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

HeadOverHeart

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.Thanks to the sections of the press however and the doom and gloom mongers who seem to want to see a crash I cannot sell it.Yes house prices are expensive in lots of parts of the country but not everywhere.I think its probably best for everyone if there is a correction rather than a crash which is probably more likely.What lots of people seem to forget is that if there is a crash it will probably effect the economy overall which could mean increased unemployment etc.That way nobody benefits!

So let me get this right what you are saying is that If I want to buy your flat (which by your own admission is currently very difficult to sell) I can go from paying 650 a month in rent to 500 a month in interest (both of which I will never see again). I'm sorry but for a 150 a month I would be happy for you to take the risk of owning an overpriced asset and let you take the capital loss, then in say 18months when you have lost 11K (capital loss of 10% over 18 months only half a severe as Deutsche Bank has predicted) I will come and buy it off you for 99K and be £8,300 better off (11k losss less the 150 a month extra I paid for the priviledge of renting muliplied by 18 months) That should pay my stamp duty, mortgage fees legal costs and leave me with enough for a new sofa 42 inch widescreen and a holiday to boot.

Its a betting game and I bet you 150 a month for the next 18 months that I WILL benefit. If you win and I lose I am £2700 worse off (18 months multiplied by the extra 150 a month I pay for the priviledge of renting), If I win based on a conservative assessment of future market correction of -10% over 18 months I stand to be £8,700 better off than you!!

deemy2004

Never buy at the Bottom !

Because you don't know the markets bottomed until after its starting rising off of it

Also people that talk about letting their property out, assume that it will be always occupied 12 months a year !, whereas all landlords experience periods when the properties are empty, unfortunately your bank will still want the mortgage paid every month, even if the property is empty.

dougk_2

House prices cannot double in the next 10 years peak to peak, if the inflation rate is only 1.5% !

Now if inflation started taking off then house prices may double or more.

Is inflation really at 1.5% though - it is by government fiddled figures - but realistically its higher if you count in such thing's as fuel prices, Council tax, Insurance etc.

Its like the unemployment figure is not actually true if you add in all the "disregarded people" like 16-18 year olds that are not entitled to cliam the dole.

deemy2004

The markets dictate what the true rate of inflation is.

The way they are treating sterling at the moment, it can't be much above 1.5% so yeh, probably true inflation is higher but not significantly so.

Walletwatch

House prices cannot double in the next 10 years peak to peak, if the inflation rate is only 1.5% !

Now if inflation started taking off then house prices may double or more.

It'd be inaccurate to talk of the inflation figure we know when we discuss house prices. After all, house prices and council taxes, etc. hardly contribute to the index currently being used..

GDB2222

Is inflation really at 1.5% though - it is by government fiddled figures - but realistically its higher if you count in such thing's as fuel prices, Council tax, Insurance etc.

You're right, undoubtedly. The long-term trend is for house prices to rise about 2% a year on average faster than the rate of price inflation as measured by the RPI. That extra 2% mops up any difference between the RPI and the 'true' rate of inflation, whatever that is.

That's about the same (2%) as the trend for wage increases to exceed RPI.

Geoff

deemy2004

wages are rising at 4% so that implies inflation of 2%

GDB2222

wages are rising at 4% so that implies inflation of 2%

RPI increase at the moment is about 3.4% year on year.

The 2% or so trend is a long-term average trend, with significant fluctuations from year to year.

Also, because of the large fluctuations in house prices, there can be significant differences in the measured trend line, depending on when you do the measurement.

House prices are well above trend (40% or so) at the moment, based on all the usual historical measures. Either there will be a 40% correction, or we are moving into a new era of permanently-higher house prices.

The arguments for premanently-higher prices are:
a) There's a lot of demand (true, but there was a lot of demand in 1990 when prices crashed)
b) Houses are affordable because of low interest rates (true, but people are taking out 50 year mortgages, and interest rates may well rise during the next 50 years)

dougk_2

My beleif is that people now have generally speaking more disposable income than say 20 years ago.

With greater competition in the consumer market and huge price reductions in electrcial goods in real terms, people can afford to spend more on the "house" (as in the building itself). This is reflected by more lenders switching to affordability based mortgages rather than multiples of salary, which do not really indicate how much people can afford to pay.

The "debt" problems it appears to me are caused by unsecured loans (credit cards etc) these are the areas that need to be tightened up. Whilst Stoozing is good for some people it obviously has a negative effect on the credit companies causing overall higher rates of intrest and less profits - overall nobody really gains.

With the exception of FTB's I believe house prices to be substainable as long as people keep their other debts in check.

deemy2004

Yes people have more disposable income but house prices in terms of the ratio house prices / income is at extreme levels ! Were not talking 4, or 4.5 were talking 5, 6, 7 even 8 TIMES earnings !

Not sustainable unless wages go through the roof.

Okay houses have demonstrated themselves to be good long-term investments, but were looking at the time frame of maybe 2-3 years, in which case house prices look way over valued on ANY measure.

The only thing keepign them afloat is strong sentiment, which takes time to erode. Give it time, a year and then lets see where the housing market stands