Housing prices are facing a double whammy of a potential Brexit recession and a fall in real earnings, according to two leading professors at the London School of Economics.
The warning comes on the heels of a report by the National Association of Estate Agents that found the number of homes sold in May for below asking price climbed to 77%.
If a crash mirrors that of the early 1990s, when there was a near 40% plummet in property prices, it could put more than a million people at risk of negative equity – when the value of your home is worth less than the cost of your mortgage.
Prof Christian Hilber from the LSE said: ‘If Brexit leads to a recession and/or sluggish growth for extended periods, then an extended and severe downturn is more likely than a short-lived and mild one.’
Speaking to the Mail on Sunday, economic geography professor and former Government housing adviser, Paul Cheshire, warned the property market could tumble as prices reflect the decline in earnings.
According to Prof Cheshire a fall in house prices can be triggered when wages fail to keep up with inflation.
Inflation hit 2.9 per cent last month, while incomes grew by 2.1 per cent.
He said: ‘We are due a significant correction in house prices. I think we are beginning to see signs that correction may be starting.
‘Historically, trends seem always to start in London and then move out across the rest of the country. In the capital, you are already seeing house prices rising less rapidly than in other parts of Britain.’
In 1989 when the housing bubble burst prices collapsed by 37 per cent over the following six years.
The Council of Mortgage Lenders said earlier this month the housing market had ‘stalled’.
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