What would happen if there was a crash?

Toptom1

If there was to be a house price crash how would it happen? Do the estate agents value houses for less or does it start when houses don't get sold so they lower offers? What's are the stages and what stage do you think we are in?

ess0two

Been and gone mid 2007

theartfullodger

Doom and gloom. People go bankrupt. Kids don't get enough to eat. Economy stuffed.

It's happened before it WILL happen again.

Cheers!

stator

Toptom1 wrote: »

If there was to be a house price crash how would it happen? Do the estate agents value houses for less or does it start when houses don't get sold so they lower offers? What's are the stages and what stage do you think we are in?

First step is that houses stop selling. Those people who have to sell start accepting lower offers. Then valuations collapse and no-one can get a high LTV mortgage. As prices fall even lower speculators/developers get more tempted and start snapping up cheap houses and house prices stabilise. Then confidence returns and people forget about the last crash and behave irrationally again.

jjlandlord

stator wrote: »

Then confidence returns and people forget about the last crash and behave irrationally again.

The way down can be as irrational as the way up. There is usually an element of panic during a crash.

happylucky

If you're tracking a patch with a view to purchase when the time is right....in a crash situation you might start seeing a build up of listings, then a sharpish decline in listings, reduction in asking prices, discounting of existing stock, increased friendliness of estate agents etc etc.

happylucky

Also, whether this is a crash or simply a market correction (and I can only speak to my area of interest and price point) remains to be seen. But certainly, transactions in some sectors of the London market are a lot less frothy than they were last August, that's for sure.

derbyshirenick

The thing is with boom and busts is that people (general population) have short memories and their life goals come before all else (i.e. buying homes, up sizing).

What will cause a crash is a drop in demand. Previously this was caused by a lack of available credit during the credit crunch. People cannot get lots of credit, people can not buy houses they want.

So in my mind the question really is, what will (could) cause demand to fall?

The only thing that will do that realistically is an event(s) that restrict peoples ability to borrow, or something that makes the affordability of that borrowing to be far less favorable.

Snakey

The interesting thing about a crash now would that there are, if you believe the media, literally millions of would-be buyers who are living at home or in flat-shares, saving every penny they have and in some cases sitting on fairly large deposits (and, because they are older, with larger incomes than they would have had before), desperate for that flat or starter home so that they can finally get their life plans back on track.

Despite all the media fascination with comparing the wage-to-house-price ratios of the 1950's or whatever, we are not going to need to drop all the way back to the average house price being three times the average salary of one person before people can start buying again. Times have changed and I don't think prices would have to drop far at all, even in London, before a critical mass of buyers would find they now have enough.

The other thing is that with interest rates being so low over the last few years, many people have been paying huge chunks off their mortgages and will not therefore be anywhere near negative equity or a forced sale (even if interest rates rise). And if a crash happened now it wouldn't be as a consequence of a recession and so you won't get people who have to sell because they've lost their jobs - that happened years ago and low interest rates saved them.

Anybody expecting that a crash will result in just themselves, alone, skipping at their leisure from property to property while desperate owners beg them to name their price, may find they're out of luck. There is a backlog of people wanting to buy, while sellers can afford to wait it out - or even (depending on what sort of a crash you are postulating) buy their new property while keeping their old one to rent out.

jonathanrolande

Agents follow trends so yes, if a house doesn’t sell and the owner is keen they will reduce it thereby setting the trend for the area. Others follow and voila, you have your crash!

happylucky

Fear can really accelerate downwards price movements irrespective of potential ability to cover mortgage payments....I think many buyers (ftb or upsizers) are very aware that prices in many parts of the country are at such a high salary multiple, that a 10% drop in capital value would need to be compensated for by a lot of extra work if they ever want to own the place 100%. for downsizers or those able to easily compensate for a potential equity hit this is less of an issue for sure.

I am still wondering why a 35% crash in house prices was selected by bank of England to measure the safety of UK banks....it obviously was not plucked out of thin air.