House Price Crash Discussion Thread

John_Pierpoint

Inflation is caused by too much money or too few goods; At the moment globally it is too much money (Thank you Uncle Sam) but this credit crunch could be heading us for a double wammy by bankrupting some firms, so the goods available decline faster than the money.

It is a very difficult balancing act and I cannot see real retail market rates coming down this side of Easter. At the moment most banks are pre-occupied decorating their balance sheets for the year end. Most people will try to increase their overdrafts, in the hope that something will turn up, until they are forced to stop.

Meanwhile:
House price panic is creating more threads:

http://forums.moneysavingexpert.com/showthread.html?t=619185

neverdespairgirl wrote: »

My parents bought a 3 bed flat when they married, aged 25 and 27, and a 4 bed house just before their first child (me) was born. They could easily afford the mortgage on the 4 bed house with only my Dad working, in 1977.

I'm 30, both my partner and I are working in the same jobs as my Dad was then, and we couldn't afford the mortgage on a similar 4 bed house now.

Have you ever actually checked your dad's finances in 1977? I had my first child in 1978 and on just one income we were "dirt poor" by today's standards: 10 year old MOT failure mini and a week's holiday in an asbestos shack in East Wittering paid for by the child's widowed Grannie.

I can still visualise young doctor P with huge pink lips like a clown, because we went PYO'ing for strawberries. Incidentally, young P is currently renting having managed to sell his first house before the the current credit crunch; though he is a bit "P'd" off about the fate of his Northern Wreck shares that cost his dad 100 GBP.

geoffky

is there anyone left out there now who thinks we are not 3-4 months in to the beggining of a housing crash.if there is can you tell me why you think we are not,as the bank of england thinks we are and alot of the banks and bs also.please dont say housing shortage becuse with over 1 million for sale we dont have a shortage..also if you dont see it how can you be prepared for it because you will need to be as it is going to get nasty out there and you will be hearing stories which will be heartbreaking.

HammersFan

geoffky. Its nice to see that one of your posts that does not contain abuse aimed at someone who might disagree with you. Prices will crash if loads of people are forced to sell. I can't see this happening as people tend to really value the roof over their head and will fight to keep it. If times get tough other spending will be cut back on first, tightening other sectors of the economy (particualrly retail and services where so much of our money is spent) raising the possibility of rate cuts. IMO, of course. No one can say they know the future. IMO (again) I think we are seeing the top come off frothy valuations of less than ideal houses in less than ideal areas, or where price rises have been silly in the last 12 months. Good houses in good areas will always sell at a decent price (because someone will always want them regardless of the market). Also, keep interest rates in perspective - they are still pretty low and for the majority a rate rise of 2-3% is difficult but not disasterous. I await your vitriolic reply.

merlinthehappypig

Just watched Working Lunch which I usually find to be well informed and balanced. Plenty of doom and gloom about house prices, mortgages and the economy in general, then, right at the end, complete stupidity.

Someone had e-mailed in saying did they think that, with all the negative price about house prices and now the latest Halifax figures, they should sell their house before they get into negative equity?

The answer - no, because although prices dropped by 1.1% last month, prices are still rising, albeit by a smaller amount This incredible advice is based on the fact that inflation over the last year has simply dropped from 10% to 8% so prices are still rising 8%. :mad:

I've no idea whether the viewer should sell or not as they didn't go into their circumstances, but to base advice on such a complete and basic misunderstanding of how economics work is beyond me.

geoffky

hammers ...i dont see a rate rise this side of april.the problem with rate cuts is they will not work as happened in japan,have a look what happened there they are just getting out of it now after 15years of low intrest rates,

i believe they will cut tomorrow but the banks and bs will not pass the cut on due to the rise in the libor rate. 1.5 million people are due to reset the mortgage in the next four months and i reckon the will be a large number of them on the verge of being unable to manage the higher payments due to other debt and its problems...if i had a btl why would i be subbing the morgage for the next five years,i wont so the alternative would be to sell.

also the start of companies tighting the belts has started and it only ever ends up with one thing ...job losses....the city reckon they could thousands of jobs plus these things are happening so quickly for some that they will not see it coming until it hits them in the face,i really do believe we are about to see the worst economic conditions for a lifetime..

HammersFan

chriseast. It is quite frigthening how in this media-driven society people panic (either panic buy or panic sell). That could be one of the under-discussed risks of a correction.

geoffky. Hard economic times indeed could be ahead. Who knows. Any rate cut will be passed on to anyone on a product that tracks base rate (which most residential trackers do, admittedly lots of riskier BTLs do track LIBOR). Why should a BT-letter sell if mortgage monthly interest cost is close to the monthly rent? Most will have equity in the property (at around 25%, more if they bought recently to cover rent to interest ratio) so don't risk negative equity just yet. And if people aren't buying, presumably they are renting - so demand will be good (most surveys show rents on the rise*). Why sell if the market falls and therefore crystallise a 'loss'? Selling and then waiting in the hope of buying again in a lower market wouldn't necessarily be a good idea either because fees and tax would be near five figures for most.

