So, House Prices can't fall uh?

phlash

Remember though that "The one thing we learn from history, is that we don't learn from history!"

If only we could.

hitman_uk

Im saving for my first house now been renting for 3 yrs as i could simply not afford to buy. I dont have any market knowledge but i think i am rational and this is the way i see it and what ive read on web pages , media etc

The reasons the house prices increaced was due to low interest rates and the fact that banks have been lending massive mortgages.

Both these things have now changed. Interest rates are going up and the moneys about to dry up. One peice i read is that the banks are reverting back to 3.5 * salary in the near futute. If this is the case then people will not have the money to spend so prices will come down.

Gordon Brown aka no more boom or bust has already quoted this week that he cannot control factors outside of britain...he sounds he knows somethings coming

And one thing I have learned which i didnt know know is that it takes a year for each rate rise to take effect so now we are only seeing last augusts rise. Scary stuff.

As an examply of much it can hurt a friennd of mine bought a new build for 160k. He got a 2 yr fixed deal @ 720 quid a month. In Jan his deal runs out and his mortgage rises to approx 960 quid. Thats one hell of a jump.
People are already using savings to get by and even credit cards to meet payments. Something has got to give sooner or later but my moneys on sooner

Melissa177

I'm not convinced house prices are going to rise at the same rate they have done for the past ten years across the country, but I'm bullish about London - especially S. London, where I live. Moreover, I *don't* think there is going to be a crash (ie, decrease in prices).

You only get a crash when people are forced to sell. This might happen with some people with the recent rate rises, but not enough to ensue forced selling on a mass scale. Remember that in the US, interest rates had gone from 1% to 5%+ in a couple of years, which is 400% increase. Here we've had about a 30% increase in interest rates over the past couple of years.

People, on the whole, will cut back on eating out and new gadgets before defaulting on their mortgage. The high streets are still busy, and Pizza Express is still full.

In the long term, I see house prices rising due to supply constraints. People are living longer, there are more single people living on their own (my flat could fit two people in it - well, if I reduce my shoe collection first), everyone wants to live in London (me, my friends, and half of eastern Europe), and there are plenty of people who are waiting ready to buy up properties (so we are led to believe) in cash of a crash. (I actually don't think the latter is true - a lot of people are saying that, but it takes some balls to buy in a crash).

I don't see those big City bonuses going away any time soon either.






A comment on the US sub-prime issue: The big problem is that a lot of "prime" mortgages are fixed (sometimes for the entire term of the deal), whereas the sub-prime ones were linked to interest rate rises. No wonder the sub-prime market went t*ts up in the US. And note that the crash occurred in places like Detroit, with it's rather less-salubrious homes, unlike where my parents live in western NC, where house prices are still rising at over 10% a year.

Generali

Melissa177 wrote: »

A comment on the US sub-prime issue: The big problem is that a lot of "prime" mortgages are fixed (sometimes for the entire term of the deal), whereas the sub-prime ones were linked to interest rate rises. No wonder the sub-prime market went t*ts up in the US. And note that the crash occurred in places like Detroit, with it's rather less-salubrious homes, unlike where my parents live in western NC, where house prices are still rising at over 10% a year.

My understanding is that for the first time (since either the 1930s or ever, depending on who you listen to) US house prices are falling on average across the country.

TBH I don't think that's really important so much as symbolic though.

Good letter in the FT yesterday about borrowing in the US getting out of hand written by a plastic surgeon:

Sir,

"Payback time" (August 9) was a great article on the US subprime fraud and inadequate credit checks. The blindness of the companies involved is baffling because by 2006 everyone in southern California knew that "financing" meant free money.

Having just moved west, I was chief of plastic surgery in a cosmetic surgery centre, most of whose working-class patients financed their operations via a company owned by doctors (I was not one of them). Women with incomes of $18,000 a year were being given $10,000 loans.


But at least the doctors' finance company did stricter checks than the local mortgage companies and car dealerships - perhaps because you can't repossess cosmetic surgery.

For example, I saw two women friends who wanted cosmetic surgery, but the routine computer finance credit check showed their social security cards and drivers' licences were forged.

