Experiences of the last housing market crash?

chant1l

Iv been buying houses since 1991 as a commercial landlord, and one of the absolutes that I have got used to is the yearly predictions for slump in prices! Oddly I was involved in property before this and very little of the popular media even considered a crash possible, right up to the point it actually happened....!

Beverley is a nice little enclave just outside of Hull, and I would actually suggest that the mining towns with their pound shops will see better growth because of their relatively low value...!

Pauper_Princess

Must admit, when we bought this house in 2001 everyone was saying then that the market was overpriced and that house prices were going to fall, and yes they do seem to have been saying it every year since!

How do you carry negative equity on to the next house, do the lenders let you do that? (Going back to to roswell's post above.) How does that affect the new mortgage... say if you had a shortfall of £20K after selling one house and bought another for £80,000 - would you have then have a mortgage of £100,000? Sorry, told you I was thick

PoorDave

chant1l wrote:

Iv been buying houses since 1991 as a commercial landlord, and one of the absolutes that I have got used to is the yearly predictions for slump in prices! Oddly I was involved in property before this and very little of the popular media even considered a crash possible, right up to the point it actually happened....!

Beverley is a nice little enclave just outside of Hull, and I would actually suggest that the mining towns with their pound shops will see better growth because of their relatively low value...!

Is your last statement realistic? If something's valued at a lower figure there's generally a reason, and that same reason can generally stop growth rising at the rate of something more desirable. But i'm sure we all know that

fbrj

Pauper_Princess wrote:

Hi all,

Was just wondering if anyone could tell me anything about the housing market crash in the late 80s/early 90s?

In the late 80s we were living overseas with our 4 bed detached house (in Surrey) being rented to tenants. From memory, it had cost us around £90,000 in 1984. During a summer holiday in the uk in 1989 we bought another house nearby - prices were already beginning to come off their peaks (and we thought we had done rather well to negotiate a 10% reduction from the asking price!). We had to bridge the purchase as we had not sold our existing house (tenants in situ etc and we were desparate to clinch the deal on the house we were buying). It went onto the market at a "competitive" (per agent) £220,000.....in a declining market (we are now in March-December 1990). Eventually we sold after some 9 months for about £180,000.

In the meantime of course the house we had bought was declining in value too - but it had been bought as a family home, for when we returned to the uk, and so we were not overly concerned - provided we could afford to live there. Some will remember that interest rates jumped momentarily to 15% at one stage in 1992 - however when we bought the house I think mortgage interest rates were in the 9%-12% range and this was obviously factored into long-term affordability calculations.

Incidentally the house that we bought, we owned for the following 16 years but have just sold it (and exchanged) having had it on the market for nearly 18 months(!) - although this period included some offers we accepted but subsequently fell through. It was sold for almost exactly 3x what we paid for it in 1989.

I think people forget how rapidly house prices were increasing in the 1980s - our own experience was that the house we sold (and into a severely declining market) had doubled in 6 years. Whereas the house we have just sold "only" trebled in 16 years - although if it had been available a few years later at the depth of the market decline it probably would have quadrupled. But so what?...it was never bought purely as an investment but as a family home -and we have enjoyed every minute living here!

Alan_M_2

Had I been able to hang on to my house it sold a few year back for about 3 x what I'd originally paid for it.

It's all rather academic though, at the time I was earning a slightly under £15K a year and the mortgage and endowments peaked at closed to £1,100 a month (more than my income before any other expenses), that's why it had to go.

I was terribly bitter at the time as I thought I was doing the right thing investing in property. In hindsight, I was doing the right thing, I just got seriously unlucky, right place wrong time basically.

I just have an awful feeling of deja vu sitting here watching it all again and listening to all the same sound bites about it being different this time and people openly being chastised for suggesting there will be a drop. A little bit of history repeating.

Because of my previous experience I'm likely to be somewhat more pessimistic than the next guy about what will happen with values, but what it comes down to eventually, is your either lucky or your not lucky, I got unlucky - !!!!!! happens.

Gorgeous_George

Bought a 3-bed end of terrace (of 6) house for £32K in 1987 having sold a 2 bed mid terrace 100 yards away for £32.7K.

Similar properties rose to about £60K within a few years then dropped back to nearer £35K in early 90's. I changed jobs and moved areas so sold for £56K in 1999. New property cost £60.5K in 1999 and sold for £137.5K in 2003. Current property cost £154K in 1999.

