House prices to fall by 40% from peak, 3-4 million in neg. equity

Realy

ad9898 wrote: »

I think Realy, you can't underestimate how many people mewed over the house price bubble years, cars, holidays, consolidation, credit cards, loans,BTL dinner parties, helping their kids get on the the ladder

Alot of people who would have been in good positions, now find themselves shafted.

Likewise you can not over estimate it.
Without proof of how many have done this and how much equity it as wiped out.
I don't think mewing is as wide spread as you think, and if people did the majority would definatly not done it to the extent you belive.
Do you think the report as taken in to account? I have read a 30% drop was 1.2 million NE household, so the extra 10% would be 1.8-2.8 Million households.
Seems very high so I presume it is people eg two names on a mortgage rarther than households.

sabretoothtigger

Pobby wrote: »

Can only speak from my own experience. Purchased in 1988 @£75000. Tried to sell a few years later. Was advised that £59000 would clinch a deal. Sold in 1999 for £73000.

If we assume the correct price was the 1999 one then right now it should also be valued at 93,597 ?
If you were to take the same 1988 figure then it would be 130k if increased by 2.8% per year to reflect normal growth

StevieJ

Pobby wrote: »

Can only speak from my own experience. Purchased in 1988 @£75000. Tried to sell a few years later. Was advised that £59000 would clinch a deal. Sold in 1999 for £73000.
As to point 2, I agree but also wage inflation has dropped to a great degree. The area I live in is known for very low wages yet it is only just below the property prices found in the South East, our area is in fact the 3rd highest for property in the UK.

In 3 do you mean that property was undervalued in 1997, I certainly would have not said over valued.

Error, I meant 2007.

dopester

_bankrupted wrote: »

At the end of the day it's a complex issue but the price is in part driven by affordability and demand. Both of those favour house prices higher than the last slump.

You reckon? I agree about affordability but you think it favours higher house prices than the last slump?

I don't remember the last slump having two UK banks nationalised. I don't recall bank after bank on the brink of failure and needing Government to rescue them by taking big shareholding and BoE providing liquidity based on debt.

I don't remember the last slump having so many consumers up to their necks in debt, and the levels of public debt being so high (£351 billion I think in 1997, compared to around £1,866 billion today), with the bank bail-out implying a further £500 billion to be added, and then more debt Labour wants for dodgy plans for public spending projects to somehow stimulate the economy lol.

The most recently published data released on Monday claims the UK’s public debt is £645 billion or 43.4% of GDP, but this is a significant underestimate. The true scale of government debt actually stands at an astronomical £1,866 billion, equivalent to 125.5% of GDP, which is nearly three times larger than the Government’s published figure. On top of the squeeze felt by the current credit crunch, this leaves each British household hobbled by a ball and chain of public debt to the sum of £76,475.

http://www.egovmonitor.com/node/21711

How much will the rapidly slowing national economy generate in income in months and years, to service the debt? Cast an eye over the City to see how it is faring, or what about (property) stamp duty taxes, and the financial health of business UK wide.

Even today there is so much pretence that property is slowing down gradually... even 14% a year is supposed to be shocking - when in reality the bottom has totally fallen out of the market. Even 50% off over-inflated values at auctions is not attracting serious bidders, from the few who have the money/finance to pay.

You've had your 11 year 300% HPI, but the capital growth gravy train has come off the tracks at 200 miles per hour. Still EAs and surveyors and banks to some extent (to manage the extent of the coming falls) and the Government are either in denial, misunderstanding the seriousness of the situation, or deliberately trying to hold off the reality from the wider public.

Those of us with some actual money savings and who keep a paying job call the shots now, and that will become ever clearer in the months and years to come. We'll tell you what your property is worth, and sellers will have to like it.

All the "wealth" in property is illusionary; not real. There is no reason why property prices won't fall to match prevailing economic conditions.

For all those who expected house prices to continue rising, who could not imagine a situation ever arising where property prices couldn't fall 50, 60, 70, 80, 90%+, this is it.

“We tend to buy something,” says Matthew, “develop it, keep it and remortgage it. If we do it right, we get our money back in its entirety. So we get a property for free. Then we use the same money to repeat the process. I don’t see any reason why we can’t keep on doing it, so long as property rises at the same rate as inflation, which means that in the next 10 years, property will go up between 10% and 20%. You would hope that it will go up faster than that, but 10% is all that’s required.

“I think in the next few years, society will become divided between the haves and the have-nots: people who have a buy-to-let portfolio and those that don’t. Without wishing to appear arrogant, we are glad to be on the housing ladder in this way.”

Actually no; without wishing to appear arrogant myself sonny, society will be divided between those who have some capital/money and a paying job, and those who have big debts and over-valued property that is undergoing a severe price discontinuation back to prevailing economic conditions.

All the BTL-ers like this, the property businesses they run on the expectation prosperous conditions based on debt and consumption of the last 10 years would continue, and those who treated their homes like cash-machines or who were deluded to buy in at extreme levels based on a warped and corrupted economy that prospered on debt, have an education in reality coming to them.

Cannon_Fodder

Realy wrote: »

Likewise you can not over estimate it.
Without proof of how many have done this and how much equity it as wiped out.

Some context on the size of MEwing...old article, but lovely one-liner;
http://www.independent.co.uk/news/business/news/record-equity-withdrawal-by-homeowners-triggers-fears-of-early-interest-rate-rise-558582.html
"It took the total for 2003 to £53bn, outstripping the entire economic output of Ireland."


