Property crash soon???

njwd

Subjective as these come from HPC, nevertheless are based on facts:

What happens next?
http://www.housepricecrash.co.uk/forum/index.php?act=Attach&type=post&id=2275

Interest Rates US v UK
http://www.housepricecrash.co.uk/forum/index.php?act=Attach&type=post&id=2449

Wickedkitten

Broken_hearted wrote:

and the banks till its paid for!

aye and then it will be yours.

F_T_Buyer

I have been giving this topic alot of thought... and for me it is better if I wait.

Lots of people do say it is ridiculous, crazy to think such a thing, etc and spout such arguments as "rent is dead money", "always go up" etc etc... but these comments, of which alot are on this forum, are just inherited thinking and do not think what they really mean. They will use those arguments, like most people, to justify what they want to believe themseleves.

Currently I live with my parents, and could afford the smallest flat in a bad area. Lots of people tell me I should buy, and I shouldn't be living with my parents etc etc.. But none of my friends can afford to buy, infact I am on an above average salary far higher than any most people of similar age I know. If I can only afford a crack den, what hope do these others have?

Even the most optomistic forecasts say prices will rise by 5% this year, but 1. my wage inflation will offset most of this, 2. My investments (housing deposit) will return a higher yield than 5% and 3. I can save (from my salary) more than this amount. So in the future I cannot see how I could be in a worse situation.

Generally...

What makes me wonder is where people are getting the money to buy at prices in today's market. If you look at the stats you will see wage inflation is around 3% yet the cost of living is over 6%. So the question is how much money left over is their to buy a house with? The proportion of income, this amount is getting smaller... the figures just do not stack up.

I think it is mainly about sentiment. Many people predicted house price falls in 2005, and they were right as prices did fall in England (but went up in NI and Scotland). But the public still love property, and with an interest rate cut in August with many more expected to come, and with SIPPs sentiment was restored.

What shocks me now is how the media has still been wrongly forcasting interest rates cuts (if anything rates would probably go up), the constant 'feel good' stories about the rising value of houses over the past 5 years, keeps the eurphoria going and the "property is a good investment" stuck in most peoples minds.

Also arguments are constantly used such as "it didn't fall when they said it would crash, so it won't crash now". But is this an argument? Not really, more like a gloat.

I think overall the term "irrational exuberance" sums the market up, especially when it is cheaper to rent than buy at todays prices.

Caso wrote:

I think we are heading for a recession.

I think this sums the UK economy.

We have a fiat monetary system, which by definition is 'boom and bust'. We have had the biggest boom most of us have ever seen with debt doubling in both the public and private sector in 5 short years yet wage inflation is around 30-40%. It shocked me today when Gordon Brown said "no boom and bust" - well, we've had the boom...

If you want to see how the economy is doing, look in your own pockets. How much money have you left of each month to spend on 'discretionary' [luxury] things? Is this money a larger percentage of your take home pay more than it was a year ago? You will find it is smaller - simply because you are spending more on essentials.

Now look at the retail sector. Look at B&Q whose profits were down 64%. Do you need to spend money at B&Q? No. Do you need to spend money at Tesco's? Yes. It goes to show that their is less available money to spend.

So what happens now? B&Q start to lay people off to save money. Unemployment rises, which it has been. This leads to more unemployment and the cycle goes on.... the start of a recession.

The problem now, is we have little scope to lower interest rates because of rising inflation. A double wammy for the UK economy.

I do think this will be a while yet, and the housing market will continue to pick up until the summer. But I then expect it to stagnate, and fall in the 2nd half of the year..

Recession may then follow in 2007/2008.

meanmachine_2

Again it's very simple: People are buying at these prices because banks are giving them the money to buy at these prices.

Joe Public borrows the maximum he can get his mitts on. If the maximum is less tomorrow than it is today, prices will fall.

If that fall continues, sentiment turns, receission kicks in and the market falls further.

There's nothing I, or anyone can do about it, least of all Gordon Brown. It's all up to the banks.