All souds great but I have spent thousands making each house in to a home. I wouldn't like to add it up. New windows in last three houses, GCH in 2nd house, conservatory and garage roof in 3rd house, kitchen, bathroom, driveway, garden in this house plus new fireplace, loads of decorating, carpets - the list goes on. I doubt that I've made a penny, but I love my home.



GG

Snow_Dog

I have relatives who were trying to sell a 2 bed flat in about 1991/1992 due to an increase in family size and wanted to move to a 3 bed house.

They were saving as far as I can recall £1K per month and dropping the asking price on the flat each month by the same amount. Very frustrating for them.

It highlights the issue that the worst affected are those that bought a property within the last couple of years of price rises and who through various reasons then have to sell.

Most of my family had bought their properties a number of years before 1989 and were not in any need to move, therefore 1989-1992 prices had no effect on them whatsoever.

This time could be interesting as since we have had not only a boom in house prices, there has also been a credit boom, which means that if/when there is credit tightening, then this time round there may be many more forced sales rather than people riding it out.

You will find opinions on here and on other sites that vary from, you have to get on the property ladder whatever the cost, to total property armageddon within six months, there are prople that will tell you its different this time and those that repeat the mantra, property cycle.

Whichever way its difficult to predict, I personally felt that in 2004 the market had ran out of steam and was going to go into reverse. That didnt seem to happen and the whole process is still chugging along quite merrily. It is different this time because its being driven by different factors, BTL is playing a huge role, the input of large investments looking for an alternative to the dot com bubble, historically low interest rates all make this different this time around, however the end game may still be the same with property prices crashing (or it may not).

Some of the arguments that the "crash" brigade use, for example the historical low interest rates must return to the average, eg 7% or whatever the long term average is meant to be, the mathematician knows is a false argument as while rates remain low then they are slowly lowering the long term average, the mathematical average is only a statistical function derived from a set of figures, it doesn't determine future values. Interest rates aren't as simple as things like rolling a dice.

The period 1989-1992 was not marked simply as a property crash, there was also a fundamental culture change during this period. The excesses of the late 1970s and 1980s were coming to a close, in those few years pressures within society were released, it was like a 15 year long party had finally drawn to a close, culturally this period had seen phenomenal changes in music, drug culture, yuppies, the Thatcher generation, strikes, riots and the breakdown of the threat of nuclear war with the Soviets.

Stock markets, the government and property prices were what collapsed during this period. I dont see the same massive culture shifts happening here and now though, just the same old crud on tv, reality shows like BB and fame thingy just churning out the same old droll year after year, more of the same bland elevator music (though the change to the chart compilation method may prove interesting, and there have been some bright lights in the music indusrty lately).

Still, I will predict one thing for certain. There will be a crash. Just dont know which decade yet.

EdInvestor

It was the very high interest rates that caused the last crash,fundamentally.Shocking economic management first by Nigel Lawson and then Norman Lamont, when the pound was kicked out of the ERM.

Interest rates at that time were set by the Government and thus could be manipulated by political realities.Now they aren't - they're set by the BoE according to principles related to the health of the economy such as promoting low inflation.Hence no crash, as it would be bad for the economy as a whole.

I do agree that other structural changes, such as the rise of BTL and the growth of two income families have also underpinned prices.

Lenders are also now much more experienced in dealing with downturns: much higher deposits are demanded of FTBs, so as to avoid negative equity, which is not only a problem for the individual (and the bank) but tended last time to cause a downward spiral which affected the whole market for years. If problems do arise, more creative ways to solve them are now used rather than immediately resorting to repossession.It's a much more sophisticated market, things like mortgage securitisation have removed much of lenders' risk.

An example of how much things have changed is the growing tendency to pay off mortgages earlier.Back in the 70s and 80s you would have been regarded as a complete fool if you did that: why bother when inflation was reducing the value of the debt every year on your behalf automatically?


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suffolkb

We bought a 2 bed maisonette in Kingston for £66,000 in 1987. Then we had 3 kids in 2 years and needed more space,so put it on the market in 1993. The agent said that if we`d sold it the year before, he`d have suggested £92,000, but now £83,000 was more realistic. We then had to keep dropping the price until it finally went for £63,000. But, we bought a 3 bed house for £73,000 that would probably have been over £100,000 in the peak, so we didn`t really lose out.

albacore1854

Saw one opinion that suggested house prices will halve over 3 years.

That should sort the men from the boys.

Toshing a place over with magnolia, and arranging some candles and pebbles in the fireplace isn't property development.

Lets see if there so upbeat when they're losing a grand a week.