Experiences of the last housing market crash?

cwcw

Alan_M wrote:

The rates Peaked at 15% on 16th Septmeber 1992, commonly known as Black Wednesday, some 2-3 years after the property prices had begun to slide.

Not according to this: http://www.moneyworld-ifa.co.uk/bank-base-rates.htm

Alan_M_2

So what you're saying is the heavily Documented Black Wednesday, the day rates were at 15%, didn't actually happen?

I remember that day very well, it was horribly depressing.

http://en.wikipedia.org/wiki/Black_Wednesday

You'll also find the following interesting:

http://www.bankofengland.co.uk/statistics/rates/baserate.pdf

Of particular interest will be the footnote at the base of page one, that state the MLR (Minimum Lending Rate) was 12%-15% in Sept 92 even though the base rate was actually listed at 8.875%, it's all a lot more simple now the BoE deal with it all and not the government.

F_T_Buyer

cwcw wrote:

Not according to this: http://www.moneyworld-ifa.co.uk/bank-base-rates.htm

That's because Black Wednesday saw rates only shoot up that day, and that day only. After Sterling dropped out of the ERM rates were reduced by the end of the day.

Of course, this doesn't stop people using Black Wednesday as an argument to why prices crashed.

As the link shows, interest rates peaked mid '90, and have been falling ever since. This didn't stop the price falls, and shows how looking at only interest rates as the affordabillity measure is flawed.

meanmachine_2

cwcw wrote:

No they weren't. Before November 1988, the last time rates were 13% was in March 1985. 1987 had rates between 8 and 10.5%, generally decreasing through the year.

Rates from Jan 1986 to March 1986 were 12.4%

Rates in 1985 averaged 13%

Rates in 1988 averaged 9.5%

Between 1985 and 1988 rates averaged 10%.

An increase in 1989 of 3% should not have been much of a shock to anyone.

Rates in 2003 were 3.5% and are forecast by some to hit 6% by 2008.

cwcw

meanmachine wrote:

Rates from Jan 1986 to March 1986 were 12.4%

Rates in 1985 averaged 13%

Rates in 1988 averaged 9.5%

Between 1985 and 1988 rates averaged 10%.

An increase in 1989 of 3% should not have been much of a shock to anyone.

Rates in 2003 were 3.5% and are forecast by some to hit 6% by 2008.

Rates in May 1988 were 7.5%. Rates in November that year were 13%.


Between 2002 and 2005 rates averaged 4.275%.

An increase to 6% by 2008 should not be a shock to anyone. However, lets concentrate on the current rate of 5% rather than an unproved prediction. Even if the 20% rise between now and 2008 does happen, it isn't on the same scale as the near 75% increase within a 6 month period in 1988.

The bottom line is the interest rates in the past leading up to the crash jumped dramatically in short periods of time. They are no where near as volatile now.

cwcw

Alan_M wrote:

So what you're saying is the heavily Documented Black Wednesday, the day rates were at 15%, didn't actually happen?

I remember that day very well, it was horribly depressing.

http://en.wikipedia.org/wiki/Black_Wednesday

You'll also find the following interesting:

http://www.bankofengland.co.uk/statistics/rates/baserate.pdf

Of particular interest will be the footnote at the base of page one, that state the MLR (Minimum Lending Rate) was 12%-15% in Sept 92 even though the base rate was actually listed at 8.875%, it's all a lot more simple now the BoE deal with it all and not the government.

One day in September 2006 being 15% does not prove your point that interest rates did not trigger the crash. A one day peak was also a one off anomaly. Interest rates in 1992 were past their overall peak, which was 14% in 1989, coinciding with the start of the crash.

ginandtonic1988

Unfortunately we were repossessed, we had a 100% mortgage, I was only 18 and it was my first home. Our mortgage was 3 payments missed and then we were taken to court. It all happened as my husband lost a very well paid job and there was so many companies going bust and people chasing for work he couldn't find another very well paid job, I also at the time was very low paid so it was a case of what do you do eat, pay mortgage or pay utility bills?

Now 17 years later and a "moneysaver" I have learnt from experience and I own another property. I work in conveyancing and every day I see youngsters coming onto the house ladder taking 100 percent mortgages and it worry’s the hell out of me what will happen to all of them if we have another crash.

