House Price Crash Discussion Thread

beingjdc

Dangerous_Hamster wrote: »

So what your saying there is that buying a house currently is suicidal as you will end up with negative equity ?

I must admit that I think house prices have reached such a level that getting onto the ladder for most is simply impossible meaning that the rental market is still going to be massive. If this is the case house prices will not drop ? or do I have the wrong end of a dirty stick ?

If people can't afford the mortgage, they can't afford the rent. If the rent is significantly lower than the mortgage, the buy-to-let 'business model' doesn't work. If rents spike upwards, a lot of recent immigrants from Eastern Europe working minimum wage jobs might be priced out and return home, cutting demand.

Personally yes, I think buying a house now unless you have a large deposit, can easily afford the repayments, and aren't planning on moving in at least ten years is probably foolish. But I'm not an economist.

carolt

Interesting article from The Times here, by Anatole Kaletsky - essential reading, I'd say, for any potential first-time buyer or buy-to-letter wondering whether to (over)stretch themselves to buy a property at the moment:

http://business.timesonline.co.uk/tol/business/columnists/article2709694.ece

movilogo

If the rent is significantly lower than the mortgage, the buy-to-let 'business model' doesn't work.

True for who bought houses lately (post 2004).

Rent doesn't not operate on when the house was bought by landlord. So, those who bought prior to 2002-2004, are getting rent which is higher than their mortgage payment.

For post 2004 purchases, BTLers are struggling to afford repayment from rent.

WTF?_2

carolt wrote: »

Interesting article from The Times here, by Anatole Kaletsky - essential reading, I'd say, for any potential first-time buyer or buy-to-letter wondering whether to (over)stretch themselves to buy a property at the moment:

http://business.timesonline.co.uk/tol/business/columnists/article2709694.ece

Excellent, thought provoking article. What a pity all discussion about the subject has to be shoehorned into a single thread along with any other related subjects that could be related to a housing market slump though ....

I think it should be clear by now to even the most uninformed person that things are taking a turn for the worse in the wider economy. The good times most certainly are about to come to an end.

The housing market in particular is going to be very vulnerable and will be a really great way for people to lose an awful lot of money. That's why I get so annoyed when I see people here hyping the whole thing like it was some sort of surefire bet. Anyone who listens to them stands to be financially worse off.

And opposing opinions that paint a more realistic and cynical view of the economy are suppressed, as we can see from the policy on posting about the possibility of a house price crash.

tr3mor

movilogo wrote: »

True for who bought houses lately (post 2004).

Rent doesn't not operate on when the house was bought by landlord. So, those who bought prior to 2002-2004, are getting rent which is higher than their mortgage payment.

Providing they haven't MEWed to finance other purchases.

andikay

I cannot understand why people say they will lose money if house prices fall. If you have a house and the price of it falls, you still have a house. You could not sell it without buying or renting another house. If your house is worth 100k and you desire a house worth 200k then you need to find an extra 100k, if price fall by 50% then you would only have to find 50k to buy the house you desire:

carolt

Of course you are right, andikay - unless you are selling to downsize, retire abroad, selling an inheritance or investment property, etc, in which case you WILL be worse off.

For most people, a rise or fall in the nominal value of their house - it has no real value until it is sold - makes no difference - EXCEPT to sentiment. At the end of the day, people building up debts/worrying about their pensions etc have always been able to say that if the worst came to the worst, they could just sell up their homes and move somewhere smaller/rent, using the profit they've made on their property.

Obviously, they haven't ACTUALLY made a penny yet, it's just theoretical.

But it has provided a huge boost of confidence to the large majority of people who are homeowners and kept the economy afloat over the last 10 years of reckless consumer spending.

And in that way, even those who've never owned a property may be affected, if the lack of consumer confidence is translated into a recession - as Anatole Kaletsky suggests will happen in his really superb article here:

http://business.timesonline.co.uk/tol/business/columnists/article2709694.ece

(Yes, I know I'm pushing this one, but it really is very good...)

tr3mor

andikay wrote: »

I cannot understand why people say they will lose money if house prices fall. If you have a house and the price of it falls, you still have a house. You could not sell it without buying or renting another house. If your house is worth 100k and you desire a house worth 200k then you need to find an extra 100k, if price fall by 50% then you would only have to find 50k to buy the house you desire:

Unless you're stuck in a negative equity trap. :eek:

WTF?_2

andikay wrote: »

I cannot understand why people say they will lose money if house prices fall. If you have a house and the price of it falls, you still have a house. You could not sell it without buying or renting another house. If your house is worth 100k and you desire a house worth 200k then you need to find an extra 100k, if price fall by 50% then you would only have to find 50k to buy the house you desire:

The real problem is that falling prices make it harder to borrow money - few people have enough cash in the bank to buy a property so rely on getting a loan.

If you are in negative equity, forget about getting another mortgage so you are stuck in your current property and probably paying a high SVR.

Luckily, it's only people who bought in the last couple of years or those who repeatedly MEWed who are likely to face this. Even a hefty fall in prices would only reduce prices to where they were a few years back so anyone who bought in say, 2003 or earlier, would as you say find it cheaper to buy a better house.

But it is going to leave the 'last ones in' in a very uncomfortable place.

Another good reason to think very carefully before buying at the current time.

t_i_g_e_rr

I was interested in buying a house a few years ago and decided to wait until I was in a better financial position. There were threads like this one then. But house prices continued to rise.

This time feels different though. There seems now to be a few triggers that could force people (the banks mainly I think) to see sense. And when The Times has front page headlines about house prices twice in a month, this surely has to affect sentiment.

Anyway, here is a question I have been thinking about. If you were to buy a property now, how much of an allowance for a crash would you allow (based on current value) when making an offer (e.g. 5%, 10%)?