Official MEW, now renamed HEW figures;

2005 - £44BN http://www.bankofengland.co.uk/statistics/mew/2005/dec/index.htm
2006 - £60BN http://www.bankofengland.co.uk/statistics/mew/2006/dec/index.htm
2007 - £55BN http://www.bankofengland.co.uk/statistics/hew/2007/dec/index.htm
2008 - half-year figure - £2.5BN http://www.bankofengland.co.uk/statistics/hew/2008/jun/index.htm


So, that's been an extra £50BN of spending in the economy, each year, that would otherwise not have occured...that's £2,000 for every single household in the UK. Say only 5% of people MEW (can't find an official %) that would be £40,000 per MEW household...suddenly not allowed/not affordable/not being spent - that on its own would cause a recession!


Oh, and just re-read the 2008 figure, again...£2.5BN. Demonstrates the current liquidity problem nicely.

So the Economy MUST shrink by £50BN, JUST because of the disappearance of MEWing. Forget lost tax revenue from company failures, the cost of unemployment, reduced stamp duty takings, and who knows what else...

£50,000,000,000 gone.

So, GB/AD will have to commit - on top of Northern Rock billions, on top of Bank bail-out billions, on top of lost tax revenues - to spending ANOTHER £50BN just to counteract the recessionary effect of the missing MEW funds.

And store up that debt for future generations to pay off...very prudent.

Pobby

Splendid post dopester and it sums up my feelings exactly. I still find it hard to believe that even people of my own age did the `` it`s different this time`` mantra. Pointing out that in some way it was better,ok and safe that hpi was raising at an alarming rate.

Well yes, it was different. Firstly when houses peaked last time was during a period of high wage and price inflation. It would make sense that house prices would go in the same direction. This time we have had low wage and price inflation but one commodity, housing has bucked that trend. It`s fair to say that in my lifetime interest rates have never been as low and of course that would, to a degree, encourage people to borrow more. The assumption there is that the base rate would remain low for the duration of the mortgage. Imagine if they returned to 8% plus, the figure that applied to me for the years I had a mortgage.

It`s different this time, yep. Personal debt, oouch, just go to the dfw board to check that one out. The last time we had a crash, I was selling personal loans as part of my business. They needed to be checked on an individual basis. Most loans were sub £500. Talking to a young friend yesterday. She has a poor credit rating, yet each time she nears the limit on her card the company increases by a further £1,000. She rents and has a £16k a year job and £5k on cc.

Lets take a look at areas such as Devon and Cornwall. Some of the highest prices outside of London yet wages are low. How much this has to do with retirees or second homes I am not sure. Hugely I would guess. For second homes, how much would people used mew. Again I assume many. With things getting tighter I fully expect to see lots of stuff hitting the market soon.

Here`s an example of a Cornish property in the not very nice area of Redruth. Hardly a beauty spot.
http://www.rightmove.co.uk/viewdetails-23081219.rsp?pa_n=1&tr_t=buy&mam_disp=true

I think 10 years ago £30k to £40k would have bagged that one.

At every twist and turn I see a very distorted market. It will be interesting to see were all this will be in 10 years.

WTF?_2

Regarding inflation: Don't be fooled by the switch to CPI as an inflation measure.

We have had low CPI because of the China-effect but a more honest measure of inflation would have shown considerably different inflation figures over the last decade.

David Owen (see iPlayer link on other thread) made a great point on Hardtalk last night that since Tony Blair and New Labour took over, there has been a culture of the government interfering with the figures to make them look better for whatever daft policy it is that they want to pursue.

Ironically, just as more general inflation is set to drop in the near term, CPI will likely rise due to the crumbling pound. Still, not to worry as I'm sure the figures will be re-assessed to whatever measure suits the liars at number 10.

hethmar

I just keep thanking god that we didnt give in and mew - the constant offers from BS and Banks were so tempting - 2 decades of house price increase - "why dont you buy a retirment place abroad" - "wouldnt you like a brand new car?" - it must have been so easy for so many people to get into debt - and at an age when they really need some sort of security.

I think we shall see the results of mewing for the next decade and more in those of pensionable age - something which hasnt yet been considered in this chaos.

WTF?_2

sabretoothtigger wrote: »

Supply and demand altered greatly during that time.
Lots of demand which I think is still there and a rise in supply of credit but not the number of properties available

Why any idiot who can fog a glass can borrow the money to buy property and there's a long running boom in prices even as interest on money in the bank pays you next to nothing, of course there's going to be 'a lot of demand'.

The trick will be to see how much demand there is now that the easy credit has been taken away and prices are established as falling. The evidence so far, not nearly enough to maintain prices at anything close to peak last summer. Let's give it another year and another 15% off the peak and see how supply:demand stacks up then. Probably a bit better.

Pobby

hethmar wrote: »

I just keep thanking god that we didnt give in and mew - the constant offers from BS and Banks were so tempting - 2 decades of house price increase - "why dont you buy a retirment place abroad" - "wouldnt you like a brand new car?" - it must have been so easy for so many people to get into debt - and at an age when they really need some sort of security.

I think we shall see the results of mewing for the next decade and more in those of pensionable age - something which hasnt yet been considered in this chaos.

I do a few hours a week for our local credit union. It`s amazing that many problem debtors are in their 60`s or 70`s. It has been said that they have carried on living the same life style as when they were working. Debt is bad enough but to be in debt at retirement would scare me.