Dramatic slowdown in the Housing market

claz

i don't think anyone can predict what is happening in the population growth, housing market or other areas because at the moment there seems to be a lot of different ideas floating about

at the end of the day my philosphy is that what happens happens, if in 10 years time or when ever people can't afford to pay their mortgages then they will all have to go into rented accomadation (where prices would also of risen), we would see a large demand for coucil/housing association properties and then the goverment would have to sit up and listen because if like you are predicting meanmachine that there are going to be numerous problems the population will be grossly in debt (people trying to pay for there property) and with other factors like rising engery prices we are going to have a hell of a lot of bankrupt and homeless people around!!!

so i do not think nay sensible government will let us get into that situation (new debt is the current government sensible? that would be a really long thread)

Pal

I am not sure the Government has any control at all over whether or not people are becoming bankrupt and homeless because they took on too much debt.

Personally I think that imigration will take up the slack in employment.

The only reason why house prices will fall is if interest rates go up. The biggest risks that I can see are:

- Oil price rises finally flowing through to higher inflation figures; or
- European and US interest rate rises cause sterling to depreciate, leading to increased inflation as imports become more expensive; or
- We hit a period of strong economic growth, which again results in interest rates being increased to control demand led inflation; or
- Some other "economic" shock. For example if China invaded Tiawan (or anywhere else for that matter) and trade imbargoes were introduced, the cost of goods in the UK would rocket = Inflation.

One thing that is certain is that UK interest rates will rise at some point, and house prices will adjust accordingly. The question is when and by how much? The answer is "Who knows".

What I really don't understand is why home owners choose to come on here and crow about the price increases they have enjoyed. Unless they are a BTL investor they get no monetary benefit from those rises. All it does is make the market more sluggish as many people cannot afford to buy. Even if they sell, they only have to buy somewhere else at a similarly inflated price. For all the talk about downsizing in retirement, people rarely do so. Equity release is an option, but that is an expensive way to fund your retirement.

There is a major perception problem here. Ignoring the negative equity issue for those who bought recently, a drop of 50% in every house price in the country should have no negative impact on the economy at all, except that bank and building soc profits would fall as they would lend less. In practice of course, home owners have a misguided view that rising house prices somehow makes them actually wealthier, so they borrow more and go on a spending spree. Doesn't make sense at all, does it.

rozeepozee

Pal wrote:

In practice of course, home owners have a misguided view that rising house prices somehow makes them actually wealthier, so they borrow more and go on a spending spree. Doesn't make sense at all, does it.

I've always been curious about this myself - Are some [most?] people just a bit daft when it comes to economics?

meanmachine_2

rozeepozee wrote:

I've always been curious about this myself - Are some [most?] people just a bit daft when it comes to economics?

If everyone was a moneysavingexpert, the world would be a better place.

One of the main reasons why homeowners like house prices to go up is that it makes them feel better about taking on such a huge mortgage in the first place. OK, so it's left them with nothing to live on, but "it was the right decision" as a delay would have meant them having to fork out even more.

What I find funny is that people think prices will just keep going up and up. How?

I've seen "expert" predictions that state house prices will double in five years. You can make an argument that house prices have readjusted to a stable interest rate of 4%, but with wage inflation flat in some industries, falling in others (hotels etc) and rising at 3% in the rest, I just wonder who's going to pay these prices.

Let's think about it. 2006 - ave price is 170K and 340K in 2011.
Ave wage now is around 25K, rising 3% per annum takes you to a whopping...wait for it... £29K in 2011.

So the average buyer would be paying nearly 12 times their salary, which works out at £1900 a month.

The only problem is that your take home pay is £1700. Oops. Something doesn't quite stack up there.

Tahiti

I may well be naive (it has been said before), but I honestly believe that long term, house prices will continue to rise.

I certainly don't think they will double again over the next 5 years though (it would be impossible for so many FTBs, and those looking to climb the ladder to get on in life). As has been pointed out, people simply wouldn't be able to borrow enough money!

Equally, I can't see (and hope to goodness there isn't) a house price crash. A soft landing maybe, but not a crash.

I think this year will see a small rise (not necessarily in real terms), but next year may well see some changes in the market if HIPs come in. I don't suppose it will result in a price crash though, and it might even go the other way if there isn't enough stock on the market!

As for there not being enough babies to sustain the purchase of properties, I can't see that being a problem either. If there aren't enough UK born people, I would have thought that immigration rules will encourage more people to fill the gaps.

Oh how I would love to have a crystal ball though!

mystic_trev

and you don't think this will affect House prices in the future?

More than 20 million Britons are in debt, according to a survey by Mintel that reveals the extent of the country's "spend now, pay later" lifestyle. It says the nation is gripped by a borrowing culture, with the vast majority of those in debt showing no concern about the amount they owe.

I've read several articles (including a couple on this bb) where people have had severe problems trying to "complete" on properties where the debt was more than the value of the property!

EDIT

Look what I've just seen at the top of this bb !!!

http://forums.moneysavingexpert.com/showthread.html?t=159319

IN_LIKE_EVERYONE_ELSE!

A friend of mine is in negative equity on his ex local authority 3 bed semi on a grotty rat infested, burnt out car estate, his mortgage is £720 he has a secured loan of £320 per month, £1040 per month for the next God knows how many years, but he does own his house! (his words) he is in approx £5k negative equity. I have just rented a 4 bedroom detached house, double garage, en-suite everything, remote control outside lighting, in a posh seaside town with amazing views for £1000 per month inc water rates. I am happy not owning my own property at this time in my life. I am not a snob I just consider myself to be very lucky. I have said it before, this country is insolvent.

Alleycat

I've found this thread really interesting, but just one question really.

How will any potential rise/crash effect the rental market? I know there has been a huge increase in the amount of buy to lets and with less and less social housing available, will this mean a dramatic rise in rents or rather that tenants will be able to negotiate better deals as landlords will be desperate to get tenants in?

I second the crystal ball comment!