If house prices fall another 37% ...

N1AK

Disclaimer: I am not a home owner, and will be looking to buy in 6-12 months.

There seems to be just as much FUD and wishful thinking coming from both sides. For every person who doesn't own a home who says prices will drop more, there is someone who does own saying they won't.

Personally I think prices will fall a little further, although they have reached about the right price already. Why? Because the right price is what they are worth when unemployment isn't high, banks are lending and people aren't fixated on loss of value. Although it will depend on just how much worse the economy gets, I can't see house prices falling more than another 15%.

Kenny4315

whathavewedone wrote: »

depressed for decades. I don't see how that would be good for anyone.

That's bang on.

There are plenty of sensible folk who have built up savings, and moved up the ladder, who would be wiped out. Having the whole of the middle class being virtually insolvent would hardly put the UK in good economic stead.

For example, say a person bought in 2007 for £1m, with a £500k deposit, they'd lose £570k, and be in a negative equity position, and a housing recovery would be virtually out of the question in this scenario. That would have devasting conquences on consumer spending and the general economy.

Graham_Devon

Kenny4315 wrote: »

That's bang on.

There are plenty of sensible folk who have built up savings, and moved up the ladder, who would be wiped out. Having the whole of the middle class being virtually insolvent would hardly put the UK in good economic stead.

For example, say a person bought in 2007 for £1m, with a £500k deposit, they'd lose £570k, and be in a negative equity position, and a housing recovery would be virtually out of the question in this scenario. That would have devasting conquences on consumer spending and the general economy.

So it's ok for first time buyers to be totally priced out, but not ok for home owners to face negative equity?

Interesting.

carolt

Of course, Graham.

Don't you know - if you don't own a home, you are not important, in Kenny's book, and all those like him.

Apparently it only matters if homeowners lose homes they've lived in - the fact that others couldn't or wouldn't buy those homes at those prices doesn't occur to him.

What matters to him is that all property prices continue ever upwards, because if they don't, he'll be in rather a pickle.

penguine

Kenny4315 wrote: »

That's bang on.

There are plenty of sensible folk who have built up savings, and moved up the ladder, who would be wiped out. Having the whole of the middle class being virtually insolvent would hardly put the UK in good economic stead.

For example, say a person bought in 2007 for £1m, with a £500k deposit, they'd lose £570k, and be in a negative equity position, and a housing recovery would be virtually out of the question in this scenario. That would have devasting conquences on consumer spending and the general economy.

OK, so how is the government going to keep your hypothetical buyer of a £1m home from falling into negative equity? How are they going to prop up house prices? If they could, don't you think they would have done it already? Where's the money going to come from to keep lending at the levels that pushed prices up this far in the first place -- more bailouts? If the government keeps pouring money into the banks, is that not going to have "devastating consequences" on the economy?

penguine

Kenny4315 wrote: »

Doesn't the reality of the suggestion of a 57% drop just sound a little bit unrealistic. If you wish to wait for a drop of such magnitude then hope you like renting because you'll be doing it forever.

If someone had told us in 1998, when my OH was buying our flat, that in 10 years' time it would be worth 3 times what he paid for it that would have seemed pretty unrealistic. How often does property triple in value in a decade?

But that's what happened. In January 2008 it was valued at just over 3x what he paid for it in 1998.

A 57% drop sounds may sound equally unlikely, but that doesn't mean it won't happen. I don't know for certain that it will. But I don't know for certain that it won't. And neither do you, despite all your blustering.

bluey890

penguine wrote: »

If most people ignore gloomy economic news, then how can talking down the economy erode confidence?

Because some people do not ignore gloomy news . That one was easy .

bluey890

penguine wrote: »

A 57% drop sounds may sound equally unlikely, but that doesn't mean it won't happen. I don't know for certain that it will. But I don't know for certain that it won't. And neither do you,

:jCongratulations - you have won pointless statement of the month. :j

whathavewedone

I said negative equity AND interest rates of 8% plus. We would never be able to save money to get out of negative equity to the tune of 100k if we could barely afford our mortgage. As we had a good deposit and savings we never thought we'd have no option but to be on the SVR exposed to high interest rates. Or at any rate not for longer than a year or so.

The whole thread is an extreme scenario! I don't for one minute envisage us going bankrupt 3 years down the line because I think that either:-

We will have hit the bottom and looking at recovery (not with prices 70% off peak) possibly with high interest rates - in which case wage inflation plus the interest we'd been getting off our savings would help us pay our mortgage until we could fix again

OR

A Japan like scenario where prices have fallen further than expected and very low interest rates - in which case we would easily be able to afford the payments on our mortgage and would have no need to go bankrupt.

I was trying to illustrate how disastrous it would be for the economy if we had a crash 70% from peak coupled with high interest rates. What would be the point of trying to hang on by your fingernails when you could just bail out and start again from scratch in a few years, hopefully buying a house for cash if they were that cheap therefore avoiding the need to get a mortgage.

carolt

penguine wrote: »

If someone had told us in 1998, when my OH was buying our flat, that in 10 years' time it would be worth 3 times what he paid for it that would have seemed pretty unrealistic. How often does property triple in value in a decade?

But that's what happened. In January 2008 it was valued at just over 3x what he paid for it in 1998.

A 57% drop sounds may sound equally unlikely, but that doesn't mean it won't happen. I don't know for certain that it will. But I don't know for certain that it won't. And neither do you, despite all your blustering.

It's funny isn't it how to some people rises of 300% plus are perfectly reasonable and there are logical reasons for it - but suggesting that you could see falls that would wipe out only just over half that drop is unthinkable and ridiculous!!

There's no logic in it.

If the one could happen, then the other can happen.

In the absence of huge wage inflation, I personally can't see why house prices should not fall a huge amount.

Obviously, if wages rose suddenly to a level that supported current house prices, that would be a different matter altogether.

But, frankly, I can't see that happening either. Recent figures about wage deflation suggest that the point where wages will support current house prices is getting further away, not nearer.