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Debate House Prices
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Why prices must not fall, but have to fall
macaque_2
Posts: 2,439 Forumite
The stalemate between bulls and bears has continued for a couple of years now and neither side has won the case convincingly (despite the daily declarations of victory by some contributors on this formum).
House prices are now far beyond affordability levels of normal people. Prices will fall when sellers either elect to accept less or are forced to accept less. Since there is no chance of voluntarily price reductions, the question is when will the forced selling start in earnest?
In the UK, every possible lever to protect house prices has been set to maximum. We have low interest rates, a high tolerance to bad debt, immigration, weak £ etc. I also imagine that other measures are being employed that we don't know about. In the mean time, banks are working flat out to de-risk their lending portfolio by restricting good deals to borrowers with high deposits.
If house prices fall by 10%, the banks will be forced to foreclose on many of these 300,000 people and the market will be flooded with distressed sellers. The banks' lending portfolios will become even more pear shaped and this will stimulate fresh forced selling. Like the US, we will be faced with an unstoppable bear market. This is why the government and lenders are fighting so hard to prevent even the smallest price falls. As a result of this policy however, turnover has collapsed and this is creating new economic and social problems.
The only alternative to a property bear market is strong economic growth but where does this come when so much of UK economic activity is tied to the property market? At some point the UK will have to bite the bullet and accept lower prices.
House prices are now far beyond affordability levels of normal people. Prices will fall when sellers either elect to accept less or are forced to accept less. Since there is no chance of voluntarily price reductions, the question is when will the forced selling start in earnest?
In the UK, every possible lever to protect house prices has been set to maximum. We have low interest rates, a high tolerance to bad debt, immigration, weak £ etc. I also imagine that other measures are being employed that we don't know about. In the mean time, banks are working flat out to de-risk their lending portfolio by restricting good deals to borrowers with high deposits.
It's thought that around 300,000 borrowers - a massive number - are now on interest-only mortgages. The upside of that is that a lot fewer people are losing their homes through repossession. http://www.dailyfinance.co.uk/2011/06/01/interest-only-mortgage-loans-surge/
If house prices fall by 10%, the banks will be forced to foreclose on many of these 300,000 people and the market will be flooded with distressed sellers. The banks' lending portfolios will become even more pear shaped and this will stimulate fresh forced selling. Like the US, we will be faced with an unstoppable bear market. This is why the government and lenders are fighting so hard to prevent even the smallest price falls. As a result of this policy however, turnover has collapsed and this is creating new economic and social problems.
The only alternative to a property bear market is strong economic growth but where does this come when so much of UK economic activity is tied to the property market? At some point the UK will have to bite the bullet and accept lower prices.
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The stalemate between bulls and bears has continued for a couple of years now and neither side has won the case convincingly (despite the daily declarations of victory by some contributors on this formum).
It's really weird to see a simple, small discussion forum that has a few dozen actual posters sniping at each other over a 0.3% fall in house prices be described like some grandiose and epic battle between good and evil.0 -
It's really weird to see a simple, small discussion forum that has a few dozen actual posters sniping at each other over a 0.3% fall in house prices be described like some grandiose and epic battle between good and evil.
Works for me, I fire up the PC and watch battle commence each evening. Beats Eastenders!Please remember other opinions are available.0 -
This may come as a shock, but house prices are not decided by a committee of obsessives arguing on the Internet, but by real people wanting (or not) to buy houses in the real world.The stalemate between bulls and bears has continued for a couple of years now and neither side has won the case convincingly (despite the daily declarations of victory by some contributors on this formum).
Time to get out into the real world.Been away for a while.0 -
The only alternative to a property bear market is strong economic growth
Obviously not....The stalemate between bulls and bears has continued for a couple of years now
The alternative to a property bear market in the absence of strong economic growth is clearly stagnation.
Eventually growth will return, as will the next property bull market.“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”0 -
The only alternative to a property bear market is strong economic growth but where does this come when so much of UK economic activity is tied to the property market? At some point the UK will have to bite the bullet and accept lower prices.
Why would you think it is the only alternative ?
We are running inflation at 5% or more ....How long does that need to be around for before it starts to impact on wage negotiations and starts having an effect on comparative house purchasing power.
I will be expecting at least a 5% pay rise next time around.0 -
OMG - I am on IO with only 60% equity in my house - I didn't realise I would be repossessed if prices fell by 10% - indeed however much equity I had (even majorly negative) I understood it that as long as I made the mortgage payments I would be allowed to keep the house.If house prices fall by 10%, the banks will be forced to foreclose on many of these 300,000 peopleI think....0
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Running_Horse wrote: »This may come as a shock, but house prices are not decided by a committee of obsessives arguing on the Internet, but by real people wanting (or not) to buy houses in the real world. Time to get out into the real world.
Like Cleaver's response, this reflects either an inability (or possibly an unwillingness) to interpret the OP in the form that it was meant. Bull's attitudes on this forum have become increasingly one of 'we can't win the ball so let's go for the man'. Well, as far as I'm concerned, go ahead and help yourself. The 70% club's postion is looking more credible by the day.
Love and kisses
Simian Macaque ADHD0 -
If house prices fall by 10%, the banks will be forced to foreclose on many of these 300,000 people and the market will be flooded with distressed sellers. The banks' lending portfolios will become even more pear shaped and this will stimulate fresh forced selling.
If house prices fell by 10%, the government would probably introduce more support for those struggling with mortgages, banks would only repossess as a last resort and they would sell inventories of repossessed property gradually, not all at once to cushion further falls in house prices.0 -
Why can't we all just buy our homes, pay the mortgage agreed when we bought it, obviously understanding the product in its full capacity
, eventually pay it off and then leave it to someone else when we die (my kids in my case).
If it falls or rises in the meantime it really doesn't matter too much does it, plus theres not a great deal i can do about it is there?
there you go, a nice positive response.......As Sceptic Peg predicts, House prices this week will be going up!.............................or down.0 -
Perhaps there is another alternative but, as far as inflation goes, this is having the opposite effect at the moment since it is running ahead of pay rises. This reduces disposable incomes. If pay rises start to take off, you can be sure that interest rates will follow. Whilst some groups in the UK have been able to flex their muscles on pay, many others cannot. People in the UK are well paid by international standards and pay rises just stimulate outsourcing. This week we have seen a local council outsourcing back office work to India. If you are hoping for a repeat of the 70's, I think you are wrong.Why would you think it is the only alternative ?
We are running inflation at 5% or more ....How long does that need to be around for before it starts to impact on wage negotiations and starts having an effect on comparative house purchasing power.
I will be expecting at least a 5% pay rise next time around.0
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