House Price Crash Discussion Thread

deanlr55

Please excuse the possible naivety in this comment but as a first time buyer and reading the current situtation am I in a win situation?

Say I held on for another year after renting a property and got a house for a lot less than it was worth a year ago then this surely would put me in an ideal scenario?

Also will alot of the country be effectively worse off now for these £1 deposits etc?

Its very interesting reading the comments on here and the MSE main site aswell as an empowering tool to learn more!!

But to go back to my question what would I stand to lose, apart from if prices kept going down?

ixwood

That's a big apart. I wouldn't be considerfng buying now.

I feel sorry for al the seemingly naive FTB that have been locked out of the market for years and are "bargain hunting" houses they can now afford.

No chance of a house for years and then almost instant negative equity and the implied financial diffifculties.

codger

merlinthehappypig wrote: »

The agents say that, in their opinion, £420000 or so is the right price in the current market and have given the sellers notice as they won't take a sensible offer.

Merlin: super post as it touches on something that isn't often appreciated: that idiots who insist their house is immune to a price fall (even though this same house has consistently been a fully justified candidate for a price rise) are always oblivious to the fact that the essence of business between a house seller and an EA is. . . business.

People who think that the "feedback" process implemented by EAs is solely to do with harvesting prospective buyers' opinions about how nice the garden looked, how pretty the decor, are residents of Cloud Cuckoo Land.

During the early 90s market slump, I knew of one major EA which instituted a 3-strikes-and-you're-out: three feedbacks about unacceptable pricing, after which they sacked the client unless the asking price was lowered. To lesser or greater degree, the same is happening now.


Nenen: stay clear of small builders at this time unless you can be sure the price is realistic. As sellers, builders are neither dependable nor predictable because they're frequently so far in hock to the bank, it isn't them but the bank which ultimately dictates the time of sale and the selling price. So. . .

Bob The Builder shows you his house and refuses to budge on pricing. That's today. Next month, Bob finds that what with one thing and another, his business debts are getting even further out of hand. More than ever, he clings to the forlorn hope of getting an unrealistic amount of loot for his property because that's all he can do. But. . . The month after that, his bank calls him in and says, what're you doing about selling that damn house of yours? And a week after that, the house is dropped by 10% in the EA window, and is probably purchasable at a further 10% off that.

deanlr55: Nobody here has a crystal ball but those of us who've been around awhile long since dispensed with agonising over the complexities and settled instead on the simple fact that a house is only worth what someone else wants to pay for it. And that's it.

When demand is high and credit's cheap, there are going to be a lot of "someone else's" around. When demand is low and money's tight, there aren't. As now.

As to renting v buying, the maths are equally simple.

If, say, you're shelling out £800 a month on an agreement due for renewal in six months' time, then that's £4,800 you'll have "lost" by the end of that period. If, say, you're about to pay £200,000 for a house now which sheds up to 10% of its value over the next six months -- by no means impossible -- you'll have "lost" up to £20,000 + Stamp Duty + legal fees.

On the face of it, no contest -- but (and this tends to be too easily overlooked) that "loss" applies only if you think you may have to sell in the next year or two. The advice I'd give is to decide in your own mind:

a) how much you can spend on your first home

b) how long you think you're likely to stay there (and that's crucial)

c) how suitable that home is for the medium-term (it's depressing, the number of FTBs who move into properties that they instantly grow out of when children come along: why didn't they think first?)

d) how desirable that property is NOT to you but to anyone else (for example, though city centre apartments seem desirable in daft glossy magazine spreads, it's the distinctly non-glossy terraced or semi-detached house that enjoys a far larger buyer catchment.)

e) how urgently you need to make the change from renting to buying.

Once you've done that, use the 'Net. Do some research. There are many sites which help you to find an area's "historical" pricing, as well as sites which monitor asking price v completion price.

Exercise caution though -- price then / price now sites can be flawed, displaying (for example) a massive price drop on a property which has, in fact, been split into flats in the preceding 12 months, so that the latest price is only for a part, not the whole, something the site doesn't know and so doesn't mention.

If after all that you've decided that you do need to buy, and you can be in your home for the medium term, and you've done some elementary pricing research, then by all means, go visit some houses, after which -- regardless of the asking price -- provide the EA NOT with an offer (unless you're certain the property is a bargain) but with feedback saying the price is too high. Never mind the decor, the garden, the plastic flowers in a grotty vase. It's price, price, price.

