No going back

Graham_Devon

ukcarper wrote: »

House prices are just above long term average and this is probably the best solution i.e house prices falling slowly in real terms.

You look at things simplistically if you want but that doesn’t make it correct, as things are never simple.

Where do you think all the houses would come from if they the price suddenly fell by 50%? The builders would not build and sell at a loss, the majority of people who already own would not be able to sell as they would be in negative equity and it wouldn’t be worth downsizing as the cost involved would take up most of any spare capital. On top of that the banks balance sheet would be devastated.

You have good points.

So do others surrounding the wider economic benefit of lower prices.

It's a hypothetical scenario, but if house prices did drop 50% overnight...would everyone default?

The answer has got to be no....as where will they go if they make themselves intentionally homeless? Sure, they will be stuck paying an amount much higher than what the property is worth, but I think the suggestion of everyone defaulting is a little much.

Banks balance sheets would suffer, but I certainly don't think it would be the end of the banks, rather it would be the start of a lot more government support.

At the end of the day, people would have to pay the same monthly amount as they do now if their house fell in value 50%. They wouldn't find it more diffuclt...the value is just a word, it doesn't effect their income.

It's not going to happen anyway, but one argument doesn't beat the other, and certainly it wouldn't have the effects many seem to suggest...afterall, Ireland is the test case. They are 40% down and the country hasn't caved in on itself....it's got problems, but those are mostly currency issues. Banks still trade. People still pay their mortgages, even with the value of their house being 40% less. The country rolls on.

moneyinmypocket

People would default if prices dropped 50% overnight the ones who wouldn't ate those who have approx 60% eq in there house.

Someone who has 10% in there home would likely throw the keys back at the bank if prices dropped 50%

Graham_Devon

moneyinmypocket wrote: »

People would default if prices dropped 50% overnight the ones who wouldn't ate those who have approx 60% eq in there house.

Someone who has 10% in there home would likely throw the keys back at the bank if prices dropped 50%

I don't believe they can just throw the keys back? Why would families intentionally make themselves homeless? I don't understand this train of thought.....maybe it's just an uninformed answer for discussion purposes?

Why would I give up everything if the value of my house fell 50% overnight? I'd have to bankrupt myself, meaning losing my car, meaning I can't work, meaning my family suffer. I'm not going to do that just because my houses has fallen in value. I'd just keep paying the mortgage and get on with it.

It would stop me moving, and it would hinder me in terms of being immobile and stuck with the house....but that certainly wouldn't be enough for me to give up everything I have in some kind of protest.

ukcarper

Graham_Devon wrote: »

You have good points.

So do others surrounding the wider economic benefit of lower prices.

It's a hypothetical scenario, but if house prices did drop 50% overnight...would everyone default?

The answer has got to be no....as where will they go if they make themselves intentionally homeless? Sure, they will be stuck paying an amount much higher than what the property is worth, but I think the suggestion of everyone defaulting is a little much.

Banks balance sheets would suffer, but I certainly don't think it would be the end of the banks, rather it would be the start of a lot more government support.

At the end of the day, people would have to pay the same monthly amount as they do now if their house fell in value 50%. They wouldn't find it more diffuclt...the value is just a word, it doesn't effect their income.

It's not going to happen anyway, but one argument doesn't beat the other, and certainly it wouldn't have the effects many seem to suggest...afterall, Ireland is the test case. They are 40% down and the country hasn't caved in on itself....it's got problems, but those are mostly currency issues. Banks still trade. People still pay their mortgages, even with the value of their house being 40% less. The country rolls on.

People woudn't default but the only people paying less would be the new buyers and all my other points are true.

As you say it's hypothetical and I do agree it would have been better if prices hadn't boomed by so much in the early 2000s but we are where we are and I personally think prices stagnating in nominal terms with real term falls is the best solution.

Graham_Devon

ukcarper wrote: »

People woudn't default but the only people paying less would be the new buyers and all my other points are true.