Also, one thing commentators (almost) universally agree on is that the average wage in 10 years will be pretty much double what it is now. Hence, if a person holds a buy to let property for that period of time, I think its very very likely they will be onto a good thing. Its a way of actually making money out of property without down-sizing (for most homeowners house prices rises are unhelpful because it makes it more difficult to move up the ladder, but most don't see it that way I'll grant you).

*apart from over-valued, over-developed city centre apartment stuff - there is a bubble there I'd agree.

WTF?_2

geoffky wrote: »

hammers ...i dont see a rate rise this side of april.the problem with rate cuts is they will not work as happened in japan,have a look what happened there they are just getting out of it now after 15years of low intrest rates,

i believe they will cut tomorrow but the banks and bs will not pass the cut on due to the rise in the libor rate. 1.5 million people are due to reset the mortgage in the next four months and i reckon the will be a large number of them on the verge of being unable to manage the higher payments due to other debt and its problems...if i had a btl why would i be subbing the morgage for the next five years,i wont so the alternative would be to sell.

also the start of companies tighting the belts has started and it only ever ends up with one thing ...job losses....the city reckon they could thousands of jobs plus these things are happening so quickly for some that they will not see it coming until it hits them in the face,i really do believe we are about to see the worst economic conditions for a lifetime..

You have to remember that rate cuts aren't there to bail out the borrowers (though they may or may not have that effect), they are there to save the lenders' bacon.

It may well be that interbank rates have effectively decoupled from the Central Bank base rates now anyway. The base rates have been so incredibly out of whack with reality (ie. way too low) for so long that the market is setting its own rate commensurate with economic conditions and reflecting the risk inherent in loaning money at this time.

If that's the case, prepare for some real panic. Once it becomes clear that lowering base rates isn't the panacea that the ill-informed seem to think it will be I'd expect some real craziness in the markets. Also, all lowering rates will have done is worsen the growing inflation crisis - bad news all around.


Yes, I agree with your line of thinking "..we are about to see the worst economic conditions for a lifetime..". I've only been through one recession in my adult life before (early 90s) and that was bad enough but it was really quite a mild recession in the grand scheme of things. The magic 8-ball seems to be pointing to a real stinker on the way in the near future.

I'm glad that I've got no debts and a fair bit of savings .. which aren't in UK banks thankfully! At least I've got options unlike many who are going to find themselves between a rock and a hard place.

dunnomate

I see Nationwide has said that House prices have fallen 1.1% today. I can't see the quango at the BoE cutting rates tomorrow. They will want to keep rates high to stop people spending in the shops at Xmas !

cheers

simhar

merlinthehappypig

Some more anecdotal evidence:

I had one of my regular (almost daily) calls from an estate agent asking if we wanted to buy an overpriced house from them. Three interesting things:

Firstly, in recent weeks, estate agents have not been taking no for an answer. Even if, having viewed somewhere, we say we don't want to make an offer, some agents are ringing a week or so later to 'see if we have changed our mind - the seller is open to offers'. It was difficult to get an agent to return any calls a few months back.

Secondly, we looked at a house a few weeks back at £560000. We offered £490000, but it was rejected. They came back at £540000 and we said no - we might have been interested at £515000 (we weren't really, but estate agents tend to make me waffle and say stupid things, I don't know why), but £540000 was too high. They said the buyer wouldn't shift so that was that. I got a call today saying that they would take £515000 after all, but I said no thanks as the market has got even worse. He was most upset, almost pleading, which I confess I did enjoy, although I shouldn't.

Thirdly, and perhaps even more telling, we ended the conversation with the usual 'let me know if anything else comes up'. I expressed doubts that much would come on this side of Christmas. He said that they were actually taking on lots of houses, almost 200% up on the same time last year, but all around the £200-350000 mark. I asked why he thought this was and he said that people were starting to panic and wanted the shift the house now before things got worse and that was the price range where people had the highest LTV's.

Only anecdotal I know, but indicative of where things appear to be heading.

smudge33

So.... the upshot of all this is what? I tend to be on the doomish side of things (glass half empty and getting lower all the time) just so I don't get disappointed etc., but what's the implication for someone like e.g. me?

Our current situation is living in one flat (in Edinburgh, a bullish market and widely regarded as long-term very safe) which we bought for 150K two years ago and we've been told could now get 220K for and own another one-bed rental, which we bought years ago for 25K and they are now selling for about 110K. We are hoping to keep that for many, many years (part pension, part safety net!) so are mainly looking at equity on our current place (115k on mortgage) and thinking of moving somewhere bigger, with a garden etc (first sprog on way). Generally, we'd have to spend about 350K - giving us a mortgage of roughly 250K. At the moment we could afford the mortgage - fairly easily although we'd not be putting as much away in savings.

IF the market slows/crashes am I right in thinking that a) the cost of the mortgage will rise (who knows how much) and b) the value of the property will decrease (wherever we are)? Sorry to be so long-winded but it's so you've got enough info and I am being bit slow and only really learning about cash and markets now (that I'm getting old!).

Cheers