**Don't Buy A House** House Prices Set To Crash!!!

deemy2004

For what they're worth, a few of my thoughts…

I would say that the big difference between this time (if it happens) and last time (end of the 80’s) is that there is no single trigger to make the market do an about turn like MIRAS did. This time it will probably be investors not buying, or possibly beginning to sell. This would be as a result of no return on investment or better returns elsewhere (e.g. stock market, or even savings accounts if interest rates rise any more). This makes it difficult to predict when (or maybe if) it will happen and by how much. How many investors would choose to pull out? There are a lot of contributing factors to take into account. It isn’t as simple as last time!


t_i_g_e_rr

The triggers are obvoius i.e. rising interest rates and slowing economy.

If people think the falls are going to be short-lived, then they are deluding themselves, for the big knockout punch has yet to come ! I.e. after the election, Mr Brown will up the taxes to cover his budget deficit. Afterall theyve won the election ! They have upto 5 years to ingnite the next boom for the next election, 2 or maybe 3 years of pain before they start buttering is up for the next election is on the cards !

Since global inflationary pressures are building up and not decreasing this means that 2005 will be an inflationary year, which can only mean higher interest rates, which will slow the economy.

So a triple whammy is starting to hit and will continue to hit house prices more forceably during 2005. That is rising interest, rising taxes and slowing economy, all three together will defiently knock the stuffing out of house prices at extreme levels.

deemy2004

Houseprices Expensive??? Dont

If something triples in 5 years than thats what  I call expensive ! especially when inflation over 5 years is barely nudging 10%.

When the stocks were hitting the stratosphere durign late 1999 and early 2000, there were many who thought this time its different, okay there may be a correction, but this time it is different a new era has dawned !

Yeh sure, we say where that new era stood in mid 2003. Likewise 3 years from now......

Cautious_Ben

For what they're worth, a few of my thoughts…

I would say that the big difference between this time (if it happens) and last time (end of the 80’s) is that there is no single trigger to make the market do an about turn like MIRAS did.

I beleive the property 'crash' of the late eighties/early nineties was a double trigger collapse. The ending of double miras releif was the start of the downturn with greatly reduced market activity and prices reducing gradually as affordability was greatly stretched and public sentiment was turning against buying. All the 'experts' were saying it's fine, economy is good, just a blip etc. This is the posistion I beleive we are at now in the present housing market. Search out some of the press articles for 89/90 and see the similarity to what's being said today. The second and far more damaging trigger arrived in 1991 when the ERM collapsed and we had to withdraw which shot our interest rates up from 12% to 15% in a very short space of time. This became unmanageble for a great many households and repossesions went up to much higher than average levels, which caused prices tumble. Confidence in the property market collapsed, which is why on paper the crash actually ended about 93/94, but the property market didn't start rising again until about 1997 when the confidence returned. If there hadn't been the ERM collapse the market may well have corrected itself far quicker and with less damage to sentiment. I think we could be in for a slow correction of affordability unless we get a shock to the economy. Remeber interest rates only need to rise to about 7% today to have a worse effect than the 15% of the early nineties.

Pal

Houseprices Expensive??? Dont believe the hype!!They are still not that expensive in relative terms in all parts of the country.For example I have a very big two bed flat in the centre of Cardiff worth 650pcm if I let it out.I have it on the market for 110k. It would cost roughly about 500pcm on a good interest only mortgage deal and a 5% deposit.Thats 250 each for a couple buying together.If they wanted to pay even less they could have a lodger at 250 a month (tax free now) which then leaves only 125 each,thats approx 32 quid a week!Not bad for a home of your own which is also a fabulous long term investment in a city with a top class University.So lets see rent or buy?650 a month and get nothing back for it or buy it,its a no brainer to me.....

If it is such a no-brainer, why are you trying to sell it? Surely any buyer is better off waiting until you get desperate and start reducing the price?

Greenstuff_2

Don't know if it's been mentioned but the UK are currently accepting 250,000 legal immigrants each year, and an estimated 50,000 illegal, they all have to live somewhere.......

It works out that if that rate carries on (and it has the last 2 years) the equivalent of a city the size of Birmingham will have to be built every 10 years

Whilst the demand is there...

Jezza101

For example I have a very big two bed flat in the centre of Cardiff worth 650pcm if I let it out.I have it on the market for 110k.

So net off the 5% and your're left with the need to borrow 105k. Normally a *responsible* mortgage lender will lend 2.5 times the combined income of a couple: so they need to be earning £42k. A two bed flat in the centre of town is clearly not aimed at an older established couple with money and a toddler or two. So who will buy it? A student nurse and a teacher on 30k? Can this couple afford the stamp duty? The fees? And what about when there credit card debts, student loan bills, and day to day costs are netted off their earnings in the mortgage calculation?

