Have house prices dropped?!!

daveb975

whathavewedone wrote: »

The main thrust of the post that you criticised was that people in 3 bed houses or smaller are more likely to be in debt than those in larger houses and that is my best guess as to why those houses are losing value more quickly. If you had wanted to "examine" and "criticise" my ideas it might have been more useful if you had actually come up with some sort of response to that.

Apologies, I must have that point when it was originally made. Is it proven fact that people in 3 bed houses are likely to be in more debt than those in larger places? It seems quite strange to me if that is the case.

I realise that a disproportionate number of the people who inherit a large amount of money are likely to live in larger houses with no debt, but it is not a particularly large cross section of the population.

I know 2 couples who bought 5 bedroom houses in expensive areas despite earning less than £80k between them. They might have no debt apart from the mortgages, but those are pretty significant.

At the same time, the majority of people I know who bought flats or small houses on similar salaries have a much smaller mortgage outstanding now. In 5 years time, they will have no mortgage at all (until they buy a big house that is!)

chucky

whathavewedone wrote: »

The main thrust of the post that you criticised was that people in 3 bed houses or smaller are more likely to be in debt than those in larger houses and that is my best guess as to why those houses are losing value more quickly. If you had wanted to "examine" and "criticise" my ideas it might have been more useful if you had actually come up with some sort of response to that.

http://www.fool.co.uk/news/property-home/2009/01/28/the-time-to-buy-a-bigger-property-is-now.aspx

This article explains your argument even better.

daveb975

chucky wrote: »

http://www.fool.co.uk/news/property-home/2009/01/28/the-time-to-buy-a-bigger-property-is-now.aspx

This article explains your argument even better.

That kind of explains it, but as normal with these articles it categorises houses by size alone, which I don't think is right. Younger people are likely to be in bigger mortgage debt than older ones, and it is younger people with big houses that are likely to be in the highest debt of all.

Granted, 4/5 bed detached homes on exclusive private roads are more likely to be paid off than the average house, but this must be partially offset by all of the 4/5 bed detached homes on c**ppy Barratt-type estates owned by 20 or 30-something couples with massive mortgages.

QTPie

I think it is more to do with the following...

People sell houses because of MAINLY the following:
- Debt, Death or Divorce. These will probably affect all house sizes ROUGHLY the same...
- up-sizing: they want to move somewhere bigger (starting/increasing a family or kids getting older and needing more room etc)
- down-sizing: they want somewhere smaller (all kids moves out of the house or the owners become too old to look after a big rambling house). Down-sizing for more immediate financial reasons comes under "debt".

Ok there will ALWAYS be debt, death and divorce: you will always get SOME of them coming onto the market - they will probably try for an optimistic price first (worth a try, in most areas the stock of this type of property is not large...), but will then drop.

The reasons why bigger houses (i.e. 4/5+ bedroomed larger family houses) aren't as effected by price drops is because (apart from the 3Ds) there is less NEED to sell. Not that many people need to "up-size" from this type of house. Not many people "have" to down-size either: if there is no pressing financial reason to down-size, then why do it now? Why not wait for another 5/7 years and THEN cash it in? If you had a pension fund (which you were able to comfortably live without) and were told that you could have an extra £100/£200k if you waited five/seven years to cash it, wouldn't you wait?

Of course that is making some of us get stuck in the market - if you want to move to one of these houses, you are not generally see the "market drops" realised in their prices. But people looking at your house ARE demanding the market drops. Such buyers - like us - are then stuck between a rock and a hard place...

Because ther is more housing stock available in the smaller 4 bedroom house type, then there is more opportunity for movement below us and down through the housing types (to smaller houses and flats). Nearer the top of the market will be affected (and stuck), but the lower levels of the housing market should benefit from the house price drops sooner...

QT

Maisie11

Let me put my tuppence in.

