What would happen if there was a crash?

wolfplayer

Snakey wrote: »

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.

Hey Mr HPI. Fewer than 2 in 5 households have a mortgage, this much is true, assisted in recent years with owners paying down mortgages under low interest rates. However you need to watch the buying side. I have no intention taking on jumbo mortgage to keep houses inflated. Watch what happens when this market runs out of buyers. It's just about pulled in everyone who can and will buy, with the most recent surge in FTBs. Your houses are worth what buyers are prepared to pay for them.

DRP

wolfplayer wrote: »

Hey Mr HPI. Fewer than 2 in 5 households have a mortgage, this much is true, assisted in recent years with owners paying down mortgages under low interest rates. However you need to watch the buying side. I have no intention taking on jumbo mortgage to keep houses inflated. Watch what happens when this market runs out of buyers. It's just about pulled in everyone who can and will buy, with the most recent surge in FTBs. Your houses are worth what buyers are prepared to pay for them.

...and of course, combined with what vendors are willing (forced) to sell them at.

MobileSaver

wolfplayer wrote: »

Watch what happens when this market runs out of buyers.

With the population increasing by several million people every few years and nowhere near that many homes being built, the market will not run out of buyers for a very, very long time yet...

Richard_Webster

People who bought new houses/flats "off-plan" and exchanged contracts long before they were ready find that when they apply for a mortgage the lenders won't lend the inflated prices the builders were asking.

stator

MobileSaver wrote: »

With the population increasing by several million people every few years and nowhere near that many homes being built, the market will not run out of buyers for a very, very long time yet...

When first time buyers can't even afford a 95% 30 year mortgage the domino effect could cause the whole market to freeze up

Linton

If there was a "crash" houses wouldnt sell and the asking prices would steadily fall over many months until a new balance between buyers and sellers was found. So not a crash type crash, more a gentle descent.

However, this would only happen if the number of available buyers fell drastically. For example because mortgages dried up, mass unemployment, or just fear of mass unemployment leading to a general avoidance of major expenditure. Under such circumstances why do those people waiting for a crash think they would be immune from the conditions affecting everyone else?

nobblyned

stator wrote: »

When first time buyers can't even afford a 95% 30 year mortgage the domino effect could cause the whole market to freeze up

Sounds like first time buyer numbers doing well.

First-time buyers at highest level since 2007, says Halifax
http://m.bbc.co.uk/news/business-30684286

stator

nobblyned wrote: »

Sounds like first time buyer numbers doing well.

First-time buyers at highest level since 2007, says Halifax
http://m.bbc.co.uk/news/business-30684286

Yep, but it won't take much for them to dry up. Help to buy withdrawn, interest rates go up, tighter mortgage lending criteria. My point was there's no where for them to go if house prices go up. With 95% mortgages and 30 year mortgages the 'norm' it won't take much to push the first domino over

derbyshirenick

From my experience (admittedly limited to my own, and that of friends) the only really limiting factor on FTB is the deposit. Monthly mortgage outgoings are not a million miles away from rental prices (assumes most people will not consider an IR rise in their budgeting).

Of my social circle the only two households that have managed to buy are one that got in early and got a 105% as a do-er-up-er back before the crunch and us who slaved for five years plus to save up the deposit. Without help, its extremely hard to get 15-20k together ontop of paying rent and other life expenses.

That said, at least for FTB it seems the systems confidence is what will make or break up take. If the banks get confident in the market, we will see more and more 95% LTVs (already available again through Nationwide's Save to Buy and other smaller institutions).If the banks have no confidence however, we could see the current defacto 10% deposit go up. At the end of the day the deposit amount the banks mandate is based on their margin for devaluation risk.



*15-20k assumes a deposit + expenses on a modest 125-140k home.

AlexMac

Toptom1 wrote: »

If there was to be a house price crash ... what stage do you think we are in?

I think we're a long way away from a crash; i.e at the stage of prices still rising gently. In some areas, I guess they'll rise more than inflation; in other words, I'm agreeing with the predictions of 4% average increase from this BBC article.
http://www.bbc.co.uk/news/business-30422517

While this also confirms that the 'experts' were broadly accurate in predicting last year's 7% increase, past performance is no guide to the future as they say. Another newspaper article over recent days compared prediction performance against actuals over the past ten years; and this showed that nobody predicted the 15% crash of 2008-9; in fact most pundits predicted a slight rise, so were up to 17-18% out! In other words, the predictions were a total waste of space.

If you look at the last 40 years (which happens to coincide with my experience of home ownership), the graph at http://monevator.com/historical-uk-house-prices/ is also interesting, and shows the 2008-9 crash and the previous one, almost twenty years earlier in 1989-91. But does this mean a 20-year cycle will repeat? Probably not!

This earlier drop was particularly severe in London's marginal areas, where prices overheated, but then dropped up to 30%. This meant, in practice, that my mate bought a flat at £43k in Lewisham about 1987 then found it was worth £35k three years later. But even in London there were big variations between neighbourhoods; I bought at £35k in about 1985 and despite the crash, doubled my money in nine years.

But factor in general inflation, and even worse, interest rates which peaked at an incredible 15% in the 1990s and the actual prices become meaningless.