What year will it drop to?

Chris2685

What year do you think prices will mirror when the crash finally bottoms out?

Do you think house prices will drop to pre-2000 levels? Do you think they are unlikely to drop much below 2005 levels?

I would be interested to hear peoples views on this, without too much bickering please! lol

geoffky

1929?maybe

Chris2685

Nice.. so what were the prices back then?

westv

My own guess is that prices will dip close to the level they were at the peak of the last boom in the late 80s. I think that means the average price will drop to around £ 115,000 - £ 120,000.

Edit: Make that around £ 110-113,000. Very roughly 35%-37% drop from prices now.

Chris2685

Interesting theory, quite a heavy drop. I don't think they will drop quite so much, mainly due to peoples reluctance to lower the price that much, coupled with the relatively low housing stock, a large proportion of which is over 50 years old and likely needing replacing or modifying, that we have in this country compared to the population size.

dopester

I'll stick to my guns and say we are in for a real mind-melter. The super-bear property cycle in action, to eat away at the cold-war inflation. Early 1980 levels is my bet.

The crash will beat the HPI mindset out of a new generation, and rid current generations of the theory house prices always recover after 10 years to ever greater heights (just because it's that has happened during the spit of a few decades).

theage.com.au

BusinessDay

Unhappily, Professor Nouriel Roubini is in a glum mood even by his standards. "The UK economy is not my brief," he writes, "but I see that hedge funds are circulating a report from the US guru Jeremy Grantham predicting a very bad end to Gordon Brown's debt experiment.

"The UK housing event is probably second only to the Japanese 1990 land bubble in the Real Estate Bubble Hall of Fame. UK house prices could easily decline 50% from the peak, and at that lower level they would still be higher than they were in 1997 as a multiple of income." That is one hell of a call.

"If prices go all the way back to trend, and history says that is extremely likely, then the UK financial system will need some serious bail-outs and the global ripples will be substantial," says Grantham

Nenen

I want to kiss you for those comments and quote Dopester! :kisses3: Just as I'm starting to lose my nerve and want to buy again you've helped me see what a bad move that might be!

dopester

Thanks Neven, but I'm just relaying what some in the US are discussing - and which I happen to agree with. Perhaps Roubini or Grantham would make for a more appropriate outlet for your affections in helping to affirm your decision to hold back from buying.

It is just at these levels, given the 11 year and near 300% HPI paradigm we've been in, it can be tempting to believe 10%, 15%, 20% drop on current levels represents some type of relative "value".

I certainly don't want to fall in to that trap if there are to be really heavy falls ahead, and regardless of what happens (unless the financial system implodes - possible - or if there is some sort of politically enforced debt forgiveness for owners), I can't see house prices making any sudden fast paced growth from the lows, although if you need credit to buy in at the low, it might be very difficult to secure, unless you really are a quality secure risk. Best to have some liquid funds of your own by my thinking.

The main section from Grantham's report re the UK:

The U.S. Housing Bubble and the Poor U.K.

Exhibit 2, my recent favorite exhibit, shows the dramatic differences between our housing prices and those in the U.K. While the U.S. is a newcomer to housing bubbles, the Brits are old pros. It’s practically their national past time. They may not win at Wimbledon, but they can do really good housing bubbles!

1973 and 1989 were the peaks of two handsome, fairly symmetrical housing bubbles in the U.K. Note in particular how the housing market reached fair value at trend in 1992 and overran considerably by 1996, which produced the lowest income multiples since the records began in 1950. We had all been told that the 1989 U.K. prices were a new high plateau because they were no longer making any more land and certainly were not zoning any more old land for housing. Presumably by 1997, they had decided to make some more after all.

The U.K. housing event is probably second only to the Japanese 1990 land bubble in the Real Estate Bubble Hall of Fame. It was no fantasy that the land under the Emperor’s palace really did equal the whole of California at the peak prices. The current U.K. housing event had become the biggest tease in bubble history, beginning to decline almost 4 years ago, then putting together another 2-year rally before finally flagging this year.

The bad news is that as usual it will go all the way back to normal – which you can barely see from here – and very probably will overrun just to rub it in. It will make our troubles look like a toothache to their hip replacement. Unfortunately for global financial well being, the U.K. is not Iceland, but a major player in the global banking business, so the scale of the write-downs will produce yet another wave of destabilization.

In the U.K., house prices could easily decline 50% from the peak, and at that lower level they would still be higher than they were in 1997 as a multiple of income! It is a truly ugly thought that mortgage lenders and the guardians of the financial system seem never to have considered, at least until recent weeks.

If prices go all the way back to trend, and history says that is extremely likely, then the U.K. financial system will definitely need some serious bailouts and the global ripples will be substantial. Of all the negative possibilities out there, and there are plenty, real pain in this area is the most likely; I would say, nearly certain.

Jumping_Bean

"It is a truly ugly thought that mortgage lenders and the guardians of the financial system seem never to have considered, at least until recent weeks."

This is what I don't get. I can honestly say that I personally have seen this coming (Housing crash not credit crunch) since around 2004 and I'm sure I'm not the only one. Why on Earth couldn't the "guardians of the financial system"? All these experts being paid all this money and no one was guarding against this? Nobody thought "hang on, what are we going to do if house prices crash like they have numerous times before"?

It seems like the banks and the government even believed their own spin.

RichOneday_2

westv wrote: »

My own guess is that prices will dip close to the level they were at the peak of the last boom in the late 80s. I think that means the average price will drop to around £ 115,000 - £ 120,000.

Edit: Make that around £ 110-113,000. Very roughly 35%-37% drop from prices now.

I've got it at 30 - 40% further drop bottoming in Q4 2011 so your forecasting model is obviously a little more finely attuned than mine.

Nenen

I'm intrigued to know what the various income multiples were at the dates that Grantham refers to in his statement "...the housing market reached fair value at trend in 1992 and overran considerably by 1996, which produced the lowest income multiples since the records began in 1950." Dopester, do you know what he considers 'fair value' to be?

I've tried to work out what the implications are for my area if Grantham is right and the market will correct to some sort of sensible income multiple i.e. houses costing approx 3 x earnings. If he is correct then we could see massive drops in this area. Does anyone know if the concept of 'affordibility' is three times joint average earnings (assuming everyone buying a house is doing so with a partner) or 3 x the salary for one person?

Even if I assume 'affordibility' means 3x a joint income then the average house price should be around £140,000 - £150,000 as, according to the National Statistics ( http://www.statistics.gov.uk/cci/nugget.asp?id=285 ) in April 2007 median earnings of full-time male employees was £498 per week (£25896 p.a.) in April 2007; for women the median was £394 (£20,488 p.a.).

Salaries in my area (Cambridge) are a bit higher than the national average (just over £30,000 in 2007 according to http://www.get.hobsons.co.uk/news/Working/297 ) but house prices are incredibly high... average house price in Cambridge is now over £310,000 so currently more than 5x a joint average salary even allowing for a wage increase since last year! :eek: If house prices here do drop to somewhere in the region of 3x joint average salary they will be around £185,000 which would be a drop of about 40% from their peak!

As I'm typing this I'm reeling with shock!