duty holiday. If the inverse is true, (rising interest rates, falling incomes and plenty of other disincentives) many who would have entered the market will either hold off in the hope better deals will be available in future or simply be priced out.

A recession could also put a dent in house prices themselves. Research from Risk Concern, reveals that, when adjusted for inflation, the average impact on house prices across the last six recessions is -9.22%. That might not sound like much when house prices in the UK have risen by 53% in the last decade, but it’s still a hell of a drop.

All that being said, there are a few nuggets of good news to cling to. Firstly, no economist has predicted an outright crash. It’s worth remembering that despite the doom and gloom, we’re some way from a 2008-style scenario. Alongside this, mortgage approvals remain well above pre-pandemic levels, indicating that plenty of people still have the motivation to move. And, we’re still in a period where the labour market is reasonably strong, with unemployment low and vacancies high.

In conclusion, were we unwise enough to predict the next year of the housing market, we’d probably opt for a slight slowdown, with a single-digit percentage fall in prices. Less first-time buyers will enter the market and fewer owners will opt to upgrade but the market should remain steady. However, this does come with a caveat. Given the last few years we’ve lived through, it’s probably wise to take these predictions with a healthy pinch of salt.