Housing Market Crash of 1992 and 2008
Question asked at mortgageguideuk.co.uk
Readers Question:
How can i compare and contrast the current UK Housing market with that of the 1990s. What are the key drivers for the markets and the outlook for prices?The 1990s saw the end of a housing bubble and a serious house price crash in the year 1992.Leading up to the housing market crash of 1992, there was a period of economic boom, and corresponding boom in house prices (especially in London and South East)The difference in the late 80s and early 90s was that the Economy experience a real inflationary boom.
Economic growth reached over 5%, but, at this rate the growth caused inflation to rise to 10%. Therefore, the government felt compelled to start reducing inflation.They felt the best way to reduce inflation was to join the ERM (exchange rate Mechanism). To cut a long story short, the inflation of 10% and membership of the ERM required interest rates to rise very high to 15%. At 15% mortgages became incredibly expensive and so there was a record rise in defaults and home repossessions.
People stopped buying and house prices fell by 15% (More in London and South East).