If House Prices Drop Another 40% - Who’s at risk of Negative Equity?

michaels

What impact does negative equity have on the housing market?

1) If NE prevents someone from moving it reduces housing supply by 1 property but housing demand by the same amount - ie the balance s not affected merely the volume of potential transactions
2) The majority of those in NE are likely to have purchased in the last 4 years, I would suspect that the average period to move house is longer than this - I would hope so given the fees and costs, moving more often is just !!!!ing money away hence those in NE are not those who would be wanting to move anyway.

So - does NE matter to the market?

Thrugelmir

michaels wrote: »

What impact does negative equity have on the housing market?

1) If NE prevents someone from moving it reduces housing supply by 1 property but housing demand by the same amount - ie the balance s not affected merely the volume of potential transactions
2) The majority of those in NE are likely to have purchased in the last 4 years, I would suspect that the average period to move house is longer than this - I would hope so given the fees and costs, moving more often is just !!!!ing money away hence those in NE are not those who would be wanting to move anyway.

So - does NE matter to the market?

When defaults occur. The lenders aborbs the loss in many cases. As often or not the borrower will also have unsecured debt as well. This will result in higher costs for other borrowers in the mortgage market.

IveSeenTheLight

Thrugelmir wrote: »

So holds all the mortgage debt? Do we have a large number of people with £250,000 plus mortgages?

I do not know how many people hold mortgages over £250k.

Certainly the CML states the mortgage debt to be circa 11.1 Trillion.
Given there are approx 11.1 million mortgage holders, this on average would make an average individual mortgage debt of £90,000

I guess that as the average house price is circa £155k, on average people have over 40% equity in their properties and that's not including outright home owners

In context of this thread title, a 40% drop from now would still see people have on average equity in their properties Only just though

Thrugelmir

IveSeenTheLight wrote: »

I do not know how many people hold mortgages over £250k.

Certainly the CML states the mortgage debt to be circa 11.1 Trillion.
Given there are approx 11.1 million mortgage holders, this on average would make an individual mortgage debt of £90,000

I guess that as the average house price is circa £155k, on average people have over 40% equity in their properties and that's not including outright home owners

In context of this thread title, a 40% drop from now would still see people have on average equity in their properties Only just though

The average mortgage debt will be skewed far more to people that have bought in the past 10 years. As house prices have risen 100% in that time.

My observation was a speculative thought that with prices in London and the South East there must a significant number of people with large mortgages.

The property market is so fragile that it wouldn't take much to cause another sizable fall of 10%.

Until the whole debt situation unravels which is going to take some years. We are in for interesting times. I'm sure that there will more twists and turns in the next 5 years.

IveSeenTheLight

Thrugelmir wrote: »

The average mortgage debt will be skewed far more to people that have bought in the past 10 years. As house prices have risen 100% in that time.

Pretty obvious, house prices have risen and therefore mortgage debt has rised. those that bought 10, 15, 20 or 25 years ago will have much less debt

Thrugelmir wrote: »

My observation was a speculative thought that with prices in London and the South East there must a significant number of people with large mortgages.

Again pretty obvious, where house prices are higher, it is likely that mortgages will also be higher. probably wages are also higher as well

Thrugelmir wrote: »

The property market is so fragile that it wouldn't take much to cause another sizable fall of 10%.

Of course it is possible for property to fall further and 10% does not seem much given the 20% drop in 18 months, nor previous house price corrections which have historically overshot the long term real house price trend.

I personally believe that it could overshoot again, however I also can see that conditions are such with affordability, mortgage mutipliers and people buying with joint incomes that we could be very close to the bottom and indeed are at a point where we are at the long term real house price trend.

Thrugelmir wrote: »

Until the whole debt situation unravels which is going to take some years. We are in for interesting times. I'm sure that there will more twists and turns in the next 5 years.

I agree we are in for some interesting times, hopefully not too financially detrimental for the masses i.e. unemployment.
It's amazing how fast the last 18 months have went. and certainly it will take a couple more years before full confidence can return.

I do however feel that everything is happening quicker this time and the correction could happen, bottom and start recovering in record time. Possibly down to how much more informed the average joe is through better media availability and possibly within the next 18 months.

Thrugelmir

IveSeenTheLight wrote: »

Pretty obvious, house prices have risen and therefore mortgage debt has rised. those that bought 10, 15, 20 or 25 years ago will have much less debt

Agreed. But the value of this property is higher because of debt taken on by subsequent purchasers.

The fundamental issue is that we've built our wealth against borrowed money. Money that the UK itself doesn't generate or save for that matter. There is already a shortage of wholesale funds in the market. QE cannot prop up the market indefinately. Longer term the BOE is already foreseeing an issue for UK banks ( MK at last weeks treasury committee).

The consumer debt issue will need to addressed in one form or another. Its not going to disappear. At the very least it will cap the ability to borrow and more importantly have a real cost. Which will make pyramid investing unprofitable.