House Price Crash Discussion Thread

boinging_2

Luckno7 wrote: »

Interest only mortgages eh, what a stupid concept.

or a concept for the stupid...

Luckno7

boinging wrote: »

or a concept for the stupid...

LMAO, never was a truer word spoken.

Investement only morgage:

The bank lends you someone elses money at interest
You buy "interest" off the bank
The increase in money supply devalues the money
People demand more money in exchange for physical items (a house) as the money is worth less
House prices go up, you trade in that house for more money that is worth less than when you started and paid intrest all the while.
What a clever investment that was eh, you budding rockafella you.

(and that's if things go according to your genius plan)

redmen9

I've been reading through this thread with great interest. I sold my previous property 5 months ago (small 2 bedroomed cottage) as I need more space for my growing family (1 daughter and one on the way).

I had decided that the housing market had reached a peak and that property value could not rise any further as it was unsustainable.

I've been reading press reports for years now about youngsters being priced out of the market, that becoming a home owner was becoming more and more difficult with less and less FTB getting their foot on the first 'rung'. Well not surprisingly, it's not just the FTB that are having difficulty with these displaced 'rungs'. As a second time buyer looking to move up the 'ladder' I am having great difficulty finding a suitable house despite having a fairly substantial sum from the sale of my first home to put down on the next.

House sellers are being very greedy, they have been chancing their hand asking silly money for properties that are blatantly overpriced. Estate Agents haven't helped the issue by creaming greater profits from the increased sums paid and helpig to push the prices higher.

The way I see it is that the whole situation is unsustainable. There are only so many people that can afford house prices these days, the vast majority of prospective buyers are priced out of the market. Yes, desirabel properties will always sell to those who can 'afford' them, but surely these aren't the buyers that make up the vast vast majority of all the prospective buyers out there??

As I see it, credit/borrowing is at an all time high, cost of living is spiralling, wages are not increasing in line with these factors, banks are feeling the squeeze, interest rates are incredibly low which discourages/penalizes savers. Something has got to give.

Surely there can only be one outcome?

I've 'gambled' on a price crash by moving into rented accomodation. I have no idea when this might happen, or to what degree, but I am convinced that it will. As I say there's a huge market out there priced out, only by dropping prices are these people going to be able to afford to buy.

redmen9

p.s.

Went to look at a property today which was well out of my price range (would have put a cheeky offer in had I liked it) and I found it rather telling the the estate agent that was showing us round (a partner in the firm) had sold his house and had moved into rented accomodation. If those who are supposedly 'in the know' are seriously expecting a price carsh (and backing that up financially) then surely it's a matter of when and not if!!

Generali

Luckno7 wrote: »

Interest only mortgages eh, what a stupid concept.

Terrible for the vast majority. The only people they're any good for are those that get a lot of their income in lumps and so can make occasional large payments of the principal. I have a couple of mates in the City that have IO mortgages and pay them off in that way. They expect to get their annual income doubled (at least) with an annual bonus. I know one person that has paid off his IO mortgage in that way.

He's a lunatic, by bonus time he'll have an overdraft well into 5 figures although he gets a 6 figure bonus these days.

ixwood

I disagree. IO has it's place. It gives you the flexibility to invest elsewhere instead of repaying capital.

I dare say someone with an IO mortgage that invested their capital payments in shares over the last 10 years would be significantly better off than if they'd repaid capital.

It might be better and it might be worse!

m00m00

the problem of course being that most people who went with IO did so because it was all they could afford, and thus had no spare capital to invest, hoping on HPI to bail them out, which over the last 5 years or so, has.

dweeby

redmen9 wrote: »

Yes, desirabel properties will always sell to those who can 'afford' them, but surely these aren't the buyers that make up the vast vast majority of all the prospective buyers out there??

Thing is, FTB's are the ones struggling. Everyone else still has a (virtual) "wedge" from the increase in value of their own/previous house. So in fact, the vast majority probably can afford the most desirable houses, particularly with current interest rates.

redmen9 wrote: »

I've 'gambled' on a price crash by moving into rented accomodation. I have no idea when this might happen, or to what degree, but I am convinced that it will.

We're in exactly the same position, but are in the process of buying a desirable house. Whilst there is no better time to be in rented, you don't really gain by being there. Sure, there is the interest on your wedge, but there is also the rent to pay. Once I move into our house, I'm paying the mortgage off and reducing the time left to pay. I also haven't enjoyed living in rented.

All depends on where you live, where I live house prices have dipped but are not really dropping. Houses are stagnating on the market, but sellers/EA are not really dropping prices. Other areas are different.

WTF?_2

dweeby wrote: »

Thing is, FTB's are the ones struggling. Everyone else still has a (virtual) "wedge" from the increase in value of their own/previous house. So in fact, the vast majority probably can afford the most desirable houses, particularly with current interest rates.

Well, people already on the ladder certainly have an advantage over someone who isn't when it comes to buying one of the more upmarket/expensive properties ... as long as they still have equity in their property of course.

The thing is, the cost of upgrading from your current home to a better one also increases as property prices increase. Sure, you get a nice wodge from your previous property but you end up borrowing more to move up the ladder since the steps have widened, so you're worse off than as if prices had stayed low. You only get to realise the gains in equity when you sell up to downsize which generally won't be until or near retirement. That far in the future, relative house prices could be at any stage in the cycle.

Of course if prices move sharply down as a bubble bursts you run the risk of ending up in negative equity, totally trapped wherever you happen to be on the ladder.

Property booms do not benefit the general public. They price many people out of owning a home and lead to people who do buy homes taking on silly amounts of debt to do so. The only ones who benefit are all the professionals/organisations involved in creaming their percentage off property trades.

Walter_J

dweeby wrote: »

Where I live house prices have dipped but are not really dropping. Houses are stagnating on the market, but sellers/EA are not really dropping prices.

This is the classic first stage of a house price crash; the stand-off.

Potential buyers aren't prepared to pay the asking price; vendors aren't prepared to drop the prices far enough.

Eventually though, someone has to sell. It might be because of a divorce, a relocation, or imminent repossession, but they have to sell so they reduce the price dramatically.

This one act then reduces the value of every other similar house in the surrounding area!

The internet now makes it simple to see the Land Registry figures of all transactions in the locality; buyers are not going to pay more than the lowest price achieved recently.

Remember as well, during this 'stand-off' period, estate agents are earning no commissions. Eventually, they will start putting pressure on vendors to reduce prices simply so they can earn some commission; albeit on a lower sale price. Estate agents prosper on turnover, not high prices.

This 'stand-off' period may last a few months yet, but sooner or later the slide will begin, and continue for 4 or 5 years at least.