House prices could fall... Blog Discussion

pjala

john8888 wrote:

This is a subject fairly close to my heart as I have just written a book about it!

My experience is in stock markets and I have done a fair bit of work on markets generally. Markets are manic depressives and property markets are exactly the same - they just don't seem to be because of all that solid real estate and because they are slower moving.

But property markets have crashed in the past and they will crash in the future - that is guaranteed.

If you look at the market today the view "it can only go up" is prevalent + we now have many people with not just one property, but often several. How many more people are there to buy this stuff? How many more houses do these people want?

In my view a top is very close and, coincidentally, stock markets gave a major sell signal last month. The stock marklet collpase which started around the turn of the new millennium did not have much of an impact on property but I think this time it might be a different.

I am not trying to be gloomy, the only constant in this world is change and the key is to be prepared.

JOHN

Is this a plug for the book? I think there needs to be more history with this user on the site, in terms of helping and advising, before a book plug can be taken at face value. It may well be true that caution is called for currently, but that does not make the individual of worthy reputation (at least on the site).

zar

tonyg wrote:

Youngsters can not afford to get married.

Whilst this may be true due to the cost of weddings/living in general, you can get married when you can't afford to buy a house. We got married after leaving uni and have been renting since. I would prefer the stability of owning a home before having children, but at current house prices that's not going to happen - we certainly couldn't afford to buy a house big enough for a family - but I refuse to let high house prices stop me living my life now so we'll just have to find a landlord who'll rent to us with kids and a dog somehow. :rolleyes:

F_T_Buyer

MSE_Martin wrote:

Tony while I understand your sentiment. I don't agree that all economists predict either flat or drop. In fact last night I was on news 24 with the chief UK economist from Barclays Group who said "there's a limited supply of housing, which indicates house prices will continue to rise."

Again as I note in the blog. The key is no one truly knows - its perfectly possible you are right Tony, then again so could the economist be. What people have to do is remember that there is no certainty and they must plan for the worst and hope for the best.

Martin

Hi Martin. Nice blog, of which I agree with. No one really knows what's going to happen.

But I think the biggest point to shout about is don't over stretch youself, especially if you are a First Time Buyer. When you look at reports such as the CML saying the average FTB is on £33k, buying aged 34, it's clear something is wrong.

I do think alot of people are complacent about negative economic conditions, such as rising interest rates, increasing unemployment etc. So not borrowing to the absolute limit is very important.

Another thing is, well all the media, is how people reporting housing news have a vested interest. This, unfortunately is rife. Look where most people get their housing information from; Banks, Building Society's, Estate Agents, Surveyors. yet these are the very people who benefit most from rising house prices.

Would you ask a windows salesman if its a good time to get new windows?

As for the housing market and its future direction, I think it's quite clear that it is a bubble. Meaning values are not based on sound fundermentals. The only reasonable debate is whether prices crash or they slowly hiss with incomes rising. Either way, as an FTB, there is no hurry what-so-ever to buy (as some people make out)!

delboypass

increasing UK rates with inflation (only thing keeping rates down is low paid immigration)
increasing UK unemployment (UK manufacturing is suffering from inflation and the fact that people cannot afford to buy)
crashing FTSE (Infaltion across the world causing share markets to collapse)
Banks making less free credit available (banks being stung by increasing bankruptcy and IVAs)

Only pointing in one way for UK - house prices downwards

If house prices dont drop to a level where FTBs can get on the ladder, then quite simply all graduates they will leave this Island. You will be left with the illegal immigrants, baby boomers and all those happy on benefits.

meanmachine_2

Well done Martin.

A very balanced and intelligent blog.

And from a recent home buyer too!

Although, if I'd been able to buy without taking on a mortgage I think I could afford to remain fairly clear-headed about the realities of the market too.

