House Price Crash Discussion Thread

redmen9

This is the end, oh beautiful friend the end. Buy to let firm goes into administration:
http://news.bbc.co.uk/1/hi/wales/7267670.stm

HammersFan

I am having a bit of trouble getting my head around some of the postings here. Some of you seem to be suggesting that i) property has been a bad investment, and ii) that people who geared (sensibly) using BTL have been foolish. Loads of people have made good money when they have had the patience to hold property, and gear prudently. It seems a bit strange to argue that these things have not happened, or that BTL'ers gains over the past decade or so have been illusory.

ManAtHome

Not saying that property (and other stuff) hasn't worked out over the last 10 years, just speculating on the next 10. Are we going to get another decade of cheap money, chinese defaltion, internet deflation, and immigration deflation or are things now starting to get a bit sticky?

I don't believe Badger and Butthead just repeating "strong/miracle economy", "well placed to ride the minor turbulence" etc - maybe you do? Have a look at the stats for personal and government debt, re-introduction of pay policies, stated and real inflation, company profits, bank lending policies, bankruptcies etc. We are supposed to be at the top of the cycle after 15 years of "boom" - so where is the "rainy day" cash, UK plc is still borrowing close to 40 billion quid !!!!!! - how much will we need when (or if, as you prefer) things start to turn down a bit?

beingjdc

HammersFan wrote: »

I am having a bit of trouble getting my head around some of the postings here. Some of you seem to be suggesting that i) property has been a bad investment, and ii) that people who geared (sensibly) using BTL have been foolish.

Nope. Property has been a great investment, although for at least two or three years now it's been a gravity-defying investment, and for people who have bought to hold or to let without changing the property, any capital gain is likely to have been mostly down to luck rather than investment skill.

It's a rubbish investment *now*, particularly when across most of the country it has a negative cashflow relative to a mortgage on even 75-80% of the value. The fact that some people are still looking to get into their first BTL is evidence that many people are attracted to the aesthetics of the investments first and foremost, and the numbers are an optional extra.

PasturesNew

If you are going to look at how much house prices have gone up/down over the years, then you need to also remember that it costs money to buy one, it costs interest/money to service the debt and there are ongoing maintenance and insurance costs.

Those aside, here are some example figures I picked for one town from the HBOS Historical Data Sheets: http://www.hbosplc.com/economy/HistoricalDataSpreadsheet.asp

Cambridge
1988 91021
1989 86583
1990 80406
1991 82619
1992 78291
1993 81501
1994 81144
1995 85409
1996 86913
1997 95051
1998 106938
1999 126747
2000 138790
2001 176308
2002 199762
2003 223025
2004 231839
2005 223742
2006 261656
2007 296727

I'll leave it to you to go track down your area and do your figures. But some instant figures from the above show:

It took from 1988 to 1997 before houses were the same price again. Add in the inflation over that 10 years and it was still cheaper.

1988 to 2007 - about 20 years - and house prices are only 326% higher.

If we are now at exactly the same point we were in 20 years ago (1988) how confident do you feel about the next 10 years?

IveSeenTheLight

PasturesNew wrote: »

If we are now at exactly the same point we were in 20 years ago (1988) how confident do you feel about the next 10 years?

I don't think you can say " this is the history of the last cycle, therefore we will see a period of 10 years until the prices drop and recover to the same level".
If that was the case, how confident would you be for the next 20-30 years?

Its also interesting to show that your figures shows that it took 5 years for the house price to drop 14% (from the 1988 price), this at a time when there was a massive recession.
Its further interesting that it only too 1 year after it recovered to the 1997 price to be worth more than 17% more than the 1988 price.

Figures are there to be played with

PasturesNew wrote:

Cambridge
1988 91021
1989 86583 4.9% drop
1990 80406 7.1% drop
1991 82619 2.8% rise
1992 78291 5.2% drop
1993 81501 4.1% rise
1994 81144 0.4% drop
1995 85409 5.3% rise
1996 86913 1.8% rise
1997 95051 9.4% rise
1998 106938 12.5% rise
1999 126747 18.5% rise
2000 138790 9.5% rise
2001 176308 27.0% rise
2002 199762 13.3% rise
2003 223025 11.6% rise
2004 231839 4.0% rise
2005 223742 3.5% drop
2006 261656 16.9% rise
2007 296727 13.4% rise

Generali

Inflation was pretty high at the start of that period so a 17% nominal drop would equate to more like a 30-35% drop in real terms.

IveSeenTheLight

Generali wrote: »

Inflation was pretty high at the start of that period so a 17% nominal drop would equate to more like a 30-35% drop in real terms.

Was the inflation high for 5 years?
The example provided showed a 14% drop over 5 years.

Generali

IveSeenTheLight wrote: »

Was the inflation high for 5 years?
The example provided showed a 14% drop over 5 years.

RPI started high and dropped quickly once the UK was kicked out of the ERM and so interest rates fell quickly. RPIx started at a lower rate and fell more slowly (the direct impact of interest rate changes on mortgages is not included in RPIx by definition):

Year..RPI...RPIx
1989..7.8....5.9
1990..9.5....8.1
1991..5.9....6.7
1992..3.7....4.7
1993..1.6....3.0
1994..2.4....2.3

From 1989-1994, RPI was 34.9% and RPIx was 27.4%. The calculation isn't as simple as adding the individual years together as inflation compounds so the price of a £100 object moving in line with RPI in the above would change thus:

£100 - £107 - £118 - £125 - £129 - £131 - £135.

Ok so 14% drop from 1988-1992. RPI = 29% over that period so RPI adjusted fall of almost exactly 1/3rd I make it so my guess to the 'real' fall wasn't that bad (even if I did assume a nominal fall of 17% rather than 14%!).

tr3mor

6 years of inflation at the current RPI level of 4.1% per annum would still be 27.3%.

I think we need to start ignoring Gordon's made up CPI.