Friday Debate: Will House Prices ever be allowed to fall?

Graham_Devon

RenovationMan wrote: »

As far as 91, 89 and 82 are concerned, my point is that property is now more connected to the success of the economy (and success of a political party) than ever before and so will receive far more support that it did back then.

There was a highly political aspect running up to labours exit.

Saw quite a few labour politicians stating they are supporting home owners through things like interest rates, QE, stamp duty, SMI etc. Plus the political pressure to halt reposessions, plus ownership of NR helped a lot as all those "would be" reposessions were halted.

Not sure how far this current government will cut this, or de-politicise it. Probably not very much.

However, I am leaning more and more towards the understanding that the government, any government, will do all it can to keep prices from falling, but call it helping hard working homeowners. Reason being, falling house prices in the UK is practically a one way path to be booted out of government, especially now so many more people are so over indebted.

Not sure as yet as to when that government intervention will have to stop as they are out of ideas of policies to prevent forces from taking control. Whether we will reach that point is another matter.

The one thing that has been different, if I'm not mistaken over the last 10 years is the explosion of remortgaging and taking equity from the home in order to up the bank balance. I think it's in this respect that the UK has seen quite large spending power, as people could take cash from their bricks as it were. That's now stopped, but we are yet to see the impact. We may see the impact of that if and when rates rise, and people no longer have a windfall from lower mortgage payments and can no longer take cash from the bricks.

Blacklight

Graham_Devon wrote: »

However, I am leaning more and more towards the understanding that the government, any government, will do all it can to keep prices from falling, but call it helping hard working homeowners. Reason being, falling house prices in the UK is practically a one way path to be booted out of government, especially now so many more people are so over indebted.

I think that's over simplifying it Graham. If government sat back and watched house prices fall by 50% it would ruin most people's lives.

I could understand if it happened in say 2003 just after prices increase by 25% in one year, but since then we've had eight years of people buying.

They really do have a duty to what they can to help hard working homeowners. Of course these people also vote, I'm not saying that's not part of the equation.

ILW

Prices dropped by about 25% in 1990 and took over 10 years to recover. I don't remember it being that much of a disaster for the economy as a whole.

Blacklight

ILW wrote: »

Prices dropped by about 25% in 1990 and took over 10 years to recover. I don't remember it being that much of a disaster for the economy as a whole.

They only fell 11%. As I recall it was a disaster for anyone in negative equity back then.

Generali

ILW wrote: »

Prices dropped by about 25% in 1990 and took over 10 years to recover. I don't remember it being that much of a disaster for the economy as a whole.

Blacklight wrote: »

They only fell 11%. As I recall it was a disaster for anyone in negative equity back then.

Is the difference between nominal and real prices?

Nominal changes put you into negative equity, real changes impact on your long term investments.

fraser

seems mortgage monies are getting harder and harder to obtain, we have just seen a number of products start to increase and the LTV's becoming more agressive - certainly not helping people obtain credit to purchase homes atm

Really2

Yes, as long as they are allowed to go up they will be allowed to come down.

It is all down to what people are willing to pay or borrow.

Will prices increases when borrowing is easier, most probably.

Will they fall again if lending becomes constricted, most probably.

The government cant stop prices falling, all they can do is try to encourage banks to lend.

ILW

Blacklight wrote: »

They only fell 11%. As I recall it was a disaster for anyone in negative equity back then.

OK early 90s then.

I fell into negative equity then and I would not call it a disaster, just kept paying the mortgage like I would have done anyway. That said, the rate did go up from 6% to 12% and that hurt.
Why do you say that NE is a disaster for anyone that has it?

Really2

Graham_Devon wrote: »

T
However, I am leaning more and more towards the understanding that the government, any government, will do all it can to keep prices from falling, but call it helping hard working homeowners. Reason being, 30%+ falling house prices in the UK is practically a one way path to [STRIKE]be booted out of government, especially now so many more people are so over indebted[/STRIKE]. economic collapse

If the economy collapses everyone loses, got £100K in the bank, hard luck the £ no longer exists.

Graham_Devon

Really2 wrote: »

If the economy collapses everyone loses, got £100K in the bank, hard luck the £ no longer exists.

I'm not sure that a 30%, 35, 40, even 50% reduction in house prices would equal economic collapse, the pound no longer existing and everyone losing every penny they ever had.

Each to their own I guess.

The impact of any reduction depends a lot of how long a period the reductions happen over, or, to put it another way, how severe the reductions are over a period.