Economist behind two past housing crashes says the market is already sliding — and homes could lose £82,000

The economist who called the last two housing downturns years before they hit says a fresh property crash is already underway.

Fred Harrison told This is Money that he expects UK house prices to fall by more than 30% over the next four years in a slump that could outstrip the financial crisis of 2008, when average prices dropped by 19%.

If that forecast proves correct, the typical home could lose about £82,000 in value, with the average price falling from roughly £273,000 to £191,000.

Harrison has been warning since 2021 that the next property crash would begin in 2026, and he continues to stand by that view.

His outlook is far more severe than the forecasts of many major lenders, although recent data has already shown some weakness. Nationwide Building Society says the average home has fallen by £5,314 since April, from £278,880 to £273,566.

Harrison has a strong track record when it comes to house price cycles. In his 1983 book The Power in the Land, he correctly predicted that property prices would peak in 1989 and warned of the recession that followed.

He later made a ten-year forecast in 1997, saying a global financial crisis would follow a 2007 peak in house prices. Markets then collapsed in 2008.

He says: 'If my worst fears are realised, I expect average UK house prices will crash by more than 30 per cent over the next four years.'

'The bottom will be determined by whether people think the Government is offering a realistic strategy for navigating us out of the economic hole into which we are careering,' he says.

Harrison is best known for his theory of an 18-year economic cycle, which argues that the British economy moves through recurring peaks and troughs. On the basis of the last crash in 2008, he says the next one is due now.

He says the pattern has been visible in the UK for at least 300 years.

According to his model, the property cycle is not exact, but it has two main stages. After a crash, the market usually needs about four years to begin rising again.

That is followed by six or seven years of modest growth during the recovery phase. After that comes a 'mid-cycle dip' — usually a one- or two-year decline — before another stretch of growth that typically lasts six or seven years.

When will the crash happen?

Harrison says the crash has already started and that the market has entered a period of 'protracted decline'.

He points to falling prices across London, the South East and South West of England. Land Registry figures show average prices in those regions are now below where they were four years ago.

Adjusted for inflation, he says that means house prices across the south have already fallen by about 20% in real terms.

He expects prices to fall further in 2027 and keep dropping through 2028, based on his 18-year cycle theory.

What makes this downturn unusual, he says, is that it has not been preceded by a major house price boom, unlike the run-up to 2008.

Overall, house values have largely flatlined in recent years, rising only slowly, helped mainly by stronger prices in the North of England and Scotland. Land Registry data shows the average UK home rose 3% between August 2021 and 2026, from £265,000 to £273,000.

By contrast, prices climbed 43% in the four years before the 2008 crash, rising from about £122,000 to £175,000 between August 2003 and 2007.

Harrison says the usual speculative frenzy happened during the pandemic rather than immediately before the crash, with money instead flowing into other risky assets such as technology shares.

'The crash has already begun in the housing market, but the driving forces are camouflaged by activities across global markets. In particular, the AI industry, which is by-and-large a real estate operation, is disguising the trends,' he says.

'With all that money pouring into the tech corporations, analysts think economies are booming. But those investments are based on almost pure speculation in the future.'

In Harrison's view, the deeper force behind property price gains is the limited supply of land.

'Boom and bust cycles are systemically embedded in the architecture of the economy,' he says.

'Circumstances can change appearances, but there is no disguising the fact that — apart from London — UK regional house prices have not under-performed over the past 14 years. They steadily increased over the housing cycle, and are now faltering.

'The housing market’s fate will be revealed when the crazy sums stop pouring into Silicon Valley - which has started.'

Last week, weakness in technology shares heightened fears of a broader market shock. By Friday, the tech-heavy Nasdaq index had fallen almost 8% in three weeks.

Analysts warned of 'tech carnage', with shares in Google owner Alphabet down more than 12%, US giant Intel down 29%, and Amazon, Meta and Nvidia all off between 3% and 4% over the previous week.

He adds: 'Along with other events - such as Trump’s intervention in Iran, consumer spending will be slashed, laying the groundwork for a further stiff fall in property prices.'

What is causing the crash?

Although Harrison says the downturn has already started, he still believes some trigger lies ahead that will send prices sharply lower. He says it is impossible to know exactly what that trigger will be.

