Why house prices are certain to fall

Generali

chucknorris wrote: »

Why on earth do people keep saying this? Are they blind? Is it that they see just what they want to see?

House prices for the last 50 years or so have risen then eventually got above affordability levels and crashed back, recovered then increased again. This is normality right now, we are just near the bottom of the crash part of the cycle, next we will be in the stagnation phase (if not in it already) then we will see gentle (sustainable increases) followed by more substantial increases. Eventually probably in about 15-20 years someone else (or maybe you again) will be saying on this website thank god prices are crashing and we will go back to normality, but this is normality.

This has been the case since the mid-70s but I've not seen any data since before then. Do you have any figures as I'd be interested to see?

chucknorris

Generali wrote: »

This has been the case since the mid-70s but I've not seen any data since before then. Do you have any figures as I'd be interested to see?

TBH I didn't look, but I know (and very vaguely remember) that there was a crash in the 70's and can remember (as a child) when my parents were trading up in the 60's and that prices were rising (but to what extent I cannot recall). I remember when I was about 7 asking my dad how come Elliot Hedley owns so many houses (it was from the estate agents board but I thought it was the name of a man selling lots of houses).

What I would be interested to know is have these cycles been going for decades before home ownership took off, I mean did property price cycles behave in the same way when most people rented and landords held many properties.

orangefender

chucknorris wrote: »

Why on earth do people keep saying this? Are they blind? Is it that they see just what they want to see?

House prices for the last 50 years or so have risen then eventually got above affordability levels and crashed back, recovered then increased again. This is normality right now, we are just near the bottom of the crash part of the cycle, next we will be in the stagnation phase (if not in it already) then we will see gentle (sustainable increases) followed by more substantial increases. Eventually probably in about 15-20 years someone else (or maybe you again) will be saying on this website thank god prices are crashing and we will go back to normality, but this is normality.

You think house prices have returned to affordable? HA! We're not as near to the bottom as you seem to think. The trend will be doward for a couple of years yet I think.

IveSeenTheLight

Generali wrote: »

This has been the case since the mid-70s but I've not seen any data since before then. Do you have any figures as I'd be interested to see?

Any data you get pre-70's would have to be borne in mind that the levels of owner occupancy was much lower then.

It's possible that before then the culture / ability / desire to buy was much less then thus meaning less demand.

I think we've covered that an excess of demand leads to price rises and a lack of demand leads to falls

IveSeenTheLight

orangefender wrote: »

You think house prices have returned to affordable? HA! We're not as near to the bottom as you seem to think. The trend will be doward for a couple of years yet I think.

Some areas may still be affordable and it should be noted that not everyone can afford property.

On average though, the UK is back to the 30 year long term trend and therefore like it or not, we are back to normality

You could look at the last correction and say that it overshot the trend line, thus property would become cheaper than it should, there are a lot of influincing factors that is possible result in this not happening.

Many people on here have said and it's been backed up by "expert economists" that they expect falls over the winter by 8% (back to Nationwides Feb 09 price) followed by stagnation for a year or two then a return to rises.

It's possible these views are more likely and realistic than yours albeit local areas will be affected differently

chucknorris

orangefender wrote: »

You think house prices have returned to affordable? HA! We're not as near to the bottom as you seem to think. The trend will be doward for a couple of years yet I think.

Well firstly I said 'near' not 'at' the bottom, I expect house prices to bottom out this winter or early next year.

But what are you basing your measure of affordability on? It's not whether you can afford your ideal house or flat. It's down to the historical ratio between incomes and property prices. I am not saying they are the most affordable, just that very soon or even now that they will be classed as afforable using historical data.

As I have recently decided not to buy any more properties when the actual bottom occurs no longer really concerns me, as I know sooner or later the bottom will be hit and then prices will rise. In fact what would be ideal for me would be a good property market in about 9-14 years time, ie when I am 60-65 years old and will sell up.

orangefender

IveSeenTheLight wrote: »

Some areas may still be affordable and it should be noted that not everyone can afford property.