As you say it's hypothetical and I do agree it would have been better if prices hadn't boomed by so much in the early 2000s but we are where we are and I personally think prices stagnating in nominal terms with real term falls is the best solution.

Certainly slow falls or stagnation is better.

The caveat for me would be NATURAL slow falls and stagnation would be better. As it is, were getting these slow falls with a lot of stimulus (direct and indirect) being thrown at the issue.

That's helping the market and the figures, but it also means less and less can afford property....and this goes for those already having bought and not being able to afford their repayments, or struggling and those locked out.

So in essence what I am saying is, I agree with what you say, but we shouldn't forget why property is falling slowly, as the reasons for the slow falls are also creating problems in themselves. (I.e. were now in the longest recession for over 100 years, and can't yet see a way out).

I';d suggest the slow falls are better for those already invested, as for nearly everyone else, it very possibly means increased costs elsewhere (rents), lack of wage growth, lack of means to make returns on investments (shares, bonds, saving accounts) and lack of ability to buy in (mortgages being held back due to uncertainty) etc.

At least in this hypothetical world if prices did reduce 50% overnight, most of those problems would no longer be an issue, though obviously we'd now have the problem of exising owners unable to move. So in my mind, were swapping one problem for another. Instead of existing owners being stuck, it's those who don't own that are stuck.

ukcarper

Graham_Devon wrote: »

Certainly slow falls or stagnation is better.

The caveat for me would be NATURAL slow falls and stagnation would be better. As it is, were getting these slow falls with a lot of stimulus (direct and indirect) being thrown at the issue.

That's helping the market and the figures, but it also means less and less can afford property....and this goes for those already having bought and not being able to afford their repayments, or struggling and those locked out.

So in essence what I am saying is, I agree with what you say, but we shouldn't forget why property is falling slowly, as the reasons for the slow falls are also creating problems in themselves. (I.e. were now in the longest recession for over 100 years, and can't yet see a way out).

I';d suggest the slow falls are better for those already invested, as for nearly everyone else, it very possibly means increased costs elsewhere (rents), lack of wage growth, lack of means to make returns on investments (shares, bonds, saving accounts) and lack of ability to buy in (mortgages being held back due to uncertainty) etc.

At least in this hypothetical world if prices did reduce 50% overnight, most of those problems would no longer be an issue, though obviously we'd now have the problem of exising owners unable to move. So in my mind, were swapping one problem for another. Instead of existing owners being stuck, it's those who don't own that are stuck.

It could effect the banks badly because the loans are secured against the value of the properties. I don’t agree that there are that many props low interest is not primarily to support home owners SMI has been in existence for a long time.

Why would rents fall BTL landlords would still have to cover costs and there would not be other property available unless there were large numbers of defaults which in turn would cripple the banks.

Aberdeenangarse

homelessskilledworker wrote: »

Seriously mate, please don't..

Sorry, it had to be done, it was for his own good.

neilem

Graham_Devon wrote: »

At least in this hypothetical world if prices did reduce 50% overnight, most of those problems would no longer be an issue, though obviously we'd now have the problem of exising owners unable to move. So in my mind, were swapping one problem for another. Instead of existing owners being stuck, it's those who don't own that are stuck.

The majority of existing owners are stuck anyway, especially when you see them trying to sell at prices which wont make them any loss, or some are still living in the past thinking their home is worth more than it is. Then after a while of no viewings they catch the clue and decrease the asking price by £5k or so, which is more of a token gesture than anything, because they are only chasing the market down.

I agree with your natural approach, less of the schemes and other props to prevent any falls.

chucknorris

neilem wrote: »

So you agree that when you buy a house, your money wont be contributing anywhere else in the ecomony

What about:

Solicitors
Estate agents
Removal workers
Bank/building society workers
Valuation surveyors
All the other work usually and possibly associated with a move?

neilem

chucknorris wrote: »

What about:

Solicitors
Estate agents
Removal workers
Bank/building society workers
Valuation surveyors
All the other work usually and possibly associated with a move?

Bankers, EA's, solicitors? Not sure if I should be taking that with a hint of sarcasm...