House prices cannot "recover", simple common sense!

chucky

Yakubu22 wrote: »

Yes point taken. But even Houses in my area that cost £100-£110k in 2000-02 have since sold for £190+ this year. Are we suggesting the persons that bought in 2009 is on a salary 40-50% greater than the buyer 8 years ago. I doubt it. I think they probably just borrowed more.

it indicates to borrowing more but it could have been savings, inheritances, equity from previously sold property, both partners working even your areas salary may have actually increased i don't know.

the point is that just looking at salaries vs house prices is a bit one dimensional. we need to compare it to mortgage rates to see how much it actually does cost in comparison to 13 years ago even put inflation in there.

it's very easy to generalise on here and make assumptions.

Welshwoofs

Interesting thread...

I'm not going to generalise and I don't think you can about the housing market as there'll always be locations which defy the trend.

What I am experiencing myself is that in the location I have just bought in, properties are flying in a week, often at full asking price and on occasions over full asking (a friend is an EA there and has seen gazumping activity). In the area I'm moving from, prices are still falling and properties aren't moving.

We hear that borrowing is hard, yet houses are selling in some areas so I've been pondering that one and here's what I think:

1. More property being marketed on a 'rent to buy'/shared ownership basis aimed at FTB
2. FTBs who have been saving for deposits during the boom time, suddenly finding properties falling within their range and taking the plunge believing we're at the bottom
3. People with savings investing in property instead of savings products (I know a number of people who've done this)
4. People cashing in on some equity to fund deposits for their children now prices have come down

As for affordability. My dear old Mum bought her house for £32,000 in 1989 and sold it in early 2008 for £510,000. You'd need a good salary to service a mortgage on that and in fact it was bought by a young couple with children who weren't particularly high flyers, however their own parents were selling up to downsize and put in a huge whack as a deposit to help them.

The future? Well in the long-long term there's bound to be housing shortages so I can't see property ever falling to rock bottom levels simply on the basis of supply. I also think that shared ownership schemes will become more widespread and also families pooling money to buy a property to house an extended family.

The fact is that renting is not an attractive proposition in this country. Having rented myself for 20 years, the standard MO is that you tend to move every year (2 years if you're lucky) and you live under extremely restrictive terms in regards to decorating, pets, smoking, kids and even running a business from home. If our renting terms were more like Germany or even the US people wouldn't consider buying as attractive as they currently do.

So with that in mind, I don't think we'll see a situation where house prices are down 40-50% from peak across the board.

Max_Headroom_3

chucky wrote: »

it indicates to borrowing more but it could have been savings, inheritances, equity from previously sold property, both partners working even your areas salary may have actually increased i don't know.

.

Did non of those things exist in 2000/2001 then?

Surely if they're the reason for inflated house prices now, they'd have been reason for inflated prices then too?

Thrugelmir

For anybody that wants easy to read graphical information on house prices and mortgages. :beer:

The Mortgage Market: Issues for Debate
Adair Turner Chairman FSA Mortgage Conference 12 May 2009

Then at least everyones looking at the same data.

http://www.fsa.gov.uk/pubs/speeches/at_12may09.pdf

Edit

Take a look at page 12 if nothing else. Statistics paint a totally picture to the one I imagined.

chucky

Max_Headroom wrote: »

Did non of those things exist in 2000/2001 then?

Surely if they're the reason for inflated house prices now, they'd have been reason for inflated prices then too?

i never said which was the reason, because nobody really knows unless you generalise.

there are a combination of reasons why there is HPI. as we got close to 2007 it was obviously more than one of these factors for each purchase. if there hadn't of been there wouldn't have been the volume of transactions that there were.

Thrugelmir

chucky wrote: »

i never said which was the reason, because nobody really knows unless you generalise.

there are a combination of reasons why there is HPI. as we got close to 2007 it was obviously more than one of these factors for each purchase. if there hadn't of been there wouldn't have been the volume of transactions that there were.

Lending multiples are the answer. Risen upwards over many years. See the FSA report.

chucky

Thrugelmir wrote: »

For anybody that wants easy to read graphical information on house prices and mortgages. :beer:



Then at least everyones looking at the same data.

http://www.fsa.gov.uk/pubs/speeches/at_12may09.pdf

Edit

Take a look at page 12 if nothing else. Statistics paint a totally picture to the one I imagined.

Page 9 is good too tells you the number of mortgages greater than 90% LTV - it's very low and more than 50% less than 1998

I wouldn't be surprised that those people on Page 12 would have been made up of the type of borrower on Page 4.

dopester

Welshwoofs wrote: »

As for affordability. My dear old Mum bought her house for £32,000 in 1989 and sold it in early 2008 for £510,000.

Are you sure about those figures? Maybe I suppose, on special location or improvements made along the way. Just I know a few people who bought in 1982/83/84, for around £35K-ish, and their homes at peak maybe worth £360K.

Anyway, what did your Mum do with the money? Did she buy again to downsize or is she perhaps STR (renting)?

LizEstelle

There is a misconception which runs throughout this thread and others similar that a recovery in the housing market generally equates to and is the same phenomenon as a recovery in house prices.

It is easily possible to have an upward - or downward - swing in prices on any commodity where the demand/supply balance is skewed dramatically, without this necessarily implying a movement in the market as a whole.

All it takes to produce a rise in prices where there is scant supply of product is for enough purchasers bearing cash to come forward and compete for what is available.

This does not mean that any suppliers, seeing what seems to be an 'upturn' and piling into the market, will necessarily get the same price. All that will happen is that they will alter that 'balance' against their own interest.

Max_Headroom_3

Thrugelmir wrote: »

Lending multiples are the answer. Risen upwards over many years. See the FSA report.

One answer. Basically a whole raft of "clever" ways to lend Joe Public more and more, irrespective of whether he could afford it.

Self Certification, higher multiples, interest only, etc etc.

The only thing they never managed to work out was a clever way for him to pay it back.

Nett result: In many cases he couldn't, hence the mess we're in now, and hence why house prices cannot reach the previous dizzy heights (unless wages go up a lot, which doesn't feel too likely looking at the current economic situation).

All of which is pretty much where I came in with my first post. Which is that from a common sense perspective it's impossible for house prices to "bounce back" to where they were, because it was never sustainable for the general public to be able to manage the kind of debt that supported these sorts of values.