Property crash soon???

dwsjarcmcd

Does no one want a house to live in any more? If so then whether there is a crash or not becomes academic!

Ian_W

NSR2 wrote: If prices are seen to fall, FTBs will turn round and think. Do I want to borrow £100K for a property, which in a few months time will be worth £80K?

Ah,ah ... so falling [or fallen] house prices don't actually benefit FTBers who'll only buy when prices are seen to have risen, be rising again?

Also with falling HP, a recession kicks in, people lose their jobs, lost jobs means people can't buy.

Why do people lose their jobs because house prices fall? Why does it trigger a recession? Thought it was t'other way around? Recession caused peeps to lose jobs, house repo'ed sold cheap, HPs fall etc...

Doozer, popcorn refills please, while I nip to the offy for a resupply, red wasn't it?

Deemy

One feeds on the other..

Goverments borrow and spend money, causing employment and demand in the economy, Houses and other assets start to rise and make people feel richer so they spend more and therefore more goods are supplied and therefore more are employed creating more liquidity and hence tend to buy more houses and ... on it goes ... UNTIL it reaches a point when there is froth everywhere, iu.e. house prices over valued, wage pressures due to high employment causing inflation and consumers unable to carry more debt and the Goverment running large budget deficits and unable to borrow more as the market demands much higher interest rates to purchase the debt.

Looking at where we are, you could say we are passing the crest of the wave and into a downward spiral just as we have been caught in an upward spiral for the last 13 years or so . Where as each contracts it will feed on the other component and cause greate contraction in activity.

for instance as the economy slows, unemployment rises, goverment tax reciepts fall, so they raise taxes and cut spending, thus reducign demand in the economy, interest rates rise to subdue inflation as the currency falls due to expectation of lower future interest rates due to a slowing economy, which feeds through into house price falls, which make consumers feel poorer and else spend less, as their debt levels as a% of assets grow. and on goes the downward spiral.

dwsjarcmcd

just to add to the debate as to whether renting is 'dead money' consider this albeit long term reason to buy. 2 people, 1 buys and 1 rents, they pay the same about £700 pm , 1 on rent, the other on a repayment mortgage. After 25 years they review the situation in the pub as they are both about to retire.
The person with the mortgage may be paying the same, less or more dependent on interest rate movements, the person with rental will be paying a lot more monthly rent.
The person who bought is about to repay his mortgage and is happy given that their income is about to drop, post retirement.
The other person is also about to retire, have a much reduced income and have to find the monthly rent with no prospect of reducing this outgoing to match the reduced income.
A strong reason to buy rather than rent and not a mention of house prices (till now!)

njwd

Ian_W wrote:

...
Why do people lose their jobs because house prices fall? Why does it trigger a recession? Thought it was t'other way around? Recession caused peeps to lose jobs, house repo'ed sold cheap, HPs fall etc...
...

Take a look at the graph I posted earlier:
http://www.housepricecrash.co.uk/forum/index.php?act=Attach&type=post&id=2275

It shows average house price against average wage (typically 3.5 times salary) and when recessions have followed the housing cycle.

Who knows what will happen this time? One thing for certain is that the peak is much larger this time, due to reasons discussed earlier (cheaper, more freely available credit).

njwd

dwsjarcmcd wrote:

just to add to the debate as to whether renting is 'dead money' consider this albeit long term reason to buy. 2 people, 1 buys and 1 rents, they pay the same about £700 pm , 1 on rent, the other on a repayment mortgage. After 25 years they review the situation in the pub as they are both about to retire.
The person with the mortgage may be paying the same, less or more dependent on interest rate movements, the person with rental will be paying a lot more monthly rent.
The person who bought is about to repay his mortgage and is happy given that their income is about to drop, post retirement.
The other person is also about to retire, have a much reduced income and have to find the monthly rent with no prospect of reducing this outgoing to match the reduced income.
A strong reason to buy rather than rent and not a mention of house prices (till now!)

This scenario only works if the housing market is bouyant and rents are the same price as a repayment mortgage for the same property.

