Why house prices are headed down still

neverdespairgirl

I am pretty certain the medium-term direction for house prices is down. The news today makes that pretty clear, in my view.

Firstly, repossessions are significantly up. That means extra distressed sellers, and also adds to negative sentiment about HPI. It is also an indication that people are finding it hard to pay.

The number of people losing their homes after failing to meet their mortgage repayments has climbed sharply, says the UK's financial watchdog.

The number of repossessions in the second quarter of the year was 11,054, up 71% compared with a year earlier.

The Financial Services Authority also said the number of people struggling to clear home loan arrears had risen.

Meanwhile, figures from the Land Registry showed house prices in England and Wales have fallen again.

This comes after the Bank of England predicted more woe for homeowners.

http://news.bbc.co.uk/1/hi/business/7694819.stm

Secondly, the bank car-crash isn't getting much better yet. The Bank of England's report shows that estimated losses have doubled since May, which means cautious lending to come, in my view.

The world's financial firms have now lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis, the Bank of England has estimated.

It also warned that 1.2 million homeowners in the UK now faced going into negative equity if house prices continued recent sharp falls.

The Bank gave the figures in its latest bi-annual Financial Stability Report.

http://news.bbc.co.uk/1/hi/business/7694275.stm

neverdespairgirl

Further, the B of E seems to be pushing people that way, talking about banking needing to be "boring" for a while.

Last week Bank governor Mervyn King said the British banking system had been closer to collapse earlier this month than at any time since the start of World War I.

He also said that a "little more boredom" would be no bad thing for the industry.

Peston agrees that lending is going to be much more subdued:


Here's the less good news. Credit from the banks is still going to be much harder to obtain for two or three years.

Why?

Well, our banks were dependent on flighty wholesale funding to the tune of £740bn at the end of June 2008, up from zero in 2001.

Most of these creditors want their money back now or in the coming two or three years - which is why the Treasury and the Bank of England on behalf of all us as taxpayers is promising to lend more than £500bn to replace the lost funds.

However, to repeat the point I've been banging on about for months, all of this will have to be repaid at some point.

Which, as I've said, puts pressure on our banks to lend less, or at least to massively reduce the rate of growth of lending.

And there's another way of looking at this very powerful force which is shrinking how much banks lend.
From the late 1990's to today, our banks increased the multiple of what they lend compared to their capital resources from 23ish to 33ish.

Or to put it another way, they thought the world was becoming a less risky place and increased by more than 40% their lending relative to the capital they hold to cover potential losses on such lending.

To state the bloomin' obvious, our banks now see the world as a pretty risky place, so they're prepared to lend much less relative to their capital.

The net result of all this means less money going into the housing market than has happened for years, and inevitably means falling prices.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/

And all this without taking into account falling employment, recession, and all the rest of it.

Generali

Mortgage lending is the key. Less money in the house market means lower prices.

Jennifer_Jane

Yes, pretty bleak times ahead for everyone. The ones to survive this will be the people who can keep their jobs and just hunker down for the duration.

Very sad for those losing jobs; houses; etc.

For me, I get a pension from South Africa on income drawdown. The markets have halved there, and the currency is also down versus the £. So a double whammy. I can't sell my house because no-one is moving (or can move); so I cannot downsize/move to where my family is which I wanted to as part of my retirement plan. But it just means I have to stay where I am and keep working a little longer.

I wonder - when does a 'Recession' turn officially into a 'Depression'?

Jen
x

Generali

Jennifer_Jane wrote: »

I wonder - when does a 'Recession' turn officially into a 'Depression'?

A recession is where real (inflation adjusted) GDP drops for at least 2 quarters in a row. A depression is where real GDP drops by 10% or more.

Alternatively as the old joke has it, a recession is where your neighbour loses his job, a depression is where you lose yours.

IveSeenTheLight

neverdespairgirl wrote: »

I am pretty certain the medium-term direction for house prices is down.

What's your definition of medium term?
With regards to property, I personally consider this as 4-7 years.
Short term being up to 3 years and long term 8 years plus, mainly because it is an illiquid asset.

Looking at this link it's 2-10 years
Here it refers to 5-10 years

I think the length of time is really going to matter by how fast the prices drop by. People here have been quoting the drop this time is faster than the last house price drop, therefore theoretically, it will reach its target in a shorter time.
Conversely, if there was a slow drop then it would take longer to reach the affordability target.

neverdespairgirl wrote: »

Firstly, repossessions are significantly up. That means extra distressed sellers, and also adds to negative sentiment about HPI. It is also an indication that people are finding it hard to pay.

