"The Recession" is Still On Track - House prices to fall

ruggedtoast

As with most things I think we have to look at the middle ground. Some properties actually have fallen in value by 50%. A lot of new builds city centre flats are not worth anything like what was paid for them.

Houses in dubious areas, or even just not very popular areas, are not selling - or are selling at big reductions to what sellers paid in 2007.

I know this for a fact because I have been viewing a variety of properties in a variety of areas. People show you around their houses that have been on for months and they just look so desperate. Then when I get home my mobiles is ringing and its the agent saying "they'll take an offer, they'll take an offer, can you go back for a second look?".

The fact is - maybe - but in a lot of cases I can rent a nicer house in a nicer area for less than it would cost me to buy such a property - and save as much as I would be paying back principal anyway. I fear some sellers may have a long wait.

And then there are the houses that are on sale for a few days and get snapped up - one came on on Tuesday and if it werent for the snow we would have gone to see it the next day.

If its as good as it looks and no one else has got there already we may well put an offer in on the same day when we see it.

This isnt a property market in recovery in my opinion, its a two speed market where people who dont need to sell, wealthier people, are sitting pretty in nice houses which they wont sell for peanuts.

And everyone else is left biting their nails and wondering if the demand will go up before interest rates do and whether they can cover the payments on their 2% mortgage for another month.

StevieJ

ruggedtoast wrote: »

This isnt a property market in recovery in my opinion, its a two speed market where people who dont need to sell, wealthier people, are sitting pretty in nice houses which they wont sell for peanuts.

And everyone else is left biting their nails and wondering if the demand will go up before interest rates do and whether they can cover the payments on their 2% mortgage for another month.

Maybe the odd house seller but in general doesn't seem likely to me, where are they going to move to that is cheaper than their 2% mortgage (especially as interest rates are forecast to stay low)? mine is 1.45% BTW

julieq

If you did risk analysis seriously then you'll know that where you can anticipate a risk you can mitigate it. So I'm struggling to understand why the idea that governments might mitigate the risk of financial collapse by introducing stimulus comes as a surprise.

The reason I don't think you did risk analysis very rigorously if at all is that you don't seem to understand it. All you do is project and combine worst case downsides and then look for Youtube vids (I mean come on, it's a snake oil sales pitch!) to cement your apocalyptic position.

(I did a course on nuclear physics at University, but I wouldn't have a clue how to build a power station).

The reason why the moderate voices here actually get it right time after time is because we project a path somewhere well within the worst cases. It's much easier to be right when you're not postulating an extreme case.

And I think you're combining two largely unrelated situations, the world financial crisis caused by the US property bubble and the so called securitised "toxic debt" which was borderline fraud, and HPI in the UK housing market.

Without the US crisis, there was a bubble in the UK housing market and without the US crisis that would have come to a head sooner or later as rates were creeping up against the background of increasing inflation fueled by a sense of wealth and increased confidence based on house prices which increased general spending.

With the US crisis, two things happened. First of all there was a removal of credit and confidence (and jobs) from the world, which in the UK forced prices down. Bears misread that as the structural correction in the UK market they'd been predicting. Secondly there was an entirely predictible government reaction which in effect reversed the things that would have caused a correction in the UK market had nothing else changed. Instead of HPI fueled inflation in the general economy we were suddenly faced with the prospect of deflation. And people stopped spending.

That problem is fixed. We've had a correction, and a very big one if you take currency devaluation into consideration. People are far more careful about what they're spending, and mortgages are harder to come by. So we're now back into a fairly prudent phase. We're braced to repay debt and pay higher taxes.

It's really not as bad as you claim, which is good, right?

Really2

StevieJ wrote: »

Maybe the odd house seller but in general doesn't seem likely to me, where are they going to move to that is cheaper than their 2% mortgage (especially as interest rates are forecast to stay low)? mine is 1.45% BTW

I am wondering how much of my mortgage will be paid off before Base hits 5% again.

I hate overpaying £12K a year.;)

Sir_Humphrey

julieq wrote: »

Without the US crisis, there was a bubble in the UK housing market and without the US crisis that would have come to a head sooner or later as rates were creeping up against the background of increasing inflation fueled by a sense of wealth and increased confidence based on house prices which increased general spending.