I don't resent anyone who has made property from the recent - and very protracted - global bull run. Good for them. But investors should be aware of the risks on the downside. And should the *worst* happen, not go running to the government with begging bowls.

odorus

Very good blog. At last some sense being spoken on the subject, by everyone.

As a landlord I would say that buying property on a BTL mortgage, anywhere south of Birmingham, is not a good investment anymore. Rents remain fairly low, whilst BTL mortgages have gone up, so the profits are not as good.

The other big problem comes from selling the property. It took me over 12 months to sell my flat in London, because the managing agent wouldn't allow BTL buyers, and FTB's couldn't afford the property, it was not in a fashionable area so wasn't at the top of London pricing.

It certainly depends on your own circumstances, but I would agree that renting is not a disgusting word. Look to Europe where most people rent and are very happy as owning property is often too expensive.

sikejsudjek

This country can't cope with even minor interest rate hikes due to the irresponsible lending from banks. Plenty of people are on 5x or 6x income mortgages, and many have lied on their applications about their income. The banks did much to allow this to happen, by not checking applications properly, and using self cert mortgages. Hence this time around only a relatively small IR rise will have dire consequences for both the economy and house prices IMO.

Buy to let will also make things worse, as people sat on debt will panic when they realise their 'investment' that they have mortgaged for equity release leaves them with a pile of debt which is going to cost them more than the rent to pay back.

Its too late IMO to invest in property, the bubble is ripe to burst. Only needs a trigger and the pile of dominoes will start to fall. In the end economic fundamentals always win. Fancy buying some dot com shares ?

We also sold a BTL - had to drop the price 10%, took 6 months and three people pulled out. Forget the spin about houses selling, the reality is that conditions are nothing like 2004 and have already dropped off.

mystic_trev

I've been a BTL'er for the past 10 years (it was called Residential Investment Property then!) but am now exiting the market. My net yields are just over 3% (over 10% on purchase price) and I can get a better return elsewhere.

What frightens me is the new breed of BTL'er. Many haven't got the foggiest what they're doing, but because they know some bloke down the Pub who'd done "rather nicely" out of it, want a slice of the action too! If prices correct many of these will lose their "investment" and also thier homes. I'm afraid I will have little sympathy for these peoples plight - It's called greed - and often end up in tears!

DrStep

My post on this thread was tongue in cheek

and a reflection of some real life stories i read on forums who believe property is a one way bet to riches

if life was only so easy in retrospect:rotfl:



Kirtsy and Phil said about the three Rs

Right Place

Right Price

Right Property

or something like that

landroverboy

Yes property prices WILL fall at some point and the also WILL rise again, but taken over a long period of time putting money into property (in the UK at least, I don't study foriegn markets) is good and better than shares, whether it be buying a property as a home or an investment.

Take the last 25 years as an example, yes we've had record rises in prices, long periods of flat-lining as well as the severe plummeting we saw in the early 90s, yet taken year on year over the last 25 years the average price for the average home has risen by 12% per year. When you look back as far as the war, property prices have virtually doubled every ten years.

Look at it from a different angle:
- If you have hypothetical £10,000 to invest and you choose shares and those shares rise by 10% in the first year you have made a gross profit of £1,000.
- Alternatively, if you take that hypothetical £10,000 and use it as a deposit to invest in a property worth £100,000 and that property increases by 10% in the first year you have made a gross profit of £10,000.
Granted there are taxes to pay and monthly mortgage payments but if you either let it out or live in it, pound for pound I'd rather have the net balance from the property investment than that from the shares.

While I appreciate not everyone is in a position to buy their own home, however I would recommend to those that are to do so because over a 25 years period rents WILL rise, whereas eventhough interest rates fluctuate mortgage payments stay around the same as when you took the mortgage out, for example when I took out my mortgage some 10 years ago my mortgage was around 28% of my monthly take home pay, today it works out at around 14% of my take home pay.

So if you can afford to, buy! Either buy your own home and if you have your own home buy more property as an investment.

:j