Deemy

Another thing to consider is that when the recession hits, the banks will literally panic and tighten up on credit !

Its happened in the past when the credit taps were turned off ! Virtually over night !

Wickedkitten

meanmachine wrote:

Again it's very simple: People are buying at these prices because banks are giving them the money to buy at these prices.

Joe Public borrows the maximum he can get his mitts on. If the maximum is less tomorrow than it is today, prices will fall.

If that fall continues, sentiment turns, receission kicks in and the market falls further.

There's nothing I, or anyone can do about it, least of all Gordon Brown. It's all up to the banks.

That's probably because most first time buyers don't actually want what is traditionally a FTB type house and stretch themselves to the limit to get more.

£Ronnie

This subject really interests me but I was too young to be aware of what was happening in the late 80's/early 90's crash..... can anyone recommend a good website that just details what actually happened, timescales would be great too?

TIA
Ronnie

tomstickland

I've always been on the pro crash side of the argument, and I still believe that prices are too high and there is serious trouble ahead. However, I've just bought a 1 bed flat, so I'd be quite happy if prices could just stagnate or drop a little over the next few years. Then again, if prices could fall and then rise back up by the time I come to sell then that'd be quite convenient.

Anyway, I've applied my agreement with many of the points made in this thread by making myself future safe; I've borrowed 50% of what lenders are prepared to lend, I've bought somewhere that I see as a place to live for £x per month, not an investment; and I'm prepared to live there for a long time.

NSR2

£Ronnie wrote:

This subject really interests me but I was too young to be aware of what was happening in the late 80's/early 90's crash..... can anyone recommend a good website that just details what actually happened, timescales would be great too?

TIA
Ronnie

You can get the Nationwide HP data here:
http://www.nationwide.co.uk/hpi/historical.htm

Download it, then load it into excel / openoffice.

NSR2

From what I can see prices have began to stagnate.
The market is ready to crash, its just missing a trigger.

What I do find interesting is the concept people have that IRs were 15% last time, and that since they are 4.5% now, there isn't an affordability problem (ie people can afford their repayments).

However all that low interest rate have done is allow people to borrow more.
So people did. They borrowed more.
House prices went up a bit more, and people borrowed even more.
Then one day people couldn't afford to borrow anymore money.
So the lenders cheated, and introduced Interest Only morgages, allowing people to borrow HUGE amounts of money to buy a home.
This has meant HP could rise even more.

Then the BTLs came along, and borrowed REALLY HUGE amounts of money. They wouldn't need to pay off the debt entirely, they just need a couple of tennents to pay the morgage. The BTLs reckon that the value of there homes will go up over time, so in 10 / 15 years they can sell up, and make loads of money.

Spot the problem.
With ordinary buyers needing to borrow frankly silly income multiples to get REALLY REALLY HUGE morgages to own a home, then even with IO morgages ordinary buyers can't pay.

So along comes Gordon Brown. GB comes up with "shared ownership", now a few lucky buyers can buy a house if they borrow REALLY REALLY HUGE amounts of money, and only own part of the house.

Once those lucky people are all used up, then who will buy property?
Ordinary buyers can't afford to.

BTL's won't want to (HPs have stagnated, so they are not going to be going up anymore for the next 10 / 15 years, it will take that sort of time period for the market to crash, and return to where it is right now).

If there is a minor fall then things start to get interesting. ANY BTLs who are looking to sell up in the next 10 / 15 yrs will need to get out now.

Ordinary buyers simply won't buy. Yes they may want a house, but why buy when prices are falling?

Then you have to add in potential other triggers:
http://news.bbc.co.uk/1/hi/business/4715446.stm

Price of oils rising, so parts are more expensive:
http://news.bbc.co.uk/1/hi/business/4692256.stm

Less people have money to buy non-essentials like computer games:
http://news.bbc.co.uk/1/hi/business/4676716.stm

Of course a down turn in the economy means people can't afford to keep up on their repayments:
http://news.bbc.co.uk/1/hi/business/4676636.stm

Well that's my take on this whole silly mess