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House prices 'to fall by 20%'

Homeowners should brace themselves for a "short, sharp shock", with house prices set to fall by up to 20% over the next two years as rising unemployment and public spending cuts take their toll, experts are warning.
The cost of the average home fell by up to one-fifth between mid-2008 and the end of 2009 as the credit crunch gripped the mortgage market, but then regained about half of that ground last year, aided by record low interest rates.

With the Bank of England's policymakers locked in an acrimonious public row about whether rates should start rising again to choke off inflation, analysts say prices now look too high to be sustainable.
"Prices are trending slowly downwards at the moment, but our view is that this is really the start of the second leg of the correction, and we expect prices to fall significantly further," said Paul Diggle, property economist at consultancy Capital Economics.

He calculates that the average home remains up to 20% overvalued by historical standards – and with the mortgage market still tight and unemployment rising, 2011 could bring prices crashing back to earth.

Andrew Brigden, of financial research group Fathom, agrees that homeowners can expect a rough ride. Fathom reckons house prices are 20%, perhaps even 30%, too high relative to average wages.

http://www.guardian.co.uk/money/2011/feb/19/house-price-fall-20-per-cent

:j
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Comments

  • smeagold wrote: »
    said Paul Diggle, economist at consultancy Capital Economics.

    :rotfl::rotfl::rotfl::rotfl::rotfl::rotfl:










    ..........
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”

    -- President John F. Kennedy”
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    edited 19 February 2011 at 11:46PM
    The evidence says that Capital Economics have consistently been as wrong as it's possible to get.

    BBC December 2002 - Capital Economics warned that the UK property market was severely overvalued, and that prices could fall by up to 30% over the next few years.

    BBC October 2003 - House prices are set to fall by 20% in the next 18 months, a leading economics firm predicts. - Capital Economics argues that central banks in both the US and UK have fuelled the housing bubble by keeping interest rates deliberately low, and house prices are now at "dangerously high levels." It predicts that average house prices will fall from £135,000 in 2004 to below £110,000 in 2007, before beginning a more gradual recovery.

    BBC September 2004 - Capital Economics is not predicting a sudden drop in prices, but a slow 20% grind lower over the next 2-3 years.

    BBC May 2005 - Economic forecast group Capital Economics, which has predicted that house prices could fall, reiterated that the market had reached an "impasse", with buyers and sellers unable to agree on prices. "We expect the pace of the slowdown to pick up as the year progresses, in line with more gloomy reports from surveyors and housebuilders," Capital Economics said.

    Independant Nov 2006 - Capital Economics Giving up on House Price Crash - Ed Stansfield, property economist at Capital Economics, said: "I cannot see 2006/2007 being the time we look back on and say 'yes, that was the start of the housing market crash'."

    BBC April 2007 - Capital Economics Turns Bullish - Capital Economics, which in 2003 famously predicted that the UK was headed for house price falls of up to 20%, broadly agrees with Mr Boulger's upbeat analysis. "It gets to a stage when you can't keep saying a crash will happen while prices keep on rising," Ed Stansfield, analyst at Capital Economics, admits.

    Gaurdian November 2007 - So, what are the experts saying about 2008? The bleakest assessment (if you are a homeowner, that is) comes from Capital Economics, which says it expects house prices across the country to fall by 3% during both 2008 and 2009.

    (3% ? Is that all ? After years of forecasting 20 to 30% drops now Capital Economics is down to a absymally poor forecast of 3% per year for 2008 and 2009, AFTER house prices had already peaked and fallen ! )

    Telegraph- November 2008 - "This housing market correction has already overtaken the 1990s crash and, with the economic slump deepening, it is set to get worse. Interest rate cuts will not be enough to stop the correction, nor slow the pace of house price declines. We expect house prices to fall a further 20pc in 2009," said Seema Shah, property economist at Capital Economics.

    (and as we now know, prices rose in 2009 to 2010 by a whopping 10% from spring 09 onwards)

    Capital Economics are without a doubt the WORST forecasters in UK housing history.

