House Price Crash

Gorgeous_George

FaTB wrote:

I don't think it matters about the exact wording of whether there will be a crash or could be a crash.

The fact that a respected person like Martin even mentioned the possibility is very important to market sentiment.

The HPC site is not just a bunch of crackpots anymore, it should be taken seriously.

Well done Martin !!

I guess Martin was invited to comment on the news story regarding how many people had missed a payment over the past year and that the POSSIBILITY of a HPC is an obvious follow-on to that story.

If the news was that X number of people are over-paying each month, perhaps the natural follow-on would have been the POSSIBILITY that prices COULD move higher.

Whatever Martin said, he did say that anybody who claimed to know where the market was going was a LIAR.

Personally, I would not be surprised by a 25% fall. Nor would I be surprised by a 25% gain over the next few years. Or, put another way, I don't know.



GG

Teddyboy_3

I cant understand the mentality of the people of this country??? We have turned into a grred nation that is basically screwing it up for all our children. Oh great my house which I bought for £45,000 in 1995 is worth £250,000 now!!! Brilliant, lets withdraw some "FREE CASH" and buy a nice car and conservatory for when the son and grandkids come round.

They seem to be around a lot lately, must be that squaller that they live in because house prices have gotten so ridiculously high? Oh well, never mind Im ok - got a lovely retirement home. Im glad house prices have gone so high - I can have a happy retirement And my son and Grandkids - well sod em at least im happy!

Absolutely lost the plot this country. Family values have gone and its all about DEL BOY dealers who can make the most money by sitting on their @rses whilst the media BLATANTLY RAMPS property and they think they are clever. Well I am sorry if this is unpopular to some but there is one thing that everyone should learn at a very early age.

THE IS NO SUCH THING AS A FREE RIDE!!!!

With this come risk, as Andy has posted (fantastic posts btw). So why is it that people criticise others when they say I hope it crashes? Its that word crash that scares people you see. Alls I want is a CORRECTION! I want houses to be affordable to LIVE IN not to make money out of. Unfortunately, because of the RAMPANT HPI they are seriously overpriced. I think 40-50% is not unreasonable based on trends. So if they come down by that, it is referred to as a crash! So be it!!!

LIVE BY THE SWORD - DIE BY THE SWORD

Lets make homes for living in, instead of this GREEDY FACIST society we have become. There is many a smug b@stard that I would love to see the smile wiped off their faces but I know that a lot of the victims of this are people who are basically "stupid". I know that sounds cruel but its true. Todays society is all about BLING and HOW SUCCESSFUL you are, but a lot of these people are only wearing fancy clothes and driving fancy cars coz they have debts that they cant repay. I could be BLINGTASTIC and have the option of £40,000 on Credit cards but I chose not to becuase IF I AINT GOT THE MONEY THEN I CANT AFFORD IT. So why should I feel sorry for the stupid person that racked up a £20K credit card and looked down on me????

I HOPE THERE IS CORRECTION - IM SURE THERE WILL BE CORRECTION

I just hope that the victims of this are the speculators and not the genuine people who really needed a home to live in.

RHemmings

Teddyboy wrote:

I cant understand the mentality of the people of this country??? We have turned into a grred nation that is basically screwing it up for all our children. Oh great my house which I bought for £45,000 in 1995 is worth £250,000 now!!! Brilliant, lets withdraw some "FREE CASH" and buy a nice car and conservatory for when the son and grandkids come round.

As Mervyn King said, house prices are an opinion and debt is real. By mortgaging equity in their properties, the people doing this have turned theoretical wealth into real debt. The theoretical wealth could easily disappear. The real debt is unlikely to.

Though I agree with your comment that massive house price inflation is effectively the older generation taking money from the young.

PoorDave

tomstickland wrote:

No you didn't, you
BOught it!

A relief to know i'm not the only person who gets annoyed by that!

Grr etc

PoorDave

Gorgeous_George wrote:

IIRC I was offered 3 times my salary back in 1985. 100% mortgage of £24K was about half my net pay (including the endowmment).

Interest rates were 16.5%.

Why are 5 or 6 times multiples so unrealistic when interest rates are so low?



GG

Presumably, low multiple plus high interest rate might make a house just as affordable (or not) as 5x or 6x, but at the comparatively low rates we've had in recent years.

E.g. you don't borrow as much capital, but your interest is massive vs you borrow lots more, but the interest part is smaller.