We've known for a long time that in a falling market, where mortgages are harder to get, there will be people in a much harder position to maintain the payments due to the less available re-mortgage options.

You should take heart that the government is working hard to try and ensure that repossession are only done when absolutely necessary.

Remember also, that it is not in the banks interest to repossess a depreciating asset where it is harder to sell on and recoup the lost money.

neverdespairgirl wrote: »

Secondly, the bank car-crash isn't getting much better yet. The Bank of England's report shows that estimated losses have doubled since May, which means cautious lending to come, in my view.

Cautious lending we all agree will be better for the long run, however, the banks business is made by lending money. They don't make money leaving savings in the accounts and paying out ineterest.
Lending will happen, but they will make sure that the repayments are affordable.
Affordability is the key.

neverdespairgirl wrote: »

It also warned that 1.2 million homeowners in the UK now faced going into negative equity if house prices continued recent sharp falls.

The Bank gave the figures in its latest bi-annual Financial Stability Report.

http://news.bbc.co.uk/1/hi/business/7694275.stm

Negative equity, while not desireable, it not a propblem unless you have to move home or re-mortgage. The important part will be to ensure that the repayments are still able to be made.

With interest rates dropping, if people believe they may struggle in the coming months / years, then they should be seriusly looking to re-mortgage on a long term fixed deal to ensure that they have stability with regards mortgage payments

GDB2222

My view is that we are in for a period of deflation, followed by massive inflation as the stimulus over-shoots dramatically. So, at some stage house prices will shoot up again just to keep pace with inflation. Timing this is going to be key, so keep a very close eye on what is happening, folks.

Austin_Allegro

neverdespairgirl wrote: »

I am pretty certain the medium-term direction for house prices is down. The news today makes that pretty clear, in my view.

Firstly, repossessions are significantly up. That means extra distressed sellers, and also adds to negative sentiment about HPI. It is also an indication that people are finding it hard to pay.

The number of people losing their homes after failing to meet their mortgage repayments has climbed sharply, says the UK's financial watchdog.

The number of repossessions in the second quarter of the year was 11,054, up 71% compared with a year earlier.

The Financial Services Authority also said the number of people struggling to clear home loan arrears had risen.

Meanwhile, figures from the Land Registry showed house prices in England and Wales have fallen again.

This comes after the Bank of England predicted more woe for homeowners.

http://news.bbc.co.uk/1/hi/business/7694819.stm

Secondly, the bank car-crash isn't getting much better yet. The Bank of England's report shows that estimated losses have doubled since May, which means cautious lending to come, in my view.

The world's financial firms have now lost £1.8 trillion ($2.8 trillion) as a result of the continuing credit crisis, the Bank of England has estimated.

It also warned that 1.2 million homeowners in the UK now faced going into negative equity if house prices continued recent sharp falls.

The Bank gave the figures in its latest bi-annual Financial Stability Report.

http://news.bbc.co.uk/1/hi/business/7694275.stm

Nah, Britain's booming! House prices coming down? If they do, I'll buy three! Erm...I mean, the economy's static, innit. It's only America, anyway. Things'll pick up soon. What's that? Biggest crisis in banking since 1914 and whole countries requiring bailouts by the IMF? That's just doom and gloom by the media. Anything to sell papers. Stop talking us into recession!....erm...OK, we're in recession. But that's just normal, it'll be over soon. If you're not looking to move, you've nothing to worry about. Huge rise in repossessions? ...erm... nobody's got a crystal ball! Erm...

alared

Some of us have seen this happen before,late eighties/early nineties.
From the peak of June 2007,you can safely expect falls of at least 50% to the trough,whenever that may be.
When people start to lose their jobs and can`t pay their mortgage (next year) then you`ll see a rapid drop in property prices.
When the bottom is finally reached,prices will remain static for YEARS.
Of course all the people who had their greedy fingers in the property pie will try to talk up the market at every oppotunity.
Afterall it`s in their interest to do so.
This whole mess will NOT be over by Christmas 2012 let alone this one.

neverdespairgirl

IveSeenTheLight wrote: »

What's your definition of medium term?
With regards to property, I personally consider this as 4-7 years.
Short term being up to 3 years and long term 8 years plus, mainly because it is an illiquid asset.

My definition is not yours, sorry, I wasn't using it as a technical term. Hope that wasn't misleading.

I mean the next 2 years, rather than the next couple of months.

IveSeenTheLight

neverdespairgirl wrote: »

My definition is not yours, sorry, I wasn't using it as a technical term. Hope that wasn't misleading.

I mean the next 2 years, rather than the next couple of months.

Not misleading, just wondering.

I would never view purchasing a property for only 2 years.
In my eyes this is definately short term