Take cover! The housing market is heading for a bloody and protracted crash!

Graham_Devon

Not my headline, the Daily Mails....and I thought I'd post it!

In the decade from 1997, house prices trebled. They didn’t treble because British houses had suddenly trebled in size, or because people had become three times richer, or even because inflation had skyrocketed. They trebled because banks made it easy to borrow, easy to bid up the prices. That was all.

The ratio of average house prices to average earnings went from around 3.5 to more like seven times average earnings – implying that prices at their peak were overvalued by almost 100%.

Since 2008, prices have fallen back, but only a little. In those areas of the country least affected by recession – yes, London, I’m looking at you – house prices are already back to their peak. In the hottest areas of town, prices have almost certainly exceeded previous peak levels. The changes to stamp duty introduced in the budget may shave a prices of the most expensive homes by a fraction, but only by a fraction. The simple fact is that, while our real economy stagnates or falters, we live with a property market almost as hot as it was in the burning heat of 2007.

That heat wasn’t justified then and it isn’t justified now. The sombre truth is that we were due a property crash in 2008-09 and got little more than a splutter and pause. The reason why prices remain high has nothing to do with the supposed uniqueness of the British property market – which isn’t, in fact, much different from any property market anywhere.

Prices are high because money is still being pumped relentlessly into the economy by the Bank of England.

And it goes on....

That dip will be protracted, bloody – and furiously resisted by the banks who will demand further bailouts to protect their business models. (Read: protect their bonuses.) When Hometrack comments that the market isn’t ‘firing on all cylinders’, the best response is a cynical laugh. The market will fire again, when prices are sane. For now, stand well back and take cover.

http://www.dailymail.co.uk/debate/article-2124941/UK-house-prices-Market-heading-crash.html?ito=feeds-newsxml

The comments (at least the ones recomended by readers) seem to flow along the "excellent article" route too.

System

I have this sudden urge to buy Mitch's book.

Carl31

Finally, a sensible article from one of the most read papers

not that im a fan of the mail, and am a little shocked that it has printed it

vax2002

The only thing trebling is immigration under the coalition and that will see house prices rocket, not fall.
Which is the whole idea.

HappyMJ

They won't drop dramatically for a while yet as 7 times income at the moment is at the the limit of actually being affordable with such low interest rates. i.e £36,000 times 7 is £252,000...with a deposit of £84,000 on a property valued at £336,000 the interest at a variable rate of 4% is only £10,080 which is 28% of gross income. If the income is divided equally over two working people at a very reasonable level of £18,000 each then they would be bringing home £2,462 per month and paying 34% of their net income in interest at £840 per month. If they were to rent a property instead then on gross income of £36,000 they could rent a property at £1,200 and meet the letting agents income requirement (usually an annual income which is higher than 30 times the monthly rent). An interest only mortgage requires a repayment vehicle such as tax efficient savings into pensions or ISA's or someone can opt for a repayment mortgage which isn't that much more at £1,330 per month over 25 years. A long term fixed rate will fix the repayment at that level whilst rents will increase at the rate of inflation. Although I don't actually know any mortgage providers that will lend that high an income multiple.

Once interest rates start rising then the market will have to lower prices so that mortgages are affordable.

spadoosh

Whats the definiton of 'bloody and protracted crash'

Weve never seen more than a 15% drop in value (and that was 2008/9), not really crashes more blips and they always seem to be inline with the general economy and recover 5 or so years later, of course house prices will fall during recessions thats what a recession is, the economy shrinking therefore everything should see price drops.
And its annoying saying there artificially high prices, it now seems the norm and has done for 10-20 years or so. And if were going along those routes anyone ever looked at property in tokyo? sydney? new york? beijing? There prices seem pretty on par with ours and wages arent soo much diffent maybe instead of 'artificially high prices' we should just call it the 'price'

Ill try not to panic and sit it out

J_i_m

If the price of everything drops during a recession then why does energy prices, food prices and the cost of living continue to rise regardless?

Rinoa

Once again Graham falls for a doom mongers spiel.

Will he ever learn?

mr_fishbulb

spadoosh wrote: »

Whats the definiton of 'bloody and protracted crash'

Headline grabber?

wotsthat

I can see why that article's popular. A heady mix of banker bashing and an over simplified analysis of a complicated problem.

If they'd made an attempt to at least refute the argument that rental yields are supportive of prices and that population is increasing faster than housing supply it would be slightly more credible.

Blacklight

Hmm, we haven't had the 'House prices will return to 1950's prices soon' discussion for a while.

You get your favorite graph out Graham and I'll explain again why prices won't reduce by 70% any time soon.