    So if they are predicting a 20% fall, it's safe to say prices will be rising.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”

    -- President John F. Kennedy”
  • smeagold
    smeagold Posts: 1,429 Forumite
    :rotfl::rotfl::rotfl::rotfl::rotfl::rotfl:










    ..........

    Fair enough, got me there, unfortunately for the bulls alot of panicky house sellers don't dig deep. I should have checked the source before posting:o great headline tho

    capital-economics-uk-house-price-forecasts.gif

    http://www.marketoracle.co.uk/Article7183.html
    Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam
  • diable
    diable Posts: 5,258 Forumite
    Rents are going up so theres always a positive to a negative.........
  • B_Blank
    B_Blank Posts: 1,105 Forumite
    On the whole economists think prices will decrease by 5-10% this year. So this guy is an anomoly, and there are plenty of economists who think prices will stay flat or go up slightly this year - which is the other side of the consensous 5-10% fall in prices
    I am not a financial expert, and the post above is merely my opinion.:j
  • anjb
    anjb Posts: 25 Forumite
    For me, I don't actually mind the housing market drop (FTB 2007 + im 31) because the next house I buy will be cheaper and I'll get more for my money. The delta cost to upgrade will be similar, but I wont play as much in fees EAs + Stamp duty.
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    :rotfl::rotfl::rotfl::rotfl::rotfl::rotfl:










    ..........

    Yet you yourself use capital economics when it suits.

    :doh:
  • Yet you yourself use capital economics when it suits.

    :doh:

    I've quoted Bootle on interest rates..... But credit where credits due, his record on that topic is very good.

    Their record on house prices, well, see above.....
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”

    -- President John F. Kennedy”
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
    Part of the Furniture 10,000 Posts Combo Breaker
    I've quoted Bootle on interest rates..... But credit where credits due, his record on that topic is very good.

    Their record on house prices, well, see above.....

    As always, you just pick and choose what you want, based on whether you like the sound of what anyone is saying that particular day.

    As you have done in the examples above, and decided to stop at 2008.
  • Coeus
    Coeus Posts: 292 Forumite
    edited 20 February 2011 at 12:54AM
    Property Gods, hear my prayer.

    Please stagnant house prices to late 2012, then drop like a brick. Would suit me most kindly :) (fixed stake in a house sale in absolute terms next year - would however still like other parties to do well off it!)

    I do enjoy these posts of bulls vs bears - especially you two HAMISH_MCTAVISH and Graham_Devon - your little love circle is quite endearing.

    Enough tomfoolery anyway. In all seriousness it's the locations and specifics that apply to how house prices will effect you individuals. I don't think its a stretch to say that the majority of peoples would agree that house prices will either (i) stagnant or (ii) decrease to some extent. Doesn't take a genius to figure out - disposable income is falling and bank lending is tightening widening the gap between asking price and selling price in the buyers favour.

    The areas where house prices are most likely to decrease will be those where public sector cuts are most significant (thinking Liverpool here people - right next to me = equity bonus!) - mainly forced sales being the issue here. Obvious from the causes of the 'credit crunch' and the tightened salary multiple for mortgage lending that in the past the level of LTV householders have been able to achieve is excessive. This is why many are finding themselves in negative equity - it is true that this may result in 'stubborn' sellers but as said, if their hand is forced, selling prices will fall.

    Any smart home-owner at the moment should be making massive over-repayments to make up for this equity downfall that may be inevitable. This itself will put them into a better selling position reducing the overall spread of asking price vs selling price in years to come (which I expect to widen), decreasing the rate of decline in selling prices. How significant this is, or it's effects will be, I cannot say. Keep in mind the likely interest rate rises in Q3+!

    On the note of interest rate rises I am of two minds. Can see either (i) a rush in mortgage applications once interest rates start to rise as FTBs/movers aim to fixed interest rates over a longer term (thus decreasing the spread between asking price and selling price) or (ii) increasing interest rates further deterring successful mortgage applications through banks further tightening the salary multiplier in anticipation of further rises... a tricky one.

    Happy times for FTBs (providing you've been wisely building a deposit over these years!). Likely when your looking to move to your 'family home' in 5-10 years time you'll be laughing :)

    Off now to slaughter the sacrificial goat...
    Hope For The Best, Plan For The Worst
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