Ian_W

What happened between 1989 and 1992? Why house prices increased quite substantially [20-30%], of course!
[If you want some of what I'm smoking meanmachine, local offy - L&B silver about a fiver for 20! ]
Or at least they did if you lived in the North West, North, Scotland or Northern Ireland. If you lived in London, the South East and West, East Anglia, Midland or Wales prices went down by up to 30%, although some were single figure drops in price.

Don't ask me why. Same interest rates, same economic climate but my experience was buying a house in 1989 for £50K and selling it 3yrs later for £75K having just put in a new kitchen and redecorated [£5K max] whilst we lived there. The house we bought in '92 was £84K and we spent £20K revamping it but we couldn't have got our money back for 5 or 6yrs - it didn't matter 'cos we didn't need or want to sell during that time. Fortunately we were both in secure jobs and we were never in mortgage negative equity.

Prices declined for us from '92 onwards and the dip was almost 10%, London and other areas were starting to pick-up and recover losses as we were going down. And I think I'm right in saying that Scotland actually only recorded a single negative year loss of under -1%.

So that's my experience guys, you go figure it out. Was there a single crash or several crashes close together in the late 80's, early 90's? I think the mistake is to think of A housing market - when there are many micro-markets in different areas of each region. Sure there are national, regional and local figures BUT, as Alan M has pointed out before, they're reflective unlike the stock market which is real time. My opinion is that it's all down to economics - if we have a recession with lots of jobs lost house prices will dive until then I doubt it, though I am surprised they've continued to rise as quickly for the last 2 yrs.

Hope that helps - enjoy the discussion.

Alan_M_2

cwcw wrote:

One day in September 2006 being 15% does not prove your point that interest rates did not trigger the crash. A one day peak was also a one off anomaly. Interest rates in 1992 were past their overall peak, which was 14% in 1989, coinciding with the start of the crash.

I never stated they weren't responsible, I was pointing out they peaked after the crash, and stuck the knife in to an already difficult situation.

Also now the BoE is control of the rates it's all so much more simple, we don't have a selection of underlying rates as we did back in the 70's 80's.

So you may have found that the underlying official bank rate and the Minimum Lending Rate could have been 5% different.

Alan_M_2

Ian_W wrote:

What happened between 1989 and 1992? Why house prices increased quite substantially [20-30%], of course!
[If you want some of what I'm smoking meanmachine, local offy - L&B silver about a fiver for 20! ]
Or at least they did if you lived in the North West, North, Scotland or Northern Ireland. If you lived in London, the South East and West, East Anglia, Midland or Wales prices went down by up to 30%, although some were single figure drops in price.

Don't ask me why. Same interest rates, same economic climate but my experience was buying a house in 1989 for £50K and selling it 3yrs later for £75K having just put in a new kitchen and redecorated [£5K max] whilst we lived there. The house we bought in '92 was £84K and we spent £20K revamping it but we couldn't have got our money back for 5 or 6yrs - it didn't matter 'cos we didn't need or want to sell during that time. Fortunately we were both in secure jobs and we were never in mortgage negative equity.

Prices declined for us from '92 onwards and the dip was almost 10%, London and other areas were starting to pick-up and recover losses as we were going down. And I think I'm right in saying that Scotland actually only recorded a single negative year loss of under -1%.

So that's my experience guys, you go figure it out. Was there a single crash or several crashes close together in the late 80's, early 90's? I think the mistake is to think of A housing market - when there are many micro-markets in different areas of each region. Sure there are national, regional and local figures BUT, as Alan M has pointed out before, they're reflective unlike the stock market which is real time. My opinion is that it's all down to economics - if we have a recession with lots of jobs lost house prices will dive until then I doubt it, though I am surprised they've continued to rise as quickly for the last 2 yrs.

Hope that helps - enjoy the discussion.

A larger bubble formed in the Southern part of the country and the home counties which slowly permeated around the rest of country, so that kind of ties in with your timescales.

The bubble in the south was more severe, in both it's peak and it's trough.

This is where the theory that London is the indication on what's going to happen around the rest of the country comes from.