Let's Party Like It's 1988
Despite soaring house prices, property sales are at their highest for almost two decades. But can we hear the echoes of the Nineties crash?
According to the taxman, the number of properties sold in England, Wales and Northern Ireland has reached a peak not seen since the property boom of the late Eighties.Last week, HM Revenue and Customs released figures which show that 1,859,000 properties changed hands in England, Wales and Northern Ireland during 2006/07. The number of sales and house prices were both up a ninth (11%) on the figures for 2005/06, so house prices are still growing at well above their long-term average rate.This is the highest total for housing transactions since 1988, a year when 2,148,000 flats and houses were sold and bought in England and Wales. However, the following year, property sales plunged by a quarter as the six-year house-price boom started to go into reverse, following sharp hikes to the Bank of England's base rate and, consequently, mortgage rates.For many Brits, the house-price crash which began in 1989 came as a complete shock, largely because an entire generation had grown up seeing house prices going only one way: upwards. Indeed, according to the Nationwide BS House Price Index, the average UK house had increased in value every year since 1955. However, despite this 35-year winning streak, the market duly did an about-turn in 1990, when house prices dived by a ninth (11%) and took nine years to reach their 1989 peak.Back in 1988, I was a youthful twenty year old, enjoying the social whirl of university life. However, noting signs of the housing boom around me, I began to worry seriously whether I would be able to afford a property after graduating. Fortunately for me, the market went into a steep decline and, in late 1992, I was able to buy my first (and only) house with a comfortably affordable mortgage.Sadly, the early Nineties was an era of negative equity (when millions of houses were worth less than the mortgages secured on them), recession and rising unemployment. Many homeowners struggled to pay higher mortgage repayments, and loads fell into arrears. The upshot of all this was a huge leap in repossessions, where mortgage lenders seize properties as security against outstanding home loans, and then auction them at knock-down prices.Between 1991 and 1998, lenders repossessed an average of more than 50,000 homes a year. In total, they seized 410,440 properties over these eight years, forcing over a million people out of their homes. I'm sure you'll recall that these were tough times for many Brits!So, here we are today, in the grip of another 'eternal' house-price boom. Property pessimists, including myself, see many parallels between the housing booms of the late Eighties and today. As before, house prices are now so high that even modest properties are beyond the reach of the majority of prospective buyers, preventing people from climbing on the first rung of the property ladder.Likewise, the ratio of house prices to incomes is at an all-time high, extreme consumer debt is becoming a problem, and bankruptcies and insolvencies are at record highs. Similarly, interest rates are on the rise, with the Bank of England hiking its base rate four times since last August. Worryingly, even before the latest round of interest-rate hikes, repossessions were also rising rapidly, albeit from a low base.Nevertheless, property prices, mortgages and other debts continue to push upwards, extending their eleven-year unbroken record of rises. Frankly, I find it unbelievable that people are willing to borrow such enormous sums in order to fulfil their housing needs. Still, what do I know, given that I stepped off the housing ladder two years ago by selling up and moving into a rented house? I remain baffled that my fellow Brits believe that we can all get rich simply by selling houses to each other, but there you go.Finally, as Mark Twain allegedly remarked, "History does not repeat itself. But it does rhyme." It is highly unlikely that the next housing downturn will be a replica of the Nineties crash. However, I feel strongly that we may be close to the tipping point -- the last gasp before the crash. Who can say?All the same, it always makes sense not to overstretch yourself when reaching for the next rung of the property ladder. When interest rates, taxes and household expenses are all rising, debt spells danger, so make sure that your mortgage doesn't become a millstone. My advice would be to give the Fool's award-winning, no-fee mortgage service a whirl -- you won't be disappointed.More:How Heavy Is Your Home Loan? | Property Versus Shares