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

DiggingOut

If I had a BTL, I would sell now. Even if things just level out, you have a non-performing asset (unless rental income is high enough to provide a good return on equity). But most BTLs these days, I think, are being bought/held on the assumption that, long-term, the value is going to increase. That may be true, but it seems to me like a very good time to get out.

I do not think emotional investors are necessarily going to sell. An emotional investor who buys at the peak will often refuse to sell when he should because "I have to get my money back". Or, "My neighbour made 50% profit in BTL and I'm not getting out until I do, too." Or, "I should have sold last year, I would have had a great profit, now I need to wait until the price goes that high again," etc.

Some analytical investors will have a stop-loss. Others have a very long-term horizon, and a temporary drop in prices won't bother them at all.

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.

Lots of different ideas on this. IMO, the best would be for prices to level off for 4-5 years rather than any drop at all. But if there is going to be a significant drop, again IMO a short sharp drop would be better in the long run than a slow decline. Either way means pain for some people, though.

glennw

Good points about the BTL brigade. Perhaps not many will sell. Hopefully not many more will buy!

Spendless

Thanks for your thoughts Digging Out. The things you say about BTL were some of my reasons for deciding to sell my property, even though a lot of people advised me to carry on renting it out.
One more thing do you think trends vary area to area?
Where I live I think prices will keep rising slowly for at least 1 more year. I think this because

1 The bottom end of the market is being chased by FTB,BTL and people looking to put cash into property.

2 The boom started here in spring 2002, a bit later than other places.

3 It is a large town with good motorway/railway links, so people priced out of other areas are buying here.

4 An airport is being built - this is expected to have an impact on local economy.

5 It's not a trend setting town!!!

DiggingOut

One more thing do you think trends vary area to area?

If history is anything to go by, trends vary area to area, but panics spread to all areas rapidly. A sudden fall of 20-30% in London will be followed by the same phenomenon throughout the country almost immediately, I would guess. Too quickly for someone to say, "Oh, London has crashed, I better sell before we do here, too."

If prices level out or decline slowly, there will almost certainly be pockets that continue to rise for a time. Your town may be one. Although a decline in prices elsewhere will negate your reason #3.

aidsy

i think the BTL brigade should be thanked for providing home's,  there is alot of people that cant afford mortages,  so they rent ,  now that there is a scare of the BIG CRASH people are selling their house's  and renting, so to wait to see what happens to the house prices...  not only that but many BLT investers are also selling their houses because of the BIG CRASH ,  this means there is lees homes to rent from   so that mean that rents are being pushed up higher.

maybe the market is unstable at the moment  but i Dont belive that there will be a crash or a drop    but only a slow down of price increases

Galstonian

There are many different types of BTL investors. Some are in the market for the long term and some are in for a quick buck. Some have a business some have a single flat. The ones who will get out first will be the ones who got in last without doing their homework, the ones who tried to jump on a bandwagon which had already left. Many people are letting property and losing money, if not in real terms every month then at least when you compare what they could be making on their (say) 20% deposit and the fees they paid to enter the market. There is a great deal of risk in borrowing to buy an asset and concentrating wholly on its capital growth for any return especially over short time periods - many people have done exactly that.
The second thing is that most markets don't move logically, if they did we wouldn't have this discussion, we'd all punch a couple of numbers into calculator and that would be it - decision made. Housing is different in that we all need a roof over our heads but does that make it any more logical? When a market moves it generally does so buy swinging too far in one direction then the other. Over time these cancel out and give an overall trend but the problem at the moment is that we have watched an unprecedented (unfounded? unsubstantiated?) period of growth, any small turn in that could easily cause a much larger reversal. Think about the small factors that add up to the big picture, if house prices drop then potential buyers will have more control and can then say hold on, lets sit back and see if things drop further. Panicked sellers who need to get out of the market may be tempted into reducing prices, its easy to see where a downward spiral can start, I'm not saying it will but it is easy to see how it could. Markets are governed by a herd like mentality with people running from one extreme to the other, that is what could cause a house price crash and no amount of soothing words from the Bank of England or Gordon Brown can stop that if it happens.

horsefly_2

And just why should we believe you? This has been rumoured for months, if not a couple of years. I say go with the flow.

Reaper

Although people often remind us house prices crashed before there is something missing this time that was there before - a trigger.

Last time the end of Miras caused a sudden rush of buying followed by high interest rates when people discovered they couldn't afford the mortgages.

This time we have a strong UK economy with little unemployment plus historicaly low interest rates that are not expected to rise more than 0.5% and even that will take place very gradually.

The simple fact is that people can afford their mortgages. First time buyers are struggling to get a foot on the ladder and this will act as a brake throughout the market but that is not the same as a crash.

I agree house prices are overpriced by every way of measuring them, but I see no catastrophe ahead because there is no sudden event to trigger it. Also the Bank of England has room to move on interest rates and is able to lower them again if a crash seemed possible.

Personally I expect to see a period of stagnation with slow declines in some over-hyped areas. Time will tell.

alicardinal

I'm always surprised that people who need somewhere to live choose to rent rather than buy - (except for the obvious, short term, saving for a deposit, between houses sort of thing) - I couldn't afford to rent!!  My mortgage costs me £630 a month, whilst the same house across the road from me has just been rented out for £850 pcm (unfurnished).  

Not sure what this adds to the debate, but ....interesting

lisyloo

My mortgage costs me £630 a month, whilst the same house across the road from me has just been rented out for £850 pcm (unfurnished).

Did you buy recently?

If you bought a long time ago then that would be understandable but those wouldn't be typical figures for someone buying the house now. They would be much closer together typically.