So why isn't this possible?

andykn

Graham_Devon wrote: »

I bet they didn't.

I bet nearly every single person not wetting themselves, but prediciting above 35% falls, is talking about real prices, hence always using graphs such as I did.

I can see why people would use nominal house prices, it has it's place. However, I have always used graphs such as the above for my predicitions, so I'm talking real house prices, and I would guess the majority are also using real house prices too.

It's the old adage of bulls using one measure, bears using another, which goes on a lot, but just causes a lot of confussion and a lot of arguments!!

Just to be clear, this whole thread is about REAL house prices, NOT nominal. Hence the graphs used.

So looking back at the 90's, house prices in real terms which effects most of the nation, either buying, moving up, or those with neg equity, house fell around 40%.

Why is it so impossible this will happen this time according to some? Maybe this has cleard things up, and it's impossible on nominal house prices?

Do you have any info on what the "average" Japanese house costs relative to wages in Japan at the moment?

Relative to last time, I think it's much easier for prices to fall 40% in "real" terms when it's only around 15% in "nominal" terms. Perhaps it's a psychlogical thing, most people would have bought before peak and are morfe prepared to sell if they aren't making a nominal loss. And it must help if their negative equity is inflated away.

However, although it looks like we are in deflation if you look at Year on year figures, they're historical. Both indexes, CPI and RPI have been rising since Feb at a rate that would be about 3% annualised.

The levelling out we have seen recently shows that things are different this time, both compared with Japan and our own market last time around.

Really2

Graham_Devon wrote: »

Its not that involved.

It's a simple case of people seeing the average house price at 200k, and predicting 30,40,50% falls when the bottom hits.

So houses would be 110k / 130k.

Its that simple, and thats based on real house prices.

No that's nominal,

They could be static and have 30, 40,50% wage inflation that is real prices.

PS the rest of your post was not there when I wrote this.

kennyboy66_2

Thrugelmir wrote: »

I'll reply in more detail tomorrow.

Here's some food for thought. Lending by the UK banks in the first quarter of 2009.

Business £3.7 billion
Mortgages £3.2 billion
Consumer Credit £0.3 billion

Taken from BOE figures compiled from returns made by the major Uk banks - so they cover 65% of business lending and 70& of mortgage lending.

Mortgages make up a far larger share of bank debt than you imagine. Particularly when you factor in securitisation that the crippled banks did.

and 2008

Business Lending £48 billion
Mortgages. £41.6 billion

The initial numbers you quote would not be total lending, but presumably the increase in lending.
I would not under-estimate the amount of mortage lending in the UK (roughly £1225 billion). However the write offs and provisions so far have been much more in the commercial lending book (including commercial property lending).

The main reasons are;

1) Commercial property has fallen much more the residential property already.
2) Businesses run out of cash quicker than home-owners
3) Leding £100k each to ten thousand customers is inherently less risky than lending £10million to each to 100 customers.

I'd be amazed if total UK residential property write offs exceeded £60bn over the next few years.
Equally I would be amazed if commercial write offs were less than £200bn.

Graham_Devon

Really2 wrote: »

No that's nominal,

They could be static and have 30, 40,50% wage inflation that is real prices.

Am I getting myself confused again?

How can Dan say based on nominal figures houses only crashed 20% in the 90's then.

Whatever it is, nominal, real etc, I'm not counting in inflation / wages, or anything like that. I am very simply looking at the peak figure and where I think the bottom figure will be, and then looking at the percentage difference.

Thrugelmir

chucky wrote: »

you can if you simply look at yield - but that is way too simplistic.
my view is that you can't really as they're totally different asset classes with different fundamentals.

if you did try to compare it would be a very rough calculation and you would have to be able to compare X amount of cash when you started and when the investment ends the Y amount of cash.

Agreed. The true measurement is total return at the point you liquidate the investment. How much cash do you have in your pocket ?

BTL is actually a business. Net profit/loss from letting and capital gain/loss on disposal.

Though as a lot of more recently people were leveraging up from a small capital base to own a couple of millions pounds worth of property. This then becomes gambling. As has happened now people find themselves with thousands of pounds of potential debt. The only way they could have mitigated this risk would be by buying a property index option.

Whereas people invest in shares. The share price not only reflects dividend yield but the value of the Company and its future potential worth. The average investor does not borrow to invest.

The risk for the BTL investor is that all his net worth could be wiped out. Whereas the share investor at worst just loses his stake money.

Really2

Graham_Devon wrote: »

Am I getting myself confused again?

How can Dan say based on nominal figures houses only crashed 20% in the 90's then.

Whatever it is, nominal, real etc, I'm not counting in inflation / wages, or anything like that. I am very simply looking at the peak figure and where I think the bottom figure will be, and then looking at the percentage difference.

OK nominal is actual sale/buy price.

So from £100K to £50K is a 50% nominal fall.

That is why the "real house prices" are so out they are based on a number of things, wage inflation, value compared today etc.

If you are not counting for inflation wages just £x to £x you are talking nominal falls.

If you are looking to buy in this crash you only look at nominal figures as they are the "real time" value. Real value is really a price worked out after the event so it would be very hard to judge a "real price" bottom, infact I say impossible.

mbga9pgf

Really, I am not. I am looking at falls in real terms. At the end of the day, the proportion of your payslip you hand over as mortgage is all that really matters; that is a long term calc for me, assuming the average long-term interest rates which will mean I will be safe from hikes. Forget Bank calculations, I dont want to be strapped down in usary forever unable to make overpayments if rates go through the roof. For me, a mortgage is affordable if I can afford to buy a house on a 15 year term on the mortgage at average long term rates (around 8%).

Really2

mbga9pgf wrote: »

Really, I am not. I am looking at falls in real terms. At the end of the day, the proportion of your payslip you hand over as mortgage is all that really matters; that is a long term calc for me, assuming the average long-term interest rates which will mean I will be safe from hikes. Forget Bank calculations, I dont want to be strapped down in usary forever unable to make overpayments if rates go through the roof. For me, a mortgage is affordable if I can afford to buy a house on a 15 year term on the mortgage at average long term rates (around 8%).

So what will your house be worth in real terms in 15 years, Also what will be the price you paid in real terms looking back to the date you purchased it.

Sorry if you think you know that you should take up palm reading.

Really2

Graham_Devon wrote: »

Am I getting myself confused again?

How can Dan say based on nominal figures houses only crashed 20% in the 90's then.
.

So to add graham

The prices only fell 20% from the top average purchase price to the cheapest average purchase price (nominal)

looking back on inflation etc as made the fall look more in "real terms"

But in cold hard cash the fall was 20% (cash unadjusted is nominal)

Graham_Devon

Really2 wrote: »

So to add graham

The prices only fell 20% from the top average purchase price to the cheapest average purchase price (nominal)

looking back on inflation etc as made the fall look more in "real terms"

But in cold hard cash the fall was 20% (cash unadjusted is nominal)

I will admit. I don't understand. In every scenario, you are saying "thats nominal".