Price Crash??? Why would it happen

NervousYetFeisty

Another factor to at least surpress prices - rising CT and energy bills. Plenty of people are stretched to the max right now - having remortgaged, maxed out their cards etc.

Look at this:

14 million adults (35%) are relying on their overdrafts to get by each month; 3.5m are permanently overdrawn, while two million workers start the month in their overdraft, even after they have been paid...
...There were 20,461 individual insolvencies in England and Wales in the fourth quarter of 2005 on a seasonally adjusted basis. This was an increase of 15.0% on the previous quarter and an increase of 57.1% on the same period a year ago.

http://www.creditaction.org.uk/debtstats.htm
Squeezed much tighter and they'll *have* to sell. But who's going to buy...?

Sand_Man_2

I think that there will not be an price crash like the one in the past as the same economic factors do not exist. Yes, price may fall, but not 'crash'. therefore, in the future, i think prices will stablise with gains/ losses being relatively marginal

I can't see a dramatic price crash happening which FTB are hoping for. At best, prices may fall by a few percentage if not stay the same over the next few years.

they government would not purposely raise interest to a dramtic level as thet are aware of the debt ratio and it is not in there interest to fuel a price crash but to stablise the housing market as much as possiblem.

the Governement is putting emphasis on building affordable housing and therefore this may be a avene for FTB.

i have just brought a 3 bedroom house in a tax exempt area as its is part of a future housing development area where thet are planning to build 3,500 homes of which 10% of them are set aside as 'affordable homes'
:cool:

moneysavingobsessive

Just to note that it's the BoE not govt who set interest rates. Plus the rate is an inflation target, so debt ratios and house prices are only important in terms of how this will affect CPI...

I rent a house, and personally I fixed the mortgage rate whilst money is cheap, so an immediate crash would only affect me in 2 years when the rate expires or if I struggled to find tenants because they were all buying cheap housing!

Good landlords (and banks) allow haircuts etc with buy-to-let, so it may not be as much of a problem as people think. Plus interest rates have more effect if people are in debt, so large rises are less likely than in the past.

F_T_Buyer

PoorDave wrote:

Why would interest rates take a hike though?

That's a bigger question.

What are your other "dozens of reasons"?

Interest rates should be going up because inflation is rising.

The Bank of England has simply failed on Financial Stability. They have not targetted money growth (12.6%) and do not care about the stability of our currency. They only 'care' about sterling when it shows up in the inflation figures - they have told me this!

I'm sure you have noticed living costs have increased (Oil/Gas/Services etc etc), and this will continue to accelarate with the pounds decline. Check out this: Sterling vs Dollar and Sterling vs Euro which has reached a 52week LOW.

The only way to stop this is to raise interest rates, which they seem very reluctant to do.

You think living costs are high? You aint seen nothing yet!

If the housing market does not crash (which it may not) you will find real cost-of-living inflation rising rapidily! With this you will find unemployment rocket due to the lack of discretionary money consumers have. Companies will shed staff, which has started with over 110,000 people loosing their jobs over the last three months.

Ultimately the BoE have to make a decision. Keep rates low or lower them, and it will hurt everyone financially over the long term. Increase rates (only a little now or alot if it is delayed) and hurt only the over indebted.

The BoE hinted of what it will do back in August when it wrongly reduced rates; but only half of the members voted for this reduction - so I haven't lost all faith just yet.

I do laugh how the media talks of lower rates. It simply cannot happen. If it does, watch a run on the pound! And then the real pain for consumers begins!

Cheap money? Coming to a commodity near you!

Oh, and before you ask... I have moved most of my funds out of sterling as I anticipated it's decline 12months ago. So I will benefit from lower rates. However, the UK is my place of birth and I would not like to see the economy go tits up! Hence I would prefer higher rates!

BobProperty

Can I just back FTB on one point here. From the Torygraph at the weekend:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/04/01/cmpen01.xml
Pensioners are effectively suffering 12% inflation as fuel prices and council tax goes up. Other sectors are not as badly affected, but it makes a mockery of government figures and targets.

meanmachine_2

Sand_Man wrote:

i have just brought a 3 bedroom house

Ah that explains it.

The recently-bought arguing with the property sceptics.

Same old.

And yes, it's an absolute scandal that those on fixed incomes are suffering true inflation rates of 12%+.

When are the dumb public going to wake up to the fact that there's a huge inflation fiddle going on under their noses?

moneysavingobsessive

BobProperty wrote:

Can I just back FTB on one point here. From the Torygraph at the weekend:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/04/01/cmpen01.xml
Pensioners are effectively suffering 12% inflation as fuel prices and council tax goes up. Other sectors are not as badly affected, but it makes a mockery of government figures and targets.

Of course, interest rates target CPI though, which cannot represent everyone. It does mean that some people are enjoying <2% inflation at the moment - low grocery prices, technology price drops etc. Just to take up an earlier post, BoE does not target money supply, and this (as well as the exchange rate) is not included in the financial stability remit. FS is there for overseeing, prevention in terms of ensuring efficient and sensible infrastructure and to intervene in a financial crisis if necessary. Obviously monetary policy is linked to this, but the remit is to focus upon inflation.

BobProperty

moneysavingobsessive wrote:

.... It does mean that some people are enjoying <2% inflation at the moment - low grocery prices, technology price drops etc....

Problem is they aren't the ones with mortgages.

moneysavingobsessive

BobProperty wrote:

Problem is they aren't the ones with mortgages.

Possibly, although not necessarily true. In fact, if you only examine mortgage payments, rates have fallen in recent history (Aug 05) so people on tracker mortgages etc have enjoyed disinflation. On the other hand, utlity prices, council tax etc have risen quite sharply, but you pay these whether you are renting or paying a mortgage and whereas mortgage rates may follow the repo rate more or less (for variables anyway), landlords don't tend to do the same with rent, or perhaps only tend to raise it!!!

On balance therefore, in a falling interest rate environment, those with mortgages are the gainers in terms of personal inflation because lower mortgage payments go some small way towards reducing positive inflation elsewhere in their consumption.

ivegotabig1

Sand_Man wrote:

If the Housing market crashes, all these FTB would flood the market.

But would'nt this just drive up the price again

So why would there be a crash in the first place as it comes down to suppy and demand

there are two camps
A. gloom & doom...crash on its way !!
B. property is going to go on rising making me even more cash !!

BOTH. are not likely to happen, IMO, & lets face it is all about opinions, house prices at there currnet inflated rates are NOT SUSTAINABLE , we can argue about this till we are blue in the face but, but getting to brass tacks, there is only a certain amount of money in the economy, if people are getting richer via property prices going up, that money is coming from elsewhere, in the main ..savers & FTB, or people trading up , this will affect the economy in years to come since they will have less to spend, this is basic economics....tell me a single investment in History that has risen so dramatically & then just levelled off !!!! ??? none......prices will fall, but over a protracted period of time, the only question will be when this fall starts...end of this year IMO.