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Debate House Prices
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Why house prices aint rising anytime soon
Graham_Devon
Posts: 58,560 Forumite
Right, gonna put my thoughts out there, probably for a severe kicking!
1. House prices are currently on average £150,000. This means, on a 3.5x wage theory for the main earner, and a 1x wage for the second earner, even if the second earner was earning £26,000, the couple would still need a 10% deposit of 15k and the main earner an above average wage of 32k. Thats a combined income of £58,000... Loads of people have children, and this just simply is not possible in the majority of families.
This would qualify them for a standard 10% deposit, 3.5 / 1x wage mortgage. To get this, they would also need to have no debts or loan outgoings etc.
They would then need £790 a month to pay the mortgage on a 4.9% basis.
2. We have yet to see interest rates go up. This is going to take a couple of years at least. When was the last time interest rates went up and at the same time, house prices went up?
3. We will need wage inflation of around 10% per year for the next 3-5 years to catch up with todays prices. We are only just starting to see wage cuts, let alone rises.
4. Unemployment has a "calculated by experts" 1.2 million people more to go before it starts to revert.
5. Banks have absolutely huge loans to pay back, which means mortgages etc are going to be expensive for a while yet.
6. Reposessions are currently about half of what they are predicted to get to. For every reposessions thats another potential buyer / mover off the market, for possibly a long time.
7. Inflation is still a full percentage point and more over the target rate.
8. Tax is about to go up, by quite a bit, it's going to have too, which means less money in peoples pockets, which means they can afford even less. Further tax rises in 2010.
9. The banking crisis in the EU has just started. This WILL effect us. The US had theirs, we had ours, now the EU is about to have theirs.
10. Hundreds of thousands are going to be, if not already, plunged into negative equity. These people will not be able to move for years. The only thing they can do is default, or go to work to pay the mortgage and sit tight.
Another 20% to go in falls at least
Bulls, do your best
1. House prices are currently on average £150,000. This means, on a 3.5x wage theory for the main earner, and a 1x wage for the second earner, even if the second earner was earning £26,000, the couple would still need a 10% deposit of 15k and the main earner an above average wage of 32k. Thats a combined income of £58,000... Loads of people have children, and this just simply is not possible in the majority of families.
This would qualify them for a standard 10% deposit, 3.5 / 1x wage mortgage. To get this, they would also need to have no debts or loan outgoings etc.
They would then need £790 a month to pay the mortgage on a 4.9% basis.
2. We have yet to see interest rates go up. This is going to take a couple of years at least. When was the last time interest rates went up and at the same time, house prices went up?
3. We will need wage inflation of around 10% per year for the next 3-5 years to catch up with todays prices. We are only just starting to see wage cuts, let alone rises.
4. Unemployment has a "calculated by experts" 1.2 million people more to go before it starts to revert.
5. Banks have absolutely huge loans to pay back, which means mortgages etc are going to be expensive for a while yet.
6. Reposessions are currently about half of what they are predicted to get to. For every reposessions thats another potential buyer / mover off the market, for possibly a long time.
7. Inflation is still a full percentage point and more over the target rate.
8. Tax is about to go up, by quite a bit, it's going to have too, which means less money in peoples pockets, which means they can afford even less. Further tax rises in 2010.
9. The banking crisis in the EU has just started. This WILL effect us. The US had theirs, we had ours, now the EU is about to have theirs.
10. Hundreds of thousands are going to be, if not already, plunged into negative equity. These people will not be able to move for years. The only thing they can do is default, or go to work to pay the mortgage and sit tight.
Another 20% to go in falls at least
Bulls, do your best
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Comments
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The first thing the bulls will say is that, 2 people buy houses these days so it should be 3.5x both, thats 3.5x 25k +10% gives about 190k...... so their you go.:beer:
However I don't suscribe to this fantasy, huge swathes of the country have nowhere near a 50k household income, another factor is what are the chances of the couple who buy the house together at 3.5x joint salary avoiding illness, accident, unemployment, pregnancy, children or even death etc.... for the 25 year life of the mortgage
0%, I would probably say, so that mortgage turns into a 7x single at that point, not good news.
I agree with your summary Graham, and when it's all laid out like that, 50% falls from peak almost seem like a forgone conclusion by 2013-14. <puts on flame suit>:D, after all we had 200-300% inflation over the decade from 97-07, so what goes up, can come down by the same amount.0 -
Graham_Devon wrote: »
They would then need £790 a month to pay the mortgage on a 4.9% basis.
