Does it matter if house prices fall?

EdInvestor · 23 February 2008 at 1:33PM

IMHO price falls in both Spain and the UK are likely to affect mainly new build flats (on the coast in Spain, in provincial inner-city areas in the UK) due to oversupply - the rest of the market is likely to remain fairly flat .Most people will not experience a downturn, just a pause in price growth, like 2004-05 in the UK.

TTMCMschine · 23 February 2008 at 8:47PM

boinging wrote: »

Why are the houses on the next rung up the ladder not being affected by falling prices?

The drops that are happening aren't big enough yet. It's still too big a gap - the house further up the ladder dropping theirs by 10k, still means my friends will still be stretching too far. Now - give a few months and it might be a different matter. Also they may be bearish about their house, but it doesn't mean they are about the one up - for some reason. They have more to risk than a ftb in terms of how they are tied. They have less to barter with, and therefore believe the seller has the upper hand because it is a better area etc.

fc123 · 23 February 2008 at 10:16PM

brit1234 wrote: »

Hi, Just read this article below on if it matters if house prices fall. I was just wondering what's your opinion?

Does it matter if London house prices fall?

How vulnerable are London house prices? asked one Sunday paper this week. Very, if any of the talks with sellers I’ve had recently are anything to go by. One friend has been trying to sell his house in Notting Hill on and off for a year or so. Several potential sales at the full asking price have fallen through for one reason or another but he has now finally exchanged with a new buyer – at 10 % below the asking price. He says his experience is being replicated all over the centre of London from Chelsea to Clapham: it has become standard to offer 15-20% below the asking price and get 10% off.

Numbers out from Rightmove yesterday pointed to a slowdown in London prices but a real fall is only a matter of time: right now, not many people are prepared to accept low-ball offers (my friend wasn’t much bothered – he’s moving to the country and just wanted out before the offers started coming in at 30% down) so they’re hanging on hoping things get better.

But does it matter if prices fall? Depends on who you ask. Estate agents and the PRs for buy-to-let clubs think it matters. But most first-time buyers don’t and the truth is that most London home owners don’t think so either. In fact a lot of them are thrilled. Why? Because right now they are trapped in their current homes by high prices. Say you bought a three-bedroomed house in Shepherds Bush in 1999 when you were earning £55,000, for £400,000. Now you earn £85,000 and it’s worth £950,000. That sounds good but it isn’t always so. Say you also have three children (six years - it happens) and you need another bedroom. To move to another house in the same area you are going to need another £200,000 plus £40-60,000 in moving costs upfront. You haven’t got it and your income hasn’t gone up enough to borrow it. So that’s that. There you are stuck in the same house indefinitely. So why would you care if prices came down? You might be worth a little less on paper but you might also be able to start dreaming about moving house.

http://www.moneyweek.com/file/42542/does-it-matter-if-london-house-prices-fall.html

Merryn Somerset Webb wrote this (or edits it at least)...she rents. She has a family too, I relate to her life (though not on salary levels). She was also writing this stuff in 2004/5. Actually I hope she is correct....bring on the price crash....as then we could afford to trade up a little bit......but I have this deep down bad feeling.
Something is not quite right. I am reading, recearching and trying to put some of my limited intellectual brain power into working out what the hell is going on.....it doesn't add up....but something doesn't seen to be able to give either.
All logic seems to direct to price corrections of of sorts...it's all so unsustainable...BUT...then things seem to stretch out a little further...it's like all rules of classicial economic theories (and I am only inventing this phrase, still being a novice on these things) are being busted....

Something is not quite right....it resonates about my head at night.

It's mucking up my carefully laid out post children life plan.:mad:

I want to believe in the sensible outcome (inflated house prices CANNOT continue) but something is not quite right....there is market meddling going on (Govt. deposits, shared ownership schemes etc).......*confused*

ixwood · 24 February 2008 at 4:27AM

lol at theories being busted. What do you mean? You think prices ARE going to keep going up for ever?

I'm no expert, but markets overshoot on the way up and the way down normally.

kingkano · 24 February 2008 at 11:30AM

van_persie wrote: »

Someone didn't do Maths at school...

A percentage drop or rise affects the higher priced property by a much greater degree.

Example:
Buy 2 bed house in 1997 for 100K while 3 bed is 120K.
20k margin.
Sell 2 bed 10 years later (assuming HPI @ 100%) for 200K. 3 bed now 240K.
40k margin.

That's why it's in the interest of upsizers to see a DROP in house prices while downsizers (and speculators) have a vested interest in RISES.

And don't forget, a percentage FALL is greater than a percentage RISE.
eg:
House rises 10% in value from 100 to 110K.

House falls 10% in value from 110K to 99K (10% x 110=11)

If only all things were REALLY this equal. In all likelyhood though, the 2 bed will fall quicker and more than the 3 bed which is more likely to retain its value.

brit1234 · 24 February 2008 at 1:58PM

penter wrote: »

London House Prices in 2008

Bruno
How about debate the issues on this forum rather than simply linking your numerous videos?

HelzBelz · 26 February 2008 at 12:27PM

TTMCMschine wrote: »

It might only be a two bedroomed house? Or one might need 24 hour care, and the other 2 are of the opposite sex, and too old to share.
Let's also just say over the last few years sellers have expected the asking prices on their properties, so they can afford to move up the ladder. This is everywhere - not just london (i live up north). I have friends who cannot afford to move up the ladder, and can't drop their price - or they won't be able buy their next place.
You are also mixng up how silling house prices have become, and confusing it with people being greedy because they want a bigger house. A few years ago most people could have moved up the housing ladder. Now most can't afford to do it. Even if the family do just want more bedrooms rather than need - why is this a problem to you? It's perfectly normal to get a bigger and better house as time goes on.

If you'd read the example it says 3 bedroom house, and I didn't say wanting a larger property was a problem with me, my comments were just a couple of observations about the original post, people do put in offers for houses rather than going for the estate agents price.

Does it matter if house prices fall?

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