*snip*

That problem is fixed. We've had a correction, and a very big one if you take currency devaluation into consideration. People are far more careful about what they're spending, and mortgages are harder to come by. So we're now back into a fairly prudent phase. We're braced to repay debt and pay higher taxes.

The falls of 2008 exceeded my expectations. I did not expect falls of the region of 15% PA. Apart from the very top end of the market, a house price correction largely caused by currency devaluation does not resolve an overpricing issue because incomes are devalued at the same rate.

The bottom line for the next twelve months is either:

The improvements in consumption and asset prices are real, in which case rates and taxes will rise as a consequence of escaping deflation or;
they will stall again/fall again, deflation will resume in which case they will not.

The real loons are those who expect the government to deliberately let inflation rip. If the growth and inflation trend of the last six months continues, then IRs will be going up. The only way they will stay at 0.5% is if deflation resumes, which would be a consequence of economy tanking again.

StevieJ

julieq wrote: »

se.

And I think you're combining two largely unrelated situations, the world financial crisis caused by the US property bubble and the so called securitised "toxic debt" which was borderline fraud, and HPI in the UK housing market.

Without the US crisis, there was a bubble in the UK housing market and without the US crisis that would have come to a head sooner or later as rates were creeping up against the background of increasing inflation fueled by a sense of wealth and increased confidence based on house prices which increased general spending.
s.

It's really not as bad as you claim, which is good, right?

Top post Julie :T

StevieJ

Sir_Humphrey wrote: »

The falls of 2008 exceeded my expectations. I did not expect falls of the region of 15% PA. Apart from the very top end of the market, a house price correction largely caused by currency devaluation does not resolve an overpricing issue because incomes are devalued at the same rate.

n.

What about foreign investors/funds seeking rental returns

Sir_Humphrey

StevieJ wrote: »

Top post Julie :T

I have to partly disagree with you StevieJ. British banks were securitising British sub-prime lending. This is a case of the UK banks doing what US banks were doing. Have you already forgotten Granite? Were the problems of RBS,. Bradford and Bingley and HBOS just imagined? Is the BoE and FSA going to allow there to be a repeat?

I expect better from you.

Sir_Humphrey

StevieJ wrote: »

What about foreign investors/funds seeking rental returns

Rental returns in devalued Sterling?

Do you seriously think foreign buyers are going to start buying outside prime areas?

Did you believe the "pound in your pocket" speech back in the 1960s?

nembot

julieq wrote: »

If you did risk analysis seriously then you'll know that where you can anticipate a risk you can mitigate it. So I'm struggling to understand why the idea that governments might mitigate the risk of financial collapse by introducing stimulus comes as a surprise.

The reason I don't think you did risk analysis very rigorously if at all is that you don't seem to understand it. All you do is project and combine worst case downsides and then look for Youtube vids (I mean come on, it's a snake oil sales pitch!) to cement your apocalyptic position.

(I did a course on nuclear physics at University, but I wouldn't have a clue how to build a power station).

The reason why the moderate voices here actually get it right time after time is because we project a path somewhere well within the worst cases. It's much easier to be right when you're not postulating an extreme case.

And I think you're combining two largely unrelated situations, the world financial crisis caused by the US property bubble and the so called securitised "toxic debt" which was borderline fraud, and HPI in the UK housing market.

Without the US crisis, there was a bubble in the UK housing market and without the US crisis that would have come to a head sooner or later as rates were creeping up against the background of increasing inflation fueled by a sense of wealth and increased confidence based on house prices which increased general spending.

With the US crisis, two things happened. First of all there was a removal of credit and confidence (and jobs) from the world, which in the UK forced prices down. Bears misread that as the structural correction in the UK market they'd been predicting. Secondly there was an entirely predictible government reaction which in effect reversed the things that would have caused a correction in the UK market had nothing else changed. Instead of HPI fueled inflation in the general economy we were suddenly faced with the prospect of deflation. And people stopped spending.

That problem is fixed. We've had a correction, and a very big one if you take currency devaluation into consideration. People are far more careful about what they're spending, and mortgages are harder to come by. So we're now back into a fairly prudent phase. We're braced to repay debt and pay higher taxes.

It's really not as bad as you claim, which is good, right?

Eloquently written Julie, but it does read like your own wish list - rather than what is really happening.