Are house prices falling?

John_M_Business

What, of course, several people who have posted predicting a slump fail to do is to read their very same messages of a year ago and, funnily enough, they were predicting a slump back then!!

What does this tell us? That they are wishing more than predicting and hand-selecting the statistics that suit their purposes.

But, as I said before, it's like a party conference on this particular discussion.

dougk_2

Its just not a year ago... it was a year before that and a year before that.
Imminent crash reports were around in 2001..... so 4 years at least of doom and gloom.

Lemoncurd

Have to agree with the predictions of a slump years ago. I sold a house in 2001 and one of the arguments my husband had for not buying another was that "we were at the top of the market" then and prices were likely to fall. He has been arguing the same thing for the last 5 years.

dougk_2

Actually I belive there will be a slump.... yes shock to all those who will have read my posts.... I'm just not sure when it will be maybe 2007,2008, 2010,2020,2030.........

And I also predict there will be a bigger house price boom..... maybe that will be 2007,2008, 2010,2020,2030.........

Answer is no-one really knows.

Pal

dougk wrote:

I disagree strongly with this.

This is because you are failing to understand basic economics.

Low interest rates mean that people can afford more (i.e they are paying out less per month) thus the prices of houses increases as demand increase.

Indeed, and this is what has happened in the past 8 years, however that period was a historical anomoly that has created a house price bubble.

Low interest rates do encourage borrowing, but what happens when people reach their borrowing limits, as has happened a great deal in the UK? Their earnings have not risen so eventually they have to stop spending and try to pay off some of their cheap debt. This is "consumer retrenchment" as the BOE calls it. The problem is that reducing interest rates will have far less of a stimulating effect on the economy than it used to have in the past. If consumer spending contracts, people start losing their jobs (first in shops, then the rest of the country), and that is when house prices start to fall.

[/quote]Falling intrest rates are not a sign of a failing economy otherwise this would have been the case several years ago when rates fell before rising again slightly. It is my view that the opposite is true.[/quote]

And you are wrong Falling interest rates are required to boost a weakening economy or one where other counter-inflationary effects are in play.

A clear example is the fact that interest rates fell sharply after 9/11. The US economy was in trouble, so they dropped interest rates to stimulate the economy.

In a stable economy interest rates are stable, and in a fast growing economy they are generally rising as interest rates are used to contain demand to cap inflation. In the past cheap oil and chinese goods has meant that both inflation and interest rates can be low, but the BoE and that HBOS report mention earlier think that period has come to an end.

The FACT that lenders are now reducing their fixed rates is another reinforcement that the feeling or trend will be lower interest rates over the fixed period (typically 2 to 3 years).

Actually that has more to do with competition in the mortgage market. Remember that most fixed rate mortgages have lock in periods at the end when the provider makes back the losses they have made on the fixed introduction period.

I expect rates to stay as they are for a while then come down a .25% to .5% and consumer confidence to return (as a number of reports today have shown is already happening).

And you may well be right. Consumers may stop spending, unemployment may rise and interest rates might fall in an attempt to kick start a failing UK economy. However that does not mean that house prices will not fall at the same time.

I have no idea which way house prices will go, but am fairly confident that they will either stay the same or fall. Further rises in the next few years are highly unlikely IMO.

Pal

p.s. All this quoting of short term statistics is pointless on both sides of the debate. All you are reporting is random noise that has far more to do with the way the data is collected than the actual underlying trend.

dougk_2

There are a huge number of fixed rate mortgages that do not have the lock in period.
Rates for these are well below their SVR and quite a few are now somewhere around the BOE rate. (4.5 to 5%). I don not beleive it is competition driving this, but a view on the way rates will be.

Rates have been stable for 9 months so this is good news then?

deemy2004

dougk wrote:

Falling intrest rates are not a sign of a failing economy otherwise this would have been the case several years ago when rates fell before rising again slightly. It is my view that the opposite is true.

I expect rates to stay as they are for a while then come down a .25% to .5% and consumer confidence to return (as a number of reports today have shown is already happening).

The ONLY reason why interest rates were cut was because the USA went into recession, partly because of the stock market crash and later Sept 11th.... Thus they cut interest rates to 1% !!! Which pumped cheap dollars into the worlds financial system that went into virtually every concievable asset class leading to daft rises in house prices etc...

Now that the USA has been tightening, the cheap money is running out as the world moves towards 'normal' interest rates.

Highly likely the next step in interest rates WILL still be higher - and the key to that trigger will be inflation, brought about by a fall in the £ as the financial markets adjust to UK plc with above trend growth to below trend growth.

House prices are tumbling and most stats suggest the pace of decline is likely to accelerate over the next 12 months by a few gears...
All those who are now posting that house prices will not tumble will be eating their hat, shoes and smelly socks in 12 months time....

meanmachine_2

dougk wrote:

There are a huge number of fixed rate mortgages that do not have the lock in period.
Rates for these are well below their SVR and quite a few are now somewhere around the BOE rate. (4.5 to 5%). I don not beleive it is competition driving this, but a view on the way rates will be.

Rates have been stable for 9 months so this is good news then?

Aren't you the same poster who keeps banging on about how predictions are futile?

Why on earth do you think banks are any more able to predict the future than you or i?

Deemy 's point about the US economy is the most pertinent. Sadly, you, me and the Bank of England have very little control over our economy these days. If the USA makes borrowing more expensive, then the same will happen here.

And no, the USA can't play the same trick of slashing IR rates, unless they want to massively expand the debt bubble, and trigger rampant inflation.

People in this country point to our "lack of land" or lack of housing stock as the reason why prices have leapt up. Why then have US properties also soared? No reason other than the low cost of borrowing. That is now at an end. I'd be amazed if we see IR rates return below 5% for a very long time.

So yes, if you can fix your mortgage, I'd do it now. Because you and I know as much about the future as the banks - diddly squat.

Norma_Desmond

Ho Hum.......since this thread keeps getting bumped to the top I may as well add my 2p's worth - it's been really quiet in my neck of the woods for a few months now, but just this week 3 properties in the same village street have gone up for sale and the local estate agent says he hasn't been so busy for a long time! It's certainly UNPREDICTABLE times we're living in, therefore I'M predicting nothing......how on earth CAN we know?