We have a large 4 bed in South Bucks with lots of equity. We tried to sell it recently and got an offer within 5% of the asking price. However we dont need to sell and as it a very comfortable house we have decided to stay put. I think Whathavewedone is quite right. Our road is only a small one with lots of different types of houses. If the house next door sells at a certain price it means nothing to the value of ours as they are all completely different. Potential sellers almost by default with large houses can stay where they are as they often have the cushion of equity, no mortgage etc etc.

daveb975

Maisie11 wrote: »

Let me put my tuppence in.

We have a large 4 bed in South Bucks with lots of equity. We tried to sell it recently and got an offer within 5% of the asking price. However we dont need to sell and as it a very comfortable house we have decided to stay put. I think Whathavewedone is quite right. Our road is only a small one with lots of different types of houses. If the house next door sells at a certain price it means nothing to the value of ours as they are all completely different. Potential sellers almost by default with large houses can stay where they are as they often have the cushion of equity, no mortgage etc etc.

I totally agree that there are likely to be a lot of people with larger houses in your position, but there must be a lot of people who have stretched themselves quite a lot to afford a 4 bedroom house rather than a smaller place. These people are at more risk in the current downturn than those who did not stretch themselves so much.

QTPie

whathavewedone wrote: »

The main thrust of the post that you criticised was that people in 3 bed houses or smaller are more likely to be in debt than those in larger houses and that is my best guess as to why those houses are losing value more quickly.

Smaller houses are "realising" lose of value more quickly because:
- firstly, people in smaller houses are more likely to need/want to move (because of upsizing, downsizing as well as the 3Ds).
- the money involved in a 5% drop in price are always going to be more pallatable on a £100k house (i.e. £5k) than on a £600k house (i.e. £30k).

The "value" of a house is always going to be dictated by both "buyer" and "seller" - a buyer can say/"know" that the value of a house is really £525k at this time, but the value of that house will never be realised until the seller and buyer can agree. If the seller insists that the value is £700k, then the house just wont sell until the market changes and, somehow, eventually, a/the buyer's and seller's expectation converge (or one of the 3Ds intervenes!). So, unless he comes to remortgage the house or is forced to sell (by one of the Ds), an seller will not be forced to "realise" the drop in value of his house...

QT

Maisie11

I guess that people who have stretched themselves to buy a 4 bed place are more likely to stay put jobs permitting and even if there house is worth less than they brought it for they will stay put. It is much better to be 'stuck' in a 4 bed place than a 1 bed flat although when I met my husband he was in a 1 bed flat with £30K negative equity. He managed to save the £30k and when we met we sold both our places and brought one together. It took him 5 years to save it but he obviously continued to live in the place and of course when we brought our joint place the market was bottomed out so got a good deal.

daveb975

QTPie wrote: »

The reasons why bigger houses (i.e. 4/5+ bedroomed larger family houses) aren't as effected by price drops is because (apart from the 3Ds) there is less NEED to sell. Not that many people need to "up-size" from this type of house. Not many people "have" to down-size either: if there is no pressing financial reason to down-size, then why do it now? Why not wait for another 5/7 years and THEN cash it in? If you had a pension fund (which you were able to comfortably live without) and were told that you could have an extra £100/£200k if you waited five/seven years to cash it, wouldn't you wait?

I certainly would wait, if I could. Surely, lots of people get to their 70's or 80's and find that they just cannot clean 5 bedrooms and mow a 1 acre lawn every week any more. I am sure a lot of them will soldier on, but some won't have the choice and will have to sell. It only takes a few of these to filter through, and those upsizing from smaller houses have the ammunition to aks for price cuts themselves.

I take Maisie11's point about people who live in areas with individual types of houses, but if one neighbour sells their house for 25% less than the 2005 price, surely it must have some effecton the rest of the road?

daveb975

Maisie11 wrote: »

I guess that people who have stretched themselves to buy a 4 bed place are more likely to stay put jobs permitting and even if there house is worth less than they brought it for they will stay put.It is much better to be 'stuck' in a 4 bed place than a 1 bed flat

I think you are right, but the original assertion (not yours I know) was that people in larger houses are likely to have less debt than those in smaller places. I think that there are a lot of people in these larger houses that will hopefully be able to ride out the storm, but it does not mean that they are not in debt.