House prices over the next 2 years

peakoil_2

Maybe I'm over analysing things. :-)

sm1234

Peakoil, I'm in a not dissimilar situation to you. I have a lot of sympathy with the uber-bears on here (and, were it not for the likely wider implications of a massive crash, would like them to be right), but I think the Bulls still have government sentiment behind them. This is my own thoughts:

As a nation we officially owe at least $144k per man, woman and child (Link to external debt figures - http://en.wikipedia.org/wiki/List_of_countries_by_external_debt). I don't think(??) this includes all the off-balance tricks played by Gordon; there are many retired, 'sick' & other economically unproductive individuals and debt servicing costs; meaning the true debt-per-person must be at least double the official figure. Creditors inevitably want their money back and your average Joe will have to pay his average share (remember this debt doesn't include the cash Joe needs over his/her lifetime to pay taxes, eat, buy stuff, relax, take holidays, etc.) - can Joe actually afford that? My own thoughts are we have recently passed tipping point. If that is the case, then UKplc lenders are placing their confidence in the next generations willingness and ability to pay.

And confidence is the core of the whole issue - it's all one big confidence tricks. If the govt can continue to pull off the confidence trick, that UKplc will pay off it's debts some happy day in the future, then the debt bubble can be sustained and property prices won't drop dramatically. QE, low-interest rates, off-balance sheet tricks, bailing out broken financial institutions, etc encourage more debt, and keep our debt-based system ticking over.

Putting up interest rates by a significant chunk (and properly regulating lending) would reduce the ability to take on debt and start to ween us off our addiction, but also send property prices down. The problem is that even if this is the 'right' course of action, it would be very painful for the nation, with very little short-medium term benefit. It would lead to an extended recession, large loan defaults and consequentially a second banking crisis and whoever brought it in would be voted/hounded out of office, long before the green shoots show.

If those in power are really good confidence tricksters, they could keep the illusion of growth going for years, maybe even decades. Alternatively, if the illusionists aren't quite so good, we might go the Japan route. Or if they get it wrong, or events elsewhere force their hand (PIIGS/US default? China bubble grows & bursts? Commodities bubble expands further/bursts?) then prices would fall big-time.

The next bit is my crystal ball bit(!): The govt will do everything they can to kick the can down the road (the Tories will continue to talk the talk but will use the debt crisis solely as an excuse to slash public spending, I don't believe they will start to tackle the wider external debt problem in a meaningful way). Economic policy will continue to be almost wholly geared towards minimising houseprice falls, but at some point down the line QE/low IR's/etc will become unsustainable and eventually there will be the mother of all crashes. My guess as to when this is? 1-2 years - unlikely, but not unthinkable; next 5 years - 50/50; next 10 years - highly likely.

peakoil_2

great analysis sm1234. I'm thinking of simply going back to my fall-back position of not really knowing what to do for the best until I find that 'perfect' home

Jegersmart

SM, good post - I agree with a lot of what you say - the trick is to know how the various parts of the economy will react when it happens. For example having massive negative equity is not an issue as such unless you cannot afford to pay the mortgage or have to move etc etc. I guess we will find out, however in the meantime one has to try to assess the potential risks and try to protect oneself against them - or position oneself so that advantage can be taken. IMHO, DYOR

Percy1983

Personally its not so much predicting whats going to happen but just looking at the situation and if you can afford/be happy with that.

I am going to buy straight into a 3 bed semi as to me that is the safest thing to do, I say this as I could potentially spend the rest of our lives in such a house so shouldn't end up needing to move to a bigger house, if we don't have to move a little negative equity won't hurt all that much if it happens.

With that I just want a home not so much an investment.

As it is my deposit is a bit further off what I need that yours appears to be.

botchjob

peakoil wrote: »

Oh I just thought he was some weirdo.

Nail. On. Head.

My view on this has always been that one should buy when one can afford to, providing you intend to live in it for a while. Leave the Donald Trump stuff to investors with big bucks. Or bitter renters and wannabe economists on message boards.

That said, if you're in no hurry to get on with your life then no harm in biding your time for a little while. When interest rates start creeping up it'll no doubt push prices down a bit. But do the sums and scenarios. What you spend on rent could go against a mortgage. And that figure should be balanced against what you 'might' save by future price drops if you wait a few years.

If you're a regular Joe looking to buy your first place, my advice is to just get on and do it, so long as you don't leave yourself financially overexposed.

julieq

peakoil wrote: »

we have just saved up for so long that we are now a bit scared about jumping in and getting burned.

You're confusing a house with a volcano.

Seriously, if you worry about what prices are going to do then you'll never buy so give up now.

Over 25 years you'll be fine. You're in a situation where confidence is low now and you'll be able to get a decent price. In a year or two when more people have deposits saved up and there's more competition for mortgages, it's difficult to see why there wouldn't be price rises.

Joe_Bloggs

PWC claim it's 'curtains' for the manufacturers of curtains , household suppliers ,estate agents and surveyors.

http://www.ukmediacentre.pwc.com/News-Releases/House-prices-to-remain-subdued-for-some-years-10c3.aspx


J_B.

peakoil_2

botchjob wrote: »

Nail. On. Head.

He does seem to be determined to derail this chat. I assume by your comment that he does this a lot?

peakoil_2

julieq wrote: »

You're confusing a house with a volcano.

Seriously, if you worry about what prices are going to do then you'll never buy so give up now.

Over 25 years you'll be fine. You're in a situation where confidence is low now and you'll be able to get a decent price. In a year or two when more people have deposits saved up and there's more competition for mortgages, it's difficult to see why there wouldn't be price rises.

I appreciate what you are saying and I know that I shouldnt be too bothered about price drops. in my defence if people who have seen a bit of HPI have a drop then they are just losing HPI money but if I see a drop then I am seeing my hard earned deposit disappearing.