'The whole world is fragile, so there is no telling what will trigger the tipping point,' says Harrison.

'We have the peak and crash of AI, which will depend on investors' resolve before they panic. We don't know whether President Xi means it, when he says China will recover Taiwan in 2027 and the patience of the bond markets cannot be forecast, since we don't know how western governments will ultimately cave in and start to seriously cut back on spending.

'The implosion starts when a major bank keels over, or governments can’t raise money because bond markets suddenly back out.

'Or perhaps Trump has another disastrous trick up his sleeve as he tries to recover power from the losses of the election later this month.'

How bad will it get?

Harrison warns that this would be the worst crash in a generation, with a slow and painful recovery afterwards.

He says: 'We are now entering a phase in history where there will not be a quick two-year bounce-back from the end of the 18-year housing cycle.

'I foresee a period of protracted global chaos. Anything could happen. Share prices in stock markets will crash, as commerce endures savage cut-backs in consumer spending.

'The only thing I expect over the next four years is that we cannot expect any outcome, other than the worst.'

So what should property owners do?

Homeowners with mortgages, along with buy-to-let investors, are unlikely to welcome Harrison's warning.

If he is right, borrowers could face negative equity, where the mortgage is worth more than the home itself.

That would make it difficult, or impossible, to remortgage or move house.

He offers little comfort to borrowers, but says the safest approach is to avoid taking big risks with borrowing or investments.

He also says households should avoid panic and wait out the downturn, arguing that markets eventually recover after previous crashes.

His advice is to consider gold, commodities and precious metals.

'Hunker down,' says Harrison. 'Escalating inflation will wipe out a huge chunk of the value of cash, so gold and assets invested in minerals needed by the digital industry are the best bets.'

Could Harrison be wrong this time?

Many in the property sector remain sceptical of his bleak call.

Estate agent Connells Group expects UK house prices to rise by 1.5% next year, then by 2.5% in the following year and by a further 2% after that.

That broadly matches last week's projections from the Office for Budget Responsibility, which expects average house prices to rise by 2.5% in 2027 and then by 2.75% a year from 2028 onwards.

Rob Dix, a buy-to-let investor, co-founder of Property Hub and co-host of the Property Podcast, has known about Harrison's 18-year cycle theory for years.

He believes the cycle is not unfolding as expected this time and sees a major crash as highly unlikely.

'As I understand it, the theory of the 18 year cycle treats the timing as systemic - with external events short of major wars just being noise,' says Dix. 'It also talks about the 'winners' curse' phase of frenzied activity and rapid price rises which tip over into the bust.

'Given that prices have been falling in real terms for years and are now falling nominally in some areas, we're a long way from mania.

'And as interest rates have already normalised, it's hard to see a sudden shock there being the trigger for a sharp 30 per cent crash.'

Although mortgage deals have risen by about 1.25 percentage points since conflict in the Middle East began, they are still below the highs seen in summer 2023.

Rightmove says the average two-year fixed mortgage rate is now around 5.55%, up from 4.25% before the war in Iran started, adding about £250 a month to the cost of a typical new mortgage since February.

Dix adds: 'I also struggle to see how an AI data centre bust gets transmitted into residential lending that brings down the housing market.'

He says a major house price slump is possible if an outside shock hits, but not because of runaway lending or land speculation.

'Without the distinctive shape of the cycle - where new highs in land prices provide a warning that a bust is coming, it lacks predictive power.

'Understanding the theory and its mechanism would have allowed someone to avoid timing the market very poorly in 2007-2008 - but I'm not convinced that it would be so helpful this time around.'

Robert Gardner, chief economist at Nationwide Building Society, also doubts that a crash is likely. He says the market should regain momentum once the impact of higher energy bills fades.

'The broader economy has proven surprisingly resilient to date, with annual economic growth accelerating in recent quarters,' says Gardner.

'Employment is holding up well, as are real incomes, while household balance sheets are solid, with debt levels still close to 20-year lows relative to household disposable income.

'Moreover, the improvement in housing affordability seen over the past two years has been only partially unwound as a result of higher market interest rates, as income growth has continued to outpace house price growth by a wide margin.'

Mortgage rates have risen as conflict with Iran has lifted inflation expectations and reduced hopes of interest rate cuts.

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