4.9% ? If you qualify for a mortgage with a good history and no other debt you could halve that rate at leastIf you will the end, you must will the means.0 -
i don't really classify my self as a bull but i'll have a go Graham and say from the start that average prices have another 10% to 15% to drop. i don't go for the 50% from peak that AD says - not across the country anyway.
in saying that, there will be some areas that will be flattening out or increasing over the spring already. however, there will be areas like Northern Ireland, Wales and maybe the North East or the South West that will be hit most, with respect to everyone that lives there. these are where the biggest bubbles were in my view. these are the ones that will struggle the most to cope with all of your points above.
other areas will be less impacted by what you are saying and house prices will not be affected as much.0 -
4.9% ? If you qualify for a mortgage with a good history and no other debt you could halve that rate at least
Yes. You said it yourself. "If". And not many people can.
As for your halving it, yes, now. I'm not specifically looking at now, when interest rates are at an all time historic low. I based it on the 10% deposit HSBC / First Direct mortgage as it's the most favourable to most buyers at the moment.0 -
Graham_Devon wrote: »Yes. You said it yourself. "If". And not many people can.
As for your halving it, yes, now. I'm not specifically looking at now, when interest rates are at an all time historic low. I based it on the 10% deposit HSBC / First Direct mortgage as it's the most favourable to most buyers at the moment.
Oh alright then.
Not sure why you're making the point in the first place really. We know we're in a recession and the country's virtually bankrupt. Prices will fall. Of course they will - that's economics.If you will the end, you must will the means.0 -
Graham_Devon wrote: »Yes. You said it yourself. "If". And not many people can.
As for your halving it, yes, now. I'm not specifically looking at now, when interest rates are at an all time historic low. I based it on the 10% deposit HSBC / First Direct mortgage as it's the most favourable to most buyers at the moment.
from the FT today - mortgage lending isn't as unavailable as you're making out...
it's not as bad as you think.
http://www.ft.com/cms/s/2/8f8483fc-25c5-11de-be57-00144feabdc0.htmlNew mortgages for borrowers in negative equity
Halifax and Bank of Scotland are offering new mortgage deals to existing customers who have no equity in their homes – in a clear break from the trend of lenders demanding large deposits.
The lenders, part of Lloyds Banking Group, are discreetly extending the maximum loan-to-value (LTV) on some of their new mortgage deals to customers who are coming to the end of cheap fixed or tracker rates.0 -
from the FT today - mortgage lending isn't as unavailable as you're making out...
http://www.ft.com/cms/s/2/8f8483fc-25c5-11de-be57-00144feabdc0.html
This means borrowers who have no equity – or even owe more than the value of their home – are qualifying for loans aimed at customers with deposits of at least 5 per cent.
Doesnt even make sense.
Loans for people in neg equity, who have deposits of at least 5%?
And anyway, these are re-mortgage deals, not new mortgage deals.0 -
Graham_Devon wrote: »This means borrowers who have no equity – or even owe more than the value of their home – are qualifying for loans aimed at customers with deposits of at least 5 per cent.
Doesnt even make sense.
Loans for people in neg equity, who have deposits of at least 5%?
And anyway, these are re-mortgage deals, not new mortgage deals.
Why doesn't it make sense to you?
Of course they have negative equity - house prices are falling - we're in recession. They have to lend to these people - lending is what is going to re-start the economy isn't it? This is why the Govt has put billions into the banking system. Is it not possible to be in negative equity and have a sum of money to put down a 5% deposit?If you will the end, you must will the means.0 -
Graham_Devon wrote: »This means borrowers who have no equity – or even owe more than the value of their home – are qualifying for loans aimed at customers with deposits of at least 5 per cent.
Doesnt even make sense.
Loans for people in neg equity, who have deposits of at least 5%?
And anyway, these are re-mortgage deals, not new mortgage deals.
agreed - however, mortgage deals are getting better, in volume and also with regards to lending criteria. you can't disagree.
within a couple of months I expect these kind of mortgage deals to be available to home movers to. it happened in the 90s and is just a matter of time. you may not beleive this but it will happen - that is unless another Lehmans, HBOS or RBS or similar comes along which is quite unlikely in the current climate.0 -
This means borrowers who have no equity – or even owe more than the value of their home – are qualifying for loans aimed at customers with deposits of at least 5 per cent.
QUOTE]
So what you are saying is the banks are going to start lending again at 100% + ??
erm didn't we get into this trouble because of that??If you find yourself in a fair fight, then you have failed to plan properly
I've only ever been wrong once! and that was when I thought I was wrong but I was right0
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