Property market 'heading for a fall in 2008'

Sisyphus

BobProperty wrote: »

It doesn't work that way though does it? Otherwise putting 10% more houses on the market would produce a 10% reduction in prices which doesn't happen.
The price doesn't need to fall if banks will lend more money. Which is what has happened over the last few years. More the opposite, you can ask more for the same property because someone is willing to pay more for it, because they can borrow more. Even if there are more properties on the market.

So by implication the reverse is possible, prices could fall even if demand were greater than supply merely due to a lack of funds.

danm

BobProperty wrote: »

It doesn't work that way though does it? Otherwise putting 10% more houses on the market would produce a 10% reduction in prices which doesn't happen.
.

that depends on the elasticity of demand

BobProperty

Sisyphus wrote: »

So by implication the reverse is possible, prices could fall even if demand were greater than supply merely due to a lack of funds.

Which is what happened in the early 90's. One element was banks tightening the lending conditions. Suppose the rules on deposit funding for Building Societies and Banks was suddenly tightened massively. e.g. they can only loan 1:5 to deposits (can't remember what it actually is, about 1:9 1:10 is it?), or interest rates jump several points. Are lenders going to still lend the same amount as at present. No they can't. So what happens? It's harder to sell, because there are less "qualified" borrowers (to use the American term - been on a lot of American "real estate" sites recently) out there buying. So prices are pushed in a downward direction as sellers chase buyers.

mystic_trev

I can't agree with the supply and demand theories. It was the same in 1988, The market went berserk, double MIRAS was about to get scrapped, 10 people after every house, what happened next? I remember it well - I was there and believe me, this feels like 1988 all over again.

danm

Prices are determined by supply and demand, unless there is some unknown factor, artificially keeping them high (i.e a cartel)

What is more difficult is understanding the determinents of supply and demand.


...(come to think of it, estate agents, cartels...hhmmm)

aqueoushumour01

we all know that house prices are dangerously inflated but nobody can predict the timing of a collapse so articles like the one in the OP are frankly pointless.

epz_2

as far as i am concerned the market is being driven by pure sentiment, while interest rates are going up and brown has handed lower earners an nice tax rise may effect the market its more likely we will see a tipping point when the btl's etc start taking some profit once the continual growth enventually stops.

up here in scotland the market has trebled n the last 5 years, while there may be some minor supply aspect with councils knocking down the worst scum holes.

the majority of this jump has been due to massive media hype, earnings are lower up here and you could build a house pretty much anywhere if you were granted planning permission. not to mention last year was about the 1st in years where the population didnt decline, so there is very little supply issues.

cazmanian_minx

I think prices are already starting to drop in Croydon. There's a block of flats in the town centre, last year 2-bed flats were selling in it for £210-240k. There are two 2-beds in the block for sale at the moment, one at £195k, one at £190k. Both vacant possession and chain free - BTLs selling up.

Caz

Rick62

If high prices were caused by supply and demand then you would see rents also increasing by a similar amount.

In stock market terms rents and cost of building (plus land plus 'cost' of getting planning) all represent fundamentals while traded prices represent sentiment.

In a rational market the traded price should be supported by fundamentals (eg value of house equals cost of buying land and building, and is fully supported by the yield, ie rent).

If the price is higher than supported by fundamentals then it is a speculative bubble. Speculative bubbles don't plateau, they keep shooting up until they stall, then they crash and usually hard.

The problem is right now there is a whole generation who have never experienced a speculative bubble burst (unless they were lucky enough to have dot.com shares). When it does it is not just a matter of quickly selling at 5 to 10% below the peak, the buyers just arn't there at any sort of price.

typeractive

I am totaly new to the whole property ladder. I have to admit stories like this scare me, as I feel I need to buy a place or I will be stuck forever. I have been saving up a deposit to help me.

At the same point I want my own place, not just the need to feel on the ladder.

danm wrote: »

then surely the price falls until they are affordable? Supply and Demand

I agree with supply and demand - it is the basics of business. What factors effect such demand is another matter. However I think the market is more complex than just up and down.

I am a FTB. I am looking to get a little property or flat for around £65k. (actually I just spotted one at £75k today, which I am about to make a post on soon - as I want some help! lol) Where I live, £65k is a lot for a 1 bed flat. No I don't live in a crap area. It's just you can buy a house for around £100k....I can't buy a house at that So I have to make do.

I think/hope when it comes to any burst properties of around £100k and less will be more desireable to have, as people with the big mortgages will be hit hard, and want/need to sell up to get places smaller/easier to finance. Of course I could be wrong: if the prices drop totaly in the area then so will my little flat and I will potentially lose out - especially with it being a flat, who would want my flat when the houses would all be plummiting?

If house prices were to plummit there would be plenty of people ready to buy them for a 'bargain' price.

So what I am trying to say is, in the event of a crash: demand could be up for some properties (cheaper mortgages eg: £100k and less), though there may be less supply as people will hang onto them/stay put. Also at the same point demand could be down for the larger properties, with a larger supply.

I hope I have made some sense as I'm not feeling too well today, and not 100% with it.

I appreciate people's thoughts on this though.

As someone else mentioned it is a great place that people are nice to each other with logical replies! :money:

Thanks