Although it is open for debate. In my mind, rent is even cheaper than an interest only mortgage (on most properties) at the moment.

So it's cheaper to rent off a landlord, than the bank. Capital Gains on properties seems to have stagnated, so there is not much benefit there either.

If people are hedging that there is going to be a correction in prices, the difference they are saving by renting can be added to their deposit amount. They will then be able to get a smaller mortgage on a reduced price house when the time comes.

I'm sure "bearish" people here aren't advocating renting forever, just that it doesn't make financial sense to buy at the present time. It's all opinions, though.

njwd

Relevant to the discussion:

Hot of the press discussion from the chief economist at American Express.
http://uk.biz.yahoo.com/24032006/17/calverley-hints-bubble-squeak-housing-market-hits-time-high.html

dwsjarcmcd

njwd wrote:

This scenario only works if the housing market is bouyant and rents are the same price as a repayment mortgage for the same property.

Although it is open for debate. In my mind, rent is even cheaper than an interest only mortgage (on most properties) at the moment.

So it's cheaper to rent off a landlord, than the bank. Capital Gains on properties seems to have stagnated, so there is not much benefit there either.

njwd
While accepting your point, I don't accept that rents are cheaper than mortgages, at least not in my experience. You will also note that I specifically said repayment mortgages. In some ways there is not much difference between an Interest only mortgage, where you can't repay the capital and renting. Also over the long term your arguement stalls further as you yourself state 'at the moment' but whoever is right about current rental costs v mortgage costs, a few years ago it was a certainty that mortgages were cheaper, and probably will be again.

Something that can't be disputed is that once your mortgage is repaid, that is cheaper than renting, which is my point

NSR2

Ian_W wrote:

Ah,ah ... so falling [or fallen] house prices don't actually benefit FTBers who'll only buy when prices are seen to have risen, be rising again?

If I was buying a choclate bar and the price of chocolate bars was falling, then yes it would be easier to buy, and so you would expect the number of sales to increase.

However as someone has already pointed out. "A home is for living in first, and investment second".
It is however still an investment, and it's an investment on borrowed money.
If prices are falling I wouldn't buy. The rate at which prices are falling might increase, and in the long run I could be saving a lot of money.

Then there is the problem of NE. If house prices start falling and we get into a recession, I may need to relocate. However if prices have fallen so that my 100K house if now worth 90K, but I have a 100K morgage on it. I'm going to be looking at having to find that 10K somewhere else..

Look at this thread to see more problems with NE:
http://forums.moneysavingexpert.com/showthread.html?t=156789

Why do people lose their jobs because house prices fall? Why does it trigger a recession? Thought it was t'other way around? Recession caused peeps to lose jobs, house repo'ed sold cheap, HPs fall etc...

Doozer, popcorn refills please, while I nip to the offy for a resupply, red wasn't it?

There are a large number of companies that depend on the housing market.
Obviously theres the building sector, but also banks, home improvement / DIY companies etc.

As sales decrease (note these are transaction volumes) Building companies / DIY / home improvement compaines report weaker sales. Less people buying property, less demand for spending money on new furniture / doing the place up.

Consumer confidence decreases a bit, people get worried about their own job, the feel good factor decreases, some people start to save. Sales of other compaines decrease a bit, more job losses, and the HP crash begins, this then
causes the recession loop.

So you do start to see economic problems before a crash. However you need several quarters of negative growth before it's labelled a "recession".

Also the economic problems of one part of the economy can be masked by the economic growth of another part of the economy. So it all looks nice and fine, but in reality the economy is beggining to get knackered.

There's a good graph kicking about showing when a recession takes place, and the price of housing...

njwd

The flat I live in is "worth" ~£240K (next door just sold a month ago for £250K)

£228K (95% LTV)
25 years mortgage
3 yr fixed rate @ 4.5 = £851 i/o - £1262 repay
after intro offer @ 6.5 = £1228 i/o - £1531 repay

I pay £700pcm. (significantly cheaper than an I/O mortgage)
I don't have to pay maintenance costs or service charges.