They objected to this being detected, saying the documents were newly bought - $45 each - from street vendors. In the past week using these documents they had financed two new cars and a home.

They were refused financing by the surgical centre but were so sure there had been a mistake that they returned the next day with two new sets of forged documents. They were not only surprised but outraged that financing was still declined.

If this credit squeeze/crunch carries on into the autumn and winter, house prices are toast along with a large part of the real economy. A recession will be a certainty as City workers start to lose their jobs and Gordon's cash cow dries up.

Lazy_Runner

phlash wrote: »

You've modelled this on the whole of the market being owner occupiers. The fact is, is that we now have a MASSIVE amount of speculative investment in the form of BTL. Most of which are every Tom !!!!!! and Harry, rather than seasoned Investors. Many seasoned investors got out and have put their money elsewhere.

How does the sentiment of speculative BTL figure in a falling house price scenario may I ask?

Again not entirely sure, but as long as rents are being paid and mortgage payments being met, there is no need for a novice BTL to panic sell. It is only during void periods or if there is a downturn in the economy then there is a problem. If the latter, there is a problem for everyone.

I understand some BTL'ers are subsidising their tenants. Even if the economy does get worse, if the landlord continues to be in a position to subsidise, again no reason to sell.

I suspect people have a lot of sentimental reasons for holding onto a purchase be it a house/stock/share etc which when the market is going down gets them into trouble.

Melissa177

Generali wrote: »

If this credit squeeze/crunch carries on into the autumn and winter, house prices are toast along with a large part of the real economy. A recession will be a certainty as City workers start to lose their jobs and Gordon's cash cow dries up.

On what basis do you come up with that analysis?

Also, is it of any consequence that London is a debt/credit centre, and not an equity centre like NY?

Ad

The situation in the US is no different to here apart from here it’s far worse. The UK housing market is just one massive pyramid scam. It’s purely built upon being able to borrow more money than the last person and this has been specially aided by the industry.

Every person I know of and they know of has been encouraged to exaggerate their income to obtain the necessary funds to buy a home or rental property. To commit fraud.

There is no shortage of housing or land with permission to build upon, which was proved on the dispatches programme several weeks back on C4. There are thousands of flats laying empty in towns and cities up and down the country. These are being purposely left empty for speculative gains. There are acres of land with planning permission being purposely held back from development to maintain an artificial shortage.

Generali

Melissa177 wrote: »

On what basis do you come up with that analysis?

Also, is it of any consequence that London is a debt/credit centre, and not an equity centre like NY?

Because if funding costs for banks rise substantially (one of the nastier effects of a credit squeeze) then this will have several effects:

Banks won't be able to enter the riskier sorts of trades and deals either for themselves or for their clients. For example, merger and acquisition (M&A) financing will either become more costly or (as at present) impossible to get.

Hedge funds will have to operate at lower levels of leverage. They tend to trade their entire portfolio once or even twice a year! Compare this to a traditional unit trust that might trade 10% or so of it's portfolio each year. A mid-sized hedge fund can generate similar trading comissions to a large unit trust fund.

Parcelling up debt and selling it on seems a dead market right now. Ditto Credit default swaps.

Derrivatives will become more expensive (so demand will fall) due to financing costs.

These things have been big drivers of City profits in the past couple years. It is hard to see what can replace them if this credit squeeze is maintained. Even if we go back to 'normal times', you are looking at a lot of bankers losing their jobs and certainly to bonuses being slashed.

wolvoman

Ad wrote: »

Every person I know of and they know of has been encouraged to exaggerate their income to obtain the necessary funds to buy a home or rental property. To commit fraud.

What utter nonsense.
So you're saying out of a sample of people you know that 100% (that's what you're saying ONE HUNDRED PERCENT) have been asked to exaggerate their income to get a mortgage?

Either you mix with some very shady people, or you're making it up to support your argument.

lynzpower

wolvoman wrote: »

What utter nonsense.
So you're saying out of a sample of people you know that 100% (that's what you're saying ONE HUNDRED PERCENT) have been asked to exaggerate their income to get a mortgage?

Either you mix with some very shady people, or you're making it up to support your argument.

id say its very widespread indeed.