FTB advice - House Price Crash or Stagnation???

lightspeed

Hi All

I have recently found myself in a position of uncertainty, do i buy or not?

For me, a FTB living with parents, i found myself in no rush to purchase any old house and definitely not to rent (just never wanted to), but had a nagging question that needed to be answered that if the right house came along at the right price what would i do???

Why the uncertainty?

Firstly, i read this forum regulary and have come across many people still willing to purchase property at current prices with only a few people still clinging on to the thought that prices will fall. In contrast, HOUSEPRICECRASH.CO.UK, has many posters pretty certain that there will be a crash and thats its coming soon.

The question is, who do i believe???

As a FTB i cant help but feel compelled to clarify firstly the liklihood of a HPC actually happening, secondly whether houses prices are too high and will inevitably fall but not too significantly for the average joe without a 100% (-10 -20%) or finally, will there be a considerable increase in IR's up and above the 8/9% point that would make affordability very different than at current rates???

Having read lots of posts on this topic i find it quite disturbing how those who really want a price crash will take great pleasure in the financial suffering of those affected if it does occur. Are these people just pi***d off that they missed the boat and they are beginning to realise (some posts are 3+ years old) that a large scale crash (like in the 80's,i think?) just isnt going to happen or are they actually talking sense?

Are house prices likely to fall significantly, or are we at a point where small IR rises (which are likely) are just going to cause the market to stagnate in good areas and fall slighly in others?

To me, even though i am a FTB, i have come to the conclusion that i would prefer to stretch that little bit further with the help of a good deposit to purchase a home i want to live in for the forseeable future rather than buy low only to find myself in the same predicament in a couple years time. If houses prices fall by 10 - 20%, my deposit should act as a buffer zone. I can afford the monthly payments at present and have looked at the payments at double the current IR (i wouldnt be rolling in it but i would be ok).

Am i being naive or is it really too much of a risk at present?

Yes, prices go down as well as up, however, i have been waiting for over 3 years and have finally found the perfect home. Do i go through with it or continue to wait and run the risk of being priced out of the market for this type of property???

Thanks

gazza975526570

Well id certainly go for it.

Interest rates are unlikely in the short term to rise much more than 0.25-0.75%, in fact i cant see them rising over the next 18 months, perhaps one .25% increase later this year.

Prices certainly wont shoot up over the coming years so id certainly go with the levelling off school of thought with perhaps small price reductions in some areas

As you say just how long do you wait?

And yes those that cant wait for the price crash to laugh at those who have stretched themselves are just aggrieved they didnt buy sooner etc.

Go for it.

Snow_Dog

If someone could predict the housing market or the stock market with 100% accuracy they wouldn't be posting on web forums, more likely living on their own island in the Carribean.

House prices have stagnated in a lot of England since summer 2004, what has been keeping the national figures up is price rises in areas of Scotland, Irelend and the like that had a lot of catching up to do. Don't just trust me on this read the HBOS reports etc for yourself they are all available but read the details not the headlines.

House prices when the economy is going steady or doing well will always be holding up, its only when economic shocks hit that house prices take a nosedive, eg 1989-1990 economic and social factors after a number of boom years.

I personally believe prices have reached a peak at which due to affordability they cannot for a few years take off again. All the talk of lax lending criteria, 30, 40 and 50 year mortgages being a new phenomonen, no its not, there were headlines screaming 50 year mortgages in 1989.

As for your situation, personally I would stay where you are for a couple of more years, but then i'm not much of a gambler. However to balance that you have said you could afford a property that you would call your "perfect home" and if IRs were to double you could still meet the payments, so what is the issue, quality of life decision would be to move on in there.

Best of luck whatever you choose to do.

As for HPC.co.uk there are a number of posters on there that have some very reasoned arguments and its always worth nosing round the site for information, just beware of one or two posters that seem to be a little too obsessive for comfort (you know the sort, they give the impression they would bite your ear off for no readily apparent reason).

meanmachine_2

The OP should do their own research and make up their own mind.

The OP will believe whatever argument suits their own situation.

If the OP wants to buy at today's prices go for it. If the OP thinks today's prices are too high for their own pocket, then don't go for it.

It really isn't rocket science.

It's not just nutters or doom mongers on one website that have been banging on about house prices being too high - virtually every economist in the world makes the same case.

But economics is more witchcraft than exact science, so again read both sides of the argument and make your own mind up.

F_T_Buyer

If you can afford it, and want to go for it - go and buy. At least you have looked into the possibility of higher rates and a lower capital value - which is far more than most will do.

As for house values I think the very best scenario is stagnation like in the year from summer 04 to summer 05. But now I don't think stagnation is a possibility... there was far too much greed, which became apparant in the media since the August rate cut.

I also think they will be more clues in the coming months, such as mortgage approvals which fell in April. I think this will continue to fall as sentiment has changed since the BoE meeting in early May.

Oh, and on another point where you "find it quite disturbing how those who really want a price crash will take great pleasure in the financial suffering of those affected" - well have you thought about those who objected to the Debt boom?? What about all those encouraging more Debt via paying high house prices??

