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

isasmurf

If it does come, then its not going to be a sudden drop.  It will be a slow decline.  I say bring it on.

So I keep hearing... usually from people with a vested interest (building societies, estate agents, etc) I don't believe it is true for simple supply and demand reasons. As soon as there is the slightest hint of the prices coming down, the majority of buyers are going to desert the market, waiting for the prices to come down just that little bit more. Meanwhile your going to get a lot of homeowners and amatuer property investors panicing and selling their houses (or attempting to!). This will cause a surplus of houses on the market meaning the few buyers there are can force the prices down.
This is what your saw in the stock market crash in 2000, and I believe you'll see in the house market crash of 2004/05.

However, I don't think prices will drop more than 30% (I reckon about 20%) which still means I won't be able to afford my own place.

spl0dge_2

>>It will be a slow decline, usually from people with a vested interest ( building societies, estate agents, etc )

exactly right.

even if prices dropped 30%, these people will be continually telling us that prices are rising. Because they may well be for short periods.

'soft landing' is an NL phrase. there is no such thing.

alared

When the "buy to let" brigade realise that prices are starting to fall (in some areas,they already have) there will glut of houses put up for sale and as prices fall and panic grows it will snowball into a stampede.

DiggingOut

Well, I have no vested interest, other than that I own my home (well, Nationwide has a slight interest in it, I suppose ::)), but I don't expect a rapid drop. If there is a decline, it will be gradual. But what I expect is simply a flattening.

I suppose a crash would actually be beneficial to me because my mortgage rates would likely drop significantly. I have no plans to sell my home in the next 10 years or more, so what the market does is largely irrelevant to me.

Galstonian

exactly right.

With such an accurate understanding of the economy and your very precise insight into the future of the housing market I'll just have to go with your prediction then.  Shame on me for thinking that you are simply guessing, how foolish of me, I apologise.

tr3mor

DiggingOut, how would your mortgage payments drop if prices fell? Your mortgage is based on the amount you borrowed to begin with, not the current value of your property.

lisyloo

Your payments are based on the amount borrowed AND interest rates.

I think the D_O is thinking that if house prices drop dramatically then interest rates will drop.

If there is a drop off in sales, then estate agents and mortgage brokers etc will loose their jobs, this will means less money in the economy so people who work in the service industry will loose their jobs as well (cinemas, dominos pizza, mcdonalds etc).
The bank of England will then drop interest rates.

That's massively simplified, but house prices are tied into the whole economy.
The fact that people's homes have been going up in price means that people have been spending (sometimes from increased mortgages) on cars, holidays, clothes etc.

This will all go into reverse if house prices drop.

dunstonh

I dont have a vested interest and stick by my views that it will be a steady decline if and when it comes rather than a sudden drop. This would mirror the list decline. That one had more of a reason to drop fast but it didnt.

DiggingOut

Correct, lisyloo. Other impacts will be that people will no longer be as able to borrow against equity in their homes, because there won't be any. This will affect sales of big-ticket items like cars, etc.

So a housing crash could cause redundancies in manufacturing and the service industries, and lots of misery all around. It could even spiral into a deflationary situation like Japan has had for years.

At the first sign of significant falls in housing prices, I would expect the MPC to slash rates to try to prevent a major crash, and all the negative consequences that could come with it.

glennw

Hmmm,

Digging Out and LisyLoo,
Now I feel slightly guilty for hoping that house prices crash.

I certainly don't want anyone who works in the service industry to lose their jobs. I myself have been made redundant and it is not a pleasant experience.

Gordon Brown wants to put an end to boom-and-bust economic cycles in this country.
Currently share prices, Inflation, and interest rates all look fairly sustainable.
But property prices went insane. There has been a boom. What next?

Remember, first time buyers cannot afford to buy houses.
There are lots of buy-to-let investors (sample data: people I know!). If I was one I would try and sell ASAP and put the money in an Index Tracker.

Fair enough, you shouldn't gamble with your home. But an investment that is falling?
According to historical figures (Source: Motley fool) buy-to-let investment should be profitable in the long-term. But not as profitable as shares.

Many people are emotional investors. I think they will sell.
Some people are analytical investors. They will have a stop-loss figure on the house-price.
I think they will sell.


Would a sharp drop be better for the economy?
A fast correction would mean that poeple would begin buying again sooner, hence more
work for the estate agents, mortgage advisors, and fast food operatives.

Food for thought?
I'm off to get a burger!