EAs do not have anyone's interest in mind but their own, and that's how it has to be: they've a business to run, and it won't run if no sales commission is flowing in to pay staff and meet overheads (and especially, the massive Business Rates that EAs are hit with because of their town and city centre locations.)

One other point to bear in mind: don't be conned by "surveys" like those from Nationwide or any others with a vested interest in maintaining market buoyancy.

No major EA has ever, nor will ever, author a report likely to frighten prospective sellers -- the people on whom EAs depend for their living -- into thinking omigod, the market's getting so bad, we'd be better off staying put and riding out the storm.

That's why all "vested interest" reports consistently underplay reality -- and why, whatever the percentage drop you do see in any such survey, you should double it.


Finally. . . As noted earlier, a house is only worth what someone else is willing to pay for it. So as there aren't that many someone else's out there, it might seem you're in luck.

But right this moment, there aren't that many houses for sale as there once were (despite Nationwide and others' underplaying of the situation, new EA instructions are down, down, down).

The ideal position -- which you want to be in -- is of a market where there are not a lot of "someone else's" looking to buy. But there are a lot of houses whose owners are looking to sell.

For that reason, were I in your shoes, and having decided yes, I want to buy, then waiting until Easter when 2008 instructions will gather pace -- even if at nothing like the rate of the boom years -- is the wisest course to follow.

You've nothing to lose by waiting. You could have a very great deal to gain.

Good luck.

merlinthehappypig

Excellent and thoughtful post codger. This thread is starting to turn back into a sensible and informed discussion after some hiccups.

chappers

ixwood wrote: »

No chance of a house for years and then almost instant negative equity and the implied financial diffifculties.

As has been said by Codger, negative equity does not have to bring with it financial difficulties, its down to affordability. Too many people are looking at their property as a pile of pound notes either increasing or decreasing in size.
What really should be happening is looking at your house as a home and making a decision based on your medium to long term plans, if you buy a house now and you slip into negative equity, but can still afford your mortgage then what does it matter provided you are in for the long haul.
Your decision to buy should be based upon your medium/long term plans and more importantly you should consider the LTV of your mortgage very seriously, its those that are over streched who will find themselves in the most trouble with no emergency get out. Lenders impose maximum LTV for the very reason that house prices may fall.
If i were afirst time buyer I would hold fire for a while to let the market settle, before making a decision. The huffing and puffing coming from the financial sector and the news is currently fanning, what is an already unstable fire at the moment.

ixwood

It matters as come remortage time, you won't be able to and get stuck on some hideous SVR.

What happens if due to price falls, peoples LTV dont meet the critera anymore? Do they have to cough up cash to restore the ratios? I'm sure I read somehwere, that's what could happen to BTLers at least.

seraphina

ixwood wrote: »

It matters as come remortage time, you won't be able to and get stuck on some hideous SVR.

What happens if due to price falls, peoples LTV dont meet the critera anymore? Do they have to cough up cash to restore the ratios? I'm sure I read somehwere, that's what could happen to BTLers at least.

I think the best case scenario when your LTV changes for the worse is that you stay on the lender's standard variable rate - you can't remortgage. Certainly why ask for a revaluation for mortgage purposes if it may find that your LTV is less than when you started - poss. putting you in line for an even higher rate from your lender, as you're a riskier client.

13thearl

There is no housing shortage in this country. There has been an excessive amount of people chasing properties for sale, mostly due to people buying to let, ie an investment. Now that this is no longer a good investment, and those people will be taking profits, ie selling up some of their portfolio, there will be more houses on the market. We could call this a housing glut, though the actual number of houses is much the same as it was 10 years ago. In fact there actually are more homes now.

13thearl

Advice to anyone thinking of buying property - WAIT. It will be alot cheaper by the end of the year.
Advise to anyone who has a second property as an investment - SELL IT ASAP.
The market is way overpriced.

adr0ck

codger wrote: »

stay clear of small builders at this time unless you can be sure the price is realistic. As sellers, builders are neither dependable nor predictable because they're frequently so far in hock to the bank, it isn't them but the bank which ultimately dictates the time of sale and the selling price. So. . .
.

whats a realistic price?

what are you comparing it to?

yes small builders usually are in hock to the bank (how else would they afford to build?).................but to say its the bank who dictates when and for how much they sell is complete twaddle..................that would be the market...........the house market and/or the rental market