I wish you all the best in selling, I really do. But are there really that many young couples earning that much in Cardiff? Cant say many of my peers are on that kind of cash in London - especially my 'key worker' friends and that includes their london top ups. Hopefully you will get lucky and find a pair of high earners to sell it to - heres hoping it suits the aspirations of such a couple.

My *rented* London 2 bed place has 2 bathrooms, whirl pool giant bath, stunning fitted kitchen, dble glazing, built 6 months ago, cable/net/phone connections etc is valued at a crazy 200k. Now given London's reputation for high prices and assuming that your place is of similar standard - does 110k seem like the 'real' value? Mind you it of course depends on how much you value a 15min train link into the City of London .

More usefully, compare your flat to the 80k terraced house my friend just bought in Swansea - and even that was only affordable by forming a consortium of buyers who split the costs - but then this was a house and big enough for the group. But perhaps opportunities in Swansea arent as rich as in Cardiff - I know my family in that part of the world seem to carry concerns of employment around with them at all times.

But the real problem, as said before, is that us 1st time buyers do not earn enough to be able to borrow to buy. There are no choices involved in this for us. We just cant afford it! I cant afford a 200k flat in London or a 110k one in Cardiff!

Anyway, forget the arguments - lets see what's actually happening:

House prices fall for first time in three years
28 OCT 2004 11:47 BST
LONDON (Reuters) - House prices suffered a monthly fall for the first time in three years in October, the Nationwide building society says, in one of the clearest signs yet that the property market boom is over.

House repossession actions at four-year high
27 OCT 2004 12:56 BST
LONDON (Reuters) - The number of court actions entered to repossess homes for mortgage arrears in the third quarter rose to its highest level since early 2000, official figures show.

Jezza101

Don't know if it's been mentioned but the UK are currently accepting 250,000 legal immigrants each year, and an estimated 50,000 illegal, they all have to live somewhere.......

It works out that if that rate carries on (and it has the last 2 years) the equivalent of a city the size of Birmingham will have to be built every 10 years  :o

Whilst the demand is there...

So what are the emmigration rates? What are the birth/death rates? That info is not useful on its own! I undersood there is -ve population growth in the UK...? Certainly would be if it wasnt for immigration!

greedwatchuk

Not sure how to reply to replies but anyway to the chap who asked why am I selling etc...because I want to move for work reasons.People move for all sorts of reasons out of pure necessity ie children,work,divorces etc.Part of the point I was trying to make was that the market needs to be able to meet demands for all sorts of reasons in order to keep an economy functioning.There is no point in a buyer waiting for me to get desperate until I reduce because I just wont sell as I need to achieve a certain price to buy on.You were also assuming I would be desperate.

I do also recall the crash of the 90s was also partly due to high unemployment at the time.There is excellent employment rates in the UK at the moment compared to the rest of europe so it would be much better for everyone if prices dropped to a more affordable level for key workers etc.Unfortunately I dont think that will happen as a property is almost sold as small business investment these days and prices are to an extent determined by its lettable value compared to cost.This is something not evident in the 90s its a result of a much more relaxed approach from lenders who never used to offer non status mortgages to amateur investors (for want of a better phrase) Back then often you would need a commercial mortgage at much higher rates and income from letting was not taken into account.Given the fact that lenders are offering more and more better fixed rates and ,the fact that interest rates are still comparatively low and are not likely to go up much more if at all,if there is a crash property at worst prices will only ever going to drop to a level where the returns become attractive again on buy to lets etc. Once the BTLs move back in on the market again its likely to re ignite the first time buyers market if its gone really flat which will probably bring about a steadier market.So in other words I expect the market to yo yo between periods of time when yields on rents go up and down.For as long as theres people to fill homes wether they are rented or bought in the uk thats whats likely to happen and it seems the UKs population is only likely to grow given increased life expectancy rates,immigration,etc together with a lack of a long term housing strategy etc.Cheers

Pakard

A Big Graph for all of you... made by me. ;D



FTB's were priced out at the beginning of 2003, nonexistent in a last two years and replaced by new BTL-ers. Since mid 2002 oldies “BTL” started selling out to newbie’s “BTL”, who have played an important role in driving up prices, have now disappeared from the market. Now there aren't enough fools to sustain the market, let alone keep driving it up. Now the housing ladder is breaking down as current homeowners can’t sell it or can’t even afford to move up. Majority of the 30% reductions in mortgage approvals could have been from the BTL sector. When Buy to Let bubble burst, as prices fall, existing landlords will start selling in numbers and prices will drop even faster.
That is why letting agents  across Britain are exaggerating potential returns and saying there is still life in BTL.

deemy2004

Don't know if it's been mentioned but the UK are currently accepting 250,000 legal immigrants each year, and an estimated 50,000 illegal, they all have to live somewhere.......

It works out that if that rate carries on (and it has the last 2 years) the equivalent of a city the size of Birmingham will have to be built every 10 years  :o

Whilst the demand is there...

Immigration also occured between 1989 and 1994, did not make any difference then, why would it not now ?