I personally want affordable housing (that is not a part share or a house that is smaller than a prison cell as our government says). I won't take satisfaction in a crash - I can't cause it or prevent it. But what I can do is post on forums like this giving the other side to the story that I believe...


The economic arguments for a crash are the same as always, it's just the facts support a recession more than ever. Look at debt, and how the average person is spending around 110% of their income. This cannot and will not go on forever - what do you think will happen to our consumer driven economy when that happens?

If the debt growth were to continue at current trends, the whole income generated by this country would go purely on debt repayments in 5 to 7 years. What would we buy our food with? Do you think other countries would finance this? I'm sure they would get cold feet well before that happens - my guess is 2 years maximum.

This country has a terrible problem with debt. How can so many people be struggling when rates are so low? Unfortunately this is Gordon Brown's miracle economy - he hasn't eliminated boom & bust, he's just enlarged the boom, which will mean a bigger bust... anyone who thinks otherwise has their head in the sand.

gazza975526570

are so many people struggling? if they are i have got to admit i dont really know of any, well no more than usual. The % of income spent on repayments isnt excessively high.

im sure at some stage prices will drop however in the long term there is no doubt that prices will continue to rise therefore if your FTB surely you are in the housing market for the long term therefore if this fits the bill then buy now.

We have heard for an age now that prices will crash, and alas this still hasnt happened. As a FTB how long can you put off thinking they will drop. The longer you wait the further that first purchase appears.

as meanmachine says you will believ whichever argument you prefer to believe.

good luck.

F_T_Buyer

I'd probably agree with Meanmachine in that you will believe whichever argument suits your needs.

You don't know house prices do rise in the long term, in Japan prices have been falling for over 15 years, down around 75%. But if you assume we do avoid deflation the price of housing will go up along with the price of bread, mars bars and plasters (along with everything else you need to live on). You need to look at can you afford to service your debt with having to spend on these increased costs! Wage inflation has always lagged real [living] inflation.

Oh, and look at this for the debt problems:

http://business.guardian.co.uk/story/0,,1780123,00.html
http://news.bbc.co.uk/1/hi/business/5009510.stm
http://observer.guardian.co.uk/cash/story/0,,1774126,00.html
http://news.bbc.co.uk/1/hi/business/5004654.stm

gazza975526570

thanks for the links - i dont doubt for a minute that there arent people having problems with debt however the view is that these are not at an excessively high level.

my only concern for the origina poster is that he waits another 18 months - finds prices have rises slightly further therefore reducing the chances of actually being able to afford a house in the first place.

F_T_Buyer

Ok, I wouldn't say those having a problem are 'excessive' although 13% considering bankruptcy is very high. But when you take into account interest rates at 4.5% there is clearly a problem. If rates were 5%, which look a certainty, what will those figures show? The historical average for interest rates are around 7%.

Would house prices be more out of reach in a years time for Lightspeed? Well, Lightspeed currently has £1.2k disposible income today looking to purchase a house at £154k. If Lightspeed were to even add £600 to his housing deposit, prices would have to rise more than 4.5% (the maximum expected) for it to be relatively the same. Any more savings and s/he should be further ahead!

Lightspeed, sorry to use your finances as an example (mentioned in another post) but I want to highlight FTBs in your position won't be further priced out by waiting. There's no need for FTBs to rush into buying.

Gorgeous_George

If I was the OP I'd buy and give my parents a break. Let them enjoy their own space.

House prices go up and down. There is a big risk that they could crash by 50% or more in some areas. But they might not. Life's too short to worry about things you cannot control.

As for the debt problem, the saddest thing is kids who run up huge debt on credit cards, loans etc., buying cars, mobile phones and all sorts of electronic gizmos. I'd rather be in a manageable debt that I can live in.



GG

lightspeed

Not a problem F_T_Buyer. I understand your logic. I am edging towards a levelling of prices rather than any further increase/decrease.

Like meanmachine pointed out earlier, i am tending to use my own judgement and am looking at going for it. With it being such a "massive" decision for us both, maybe its just a bout of cold feet and general nervousness of the whole situation. As excited as i am, i have always been a saver and someone that is very cautious when it comes to money to then find myself in debt (mortgage) for the first time is a scary prospect, however, i think that my plan will be to try and knock the mortgage down as quickly as possible to an amount which is even more affordable so that any possible changes in the economy will have less of an effect.

I am quietly confident that by going through with the purchase we are making a step in the right direction. If the worst happens and IR's move above 9% and it becomes unaffordable will will have to go back to living with our parents. If there is a crash, we will be paying for mortgage more than our property is worth and we will have to deal with there and then. If i be honest, the house is in a very sought after location in our local area, so much so that we could probably carry out the work that needs doing over the next 6 - 12 and sell for a profit (providing none of the above occurs drastically). Houses in this street dont come up for sale very often and normally get snapped up straight away but because of the amount of updating needed, this house probably didnt appeal to the average family with kids because you couldnt move straight in.

Lets hope UK house prices dont follow suit with Japan. That sort of loss would be difficult to stomach.

Thank you for all of your replies.