On average though, the UK is back to the 30 year long term trend and therefore like it or not, we are back to normality

You could look at the last correction and say that it overshot the trend line, thus property would become cheaper than it should, there are a lot of influincing factors that is possible result in this not happening.

Many people on here have said and it's been backed up by "expert economists" that they expect falls over the winter by 8% (back to Nationwides Feb 09 price) followed by stagnation for a year or two then a return to rises.

It's possible these views are more likely and realistic than yours albeit local areas will be affected differently

I'm with the majority; 8% further to fall means we're not near the bottom. We're at least another 6 months away from that.

chucknorris

orangefender wrote: »

I'm with the majority; 8% further to fall means we're not near the bottom. We're at least another 6 months away from that.

6 months not near? Have you got terminal cancer and expected to die in 8 months or something? (I sincerely hope that you haven't of course).

I also think they could drop only 8% and that I think that is near the bottom (it wasn't so long ago some people on here were saying 50% falls, and some were even saying 70%, yes laughable I grant you, but they were saying it)

chucky

orangefender wrote: »

You think house prices have returned to affordable? HA! We're not as near to the bottom as you seem to think. The trend will be doward for a couple of years yet I think.

70% of the property in the UK is owner occupied. property must be affordable to the majority of the UK for 70% to already own.

orangefender

I also think they could drop only 8% and that I think is near the bottom (it wasn't so long people on here were saying 50% falls, and some were even saying 70% (yes laughable I grant you, but they were saying it)[/QUOTE]

Well six months is a long time for all of those who have lost their jobs and are struggling to keep up with all their outgoings (albeit with the tax payer bailing them out on their mortgage). There must come a point when they have no option to sell.

As I see it the case for a downward trend are:

1. banks are clearly nervous (hence low LTV mortgages and more robust lending criteria) - I expect this is because their "expert economists" don't need to come up with a new the headline for the press every week). This means there are far less mortgages suitable to FTBs available, who are the life blood of the market i.e. fewer buyers.
2. next year we will see a historic level of redundancies across the public sector (doctors, nurses and policemen perhaps excepted though a very small proportion of workers). Also, although we are hopefully over the worest of the private sector reducancies, recruitment will remain scarce for the young leaving education each year. This needs to be considered in light of the already high and increasing unemployment (which particularly affects the young/FTBs) i.e. fewer buyers
3. interest rates are at an all time low. Surely we can only expect a steady but sure rise over the next 24 months which will hurt all those stuck on variable mortgages and unable to remortgage i.e. fewer buyers for properties further up the chain and possible increase in supply if large numbers are forced to sell
4. as public debt soars and economy gives signs of recovery, fiscal stimulus policies will not be maintained. Considering the level of stimulus we've seen it is not surprising to me that there has been a temporary improvement in the stock market and mortgage lending. The question is where will the money come from when the government is forced to step back.
5. it is difficult to envisage a return to the high LTV buy-to-let lending prevalent over the last perhaps 5 - 10 years for a number of reasons i.e. fewer buyers.
6. confidence will not return for sometime such that we will all be wanting to dash out and buy second homes in some sleepy village in the sticks i.e. so less of us terrorising the locals with our Land Rover Sports full to capacity with the nice things we picked up from Waitrose on the way up from the South East.

I really struggle to see any reason for house prices to increase other than ramping by the government (via the BBC), the property industry and those on the ladder who have over stretched themselves. That said, I don't think we'll see prices free fall to such an extent that we'll be picking up two bed terraces for small change. What I do think is that the bottom run of the ladder must come down so that is within reach of those in full time employment under the age of 30. With such a high proportion of that part of the population out of work and with a return to sensible lending criteria, I don't think current prices are sustainable. In the absence of a return to the banks throwing money at people with a complete disregard for the ability of people to repay, there is little rationale for prices to rise above inflation for some time.

It occurs to me I haven't mentioned that banks are apparently being coerced into stock-piling properties, and that the ridiculous scheme of tax payers paying the mortgages of those out of work must come to an end. When this stops the current supply shortage will ease dramatically.