Mrs_pbradley936

I posted this on another thread but parts of it may be of interest to some of you on here:

I must confess that when I started the thread I was concerned about young women having to do too much and that women’s liberation had not really made their day to day lives any easier. You have made some really thought provoking points about the money supply and those of us who are old enough to remember the last round of negative equity know those points are valid. History has lots of reminders of boom and bust such as the Wall Street Crash leading to the Great Depression in the USA. Or that it took wheel barrow loads of money to buy a few items in Germany in the 1920s. All of that brought Hitler to power resulting in the second World War. House price inflation is not as rampant in the USA (I used to live there) but they have a 10% tax on any gain. They also have something called a “Jumbo loan” which is anything over and above an amount set by some sort of government backed committee I think it is called Fannie Mae. So that if you have a jumbo loan you pay a lot more for it. So a penalty for borrowing more coupled with tax on any profit seems to keep prices in check.

westernpromise

MickKnipfler wrote:

Me too.

Long term, I guess prices have always gone up.

House prices crashed by 90% in the UK in 1911.

ABN

Teddyboy wrote:

They seem to be around a lot lately, must be that squaller that they live in because house prices have gotten so ridiculously high? Oh well, never mind Im ok - got a lovely retirement home. Im glad house prices have gone so high - I can have a happy retirement And my son and Grandkids - well sod em at least im happy!

That was a long post however lost interest at this point.

What are you trying to say?
Are you trying to say that your parents should support you all through your life until such time that they are either to old or have spent all their lifes work on the "yonger" generations at which point you will sell their bodies to medical research to fund you new inproved plasma TV which is your just right to have?

When the hell is the "younger" generation going to learn to stand on their own two feet and accept responsibilty for their own futures in the same way as their parents had to

mystic_trev

Teddyboy wrote:

I cant understand the mentality of the people of this country??? We have turned into a grred nation that is basically screwing it up for all our children

This has to be one of the best posts I've read.

I'm a boomer, altough unlike most of my friends, single...and happy! Most have children who are now either at University or have left home, so are looking towards their Retirements.Many have now bought second homes, most for hoildays and some for Investment. Whenever I bring up the subject on how their children are ever going to afford a house I get one of two responses.

1. Yes it's dreadfull, have another glass of wine.

2. We had to struggle to buy our first home.

I know of none who are bothering to help thier children get "on the ladder" although that's possibly a good thing! Basically they've bought their children up and now couldn't care a toss, just happy to watch the value of their homes go up - how selfish!

RHemmings

PoorDave wrote:

Presumably, low multiple plus high interest rate might make a house just as affordable (or not) as 5x or 6x, but at the comparatively low rates we've had in recent years.

E.g. you don't borrow as much capital, but your interest is massive vs you borrow lots more, but the interest part is smaller.

But you've forgotten to mention the effect of wage inflation on debt. We have low interest rates at the moment partially because inflation, including wage inflation, is low. In a higher inflation environment, interest rates would be much higher. But this would usually be accomponanied by higher wage inflation. If your wages are going up, then a fixed debt gets eroded by inflation. If you have borrowed £100,000, and your wages go up 10% in a year, then the debt is much smaller. So even people who took on truly crippling mortgages would generally be OK because in a small number of years, the debt would have been eroded by inflation, and their buying power would return. In a low inflation environment, the debt is not eroded by inflation to the same extent, and crippling repayments remain crippling much longer.

What has happened with house price inflation over the last few years is that people have been able to afford to spend more on houses because interest rates, and hence the interest part of the mortgage repayment is cheaper. But now in 2006, house prices have increased so much that affordability of the initial payments is just as poor as it was in the past with much higher interest rates, but cheaper (real) house prices. But the effect of inflation eroding the debt is much smaller, so crippling payments remain crippling much, much, longer. Meaning that people pay much, much, more for houses in real money than they did before. Using the well known "big mac" index, if you counted how many big macs you could buy with your mortgage payments over the lifetime of the mortgage, then even if you're spending the same number of "big macs" per month at the start, the person with high interest charges in a high inflation environment will have spent a massively smaller number of big macs buying the house than someone in a low interest rate, low inflation, scenario.

Mervyn King has warned people to not expect inflation to erode their debts. Whether his warning is accurate is yet to be seen.

There is an important point that people forget. People assume that if inflation rises considerably, then they will be OK because their wages will go up by a similar amount. Say that inflation took off, and both wage inflation and mortgage interest went to 10%. In that case, people on variable rate mortgages would have their interest rate payments double immediately. But their wages would only have gone up 10% in the same year. So their interest payments would have gone up far faster than their ability to pay, a potential cause of disaster.