House Price Crash Discussion Thread

Generali

PasturesNew wrote: »

Cambridge slumped in the last crash.
Why should this one be any different.

e.g. I was looking at a terraced house on Newmarket Road with a friend right at the peak. Within 6 months the one next door (over twice the size) was up for sale at the same price.

e.g. I bought in 1990, sold in 1997 still 5% in negative equity.

There is no such thing as a safe place.

Other things in the last crash tended to be:
1] The smallest houses recovered last. People could afford to start out in a 2 or 3-bed house and not a studio/1-bed.
2] The grottier areas were slow to recover because people could aspire to the nicer areas.

That was my recollection in general (although I can't speak specifically for Cambridge). There were loads of stories in the news about people trying to bring their kids up in 1 bed flats in places like Streatham because they had negative equity and couldn't afford to move.

Lest we forget, prices barely fell in the last crash in nominal terms (maybe by 2 or 3% I think?) although in real terms the average price fell by 31% I think (I worked it out once, I should get out more) so people that had negative equity were either missing mortgage payments or were the ones that had done really badly.

<OT>People (Yuppies) who'd bought expensive flats in dodgy areas and then were stuck with them started to rename the place they were stuck in. Streatham became St Reatham. Battersea became South Chelsea. The Isle of Dogs became the Isle des Chiens! I met people that used these terms seriously! Incredible.</OT>

boinging_2

Looks like another bank tightening up....

http://newsvote.bbc.co.uk/1/hi/business/7195391.stm

Fund stops investor withdrawals


A rush to withdraw money
from its commercial property funds has forced Scottish Equitable to introduce delays of up to 12 months for its customers


... hmmm.

danm

From the Telegraph

House prices across the nation will defy the doomsayers this year and settle to an average growth of 3pc, according to latest research from CB Richard Ellis.
With equity in the UK residential market at an all-time high, the fate of the housing market has become staple dinner party conversation. Nervous consensus in the industry has predicted between -3pc and +3pc growth in 2008, though some forecasters, including Grant Thornton and Citigroup, have warned of falls of up to 10pc.
However, today CB Richard Ellis says homeowners are in for a slowdown, not a crash. The group has even predicted that London will outperform the market at 6pc.
Jennet Siebrits, head of residential research at CB Richard Ellis, said: "This is not a repeat of the 1990s crash, as housing equity and employment rates are at an all-time high and interest rates remain low.
"With the benign economic backdrop and unique nature of the housing market, we do not envisage forced sales and repossessions spiralling. Instead, we expect a think market in 2008 with lower levels of transactions."
Indeed, unemployment has fallen to a 32-year low, according to figures released by the Office of National Statistics yesterday. Ms Siebrits also pointed out that repossessions are historically very low - in 2006 only 0.019pc of loans ended in repossessions, compared with 0.077pc in 1991.
In a downturn there is generally only essential selling, she added, for example in response to job changes or family breakdowns - though even these sellers are usually prepared to wait for 'the right price' and have some form of contingency plan to ride out the downturn.
Ms Siebrits added: "However, there will be some 'forced sellers' who may not actually want to sell, but have to for financial reasons like job loss or unmanageable mortgage payments. The more forced seller prepared to accept significant losses, the larger the possibility of significant house price falls."
Lower sales activity is starting to feed through to house prices, with house price indices across board showing a slight price fall in December - with the exception of Halifax.
Britain's biggest mortgage lender, Halifax, reported earlier this month that house prices rebounded by 1.3pc in December. However, the lender said prices were still down 0.8pc for the three months to December and the uptick was simply "a typical characteristic of a subdued market".
Ms Siebrits said: "After such a prolonged period of rapid house price growth, the conjecture of a housing market crash comes as no surprise - the UK housing market has traditionally been cyclical, characterised by peaks and troughs. However, despite a clear weakening, we do not believe a crash is likely."

danm

Was thinking about house prices on the way in this morning, and whilst sitting in a dentsist chair for an hour.

Theoretically, could the current house prices, affordability etc be a new equilibrium?

There are arguments for and against house price falls.

Changing demographics (i.e. more immigration), planning laws, strong economy, downward interest rate trends etc are all given as reason why a crash is unlikely.

On the other hand, affodability, inflation (restricting monetary policy) etc suggest that prices will fall.

I'm not convinced either way, and personally think house prices will be largely unchanged this year.

People say that houses are less afforable than they were 10 years ago. Affordability is at an all time high. First tiome buyers can't get on the housing ladder.......

I'm not for one minute suggesting this is a good thing, But i'm suggesting that this may actually be the norm going forward, where due to the scarcity of land and planning restrictions, immigration etc, the goal line has been moved and its no longer the case that your first house will cost 2.5 times income or you can no longer expect to buy a house and have money left over at the end of the month.

just a thought.

Generali

danm wrote: »

Was thinking about house prices on the way in this morning, and whilst sitting in a dentsist chair for an hour.

Theoretically, could the current house prices, affordability etc be a new equilibrium?

There are arguments for and against house price falls.

Changing demographics (i.e. more immigration), planning laws, strong economy, downward interest rate trends etc are all given as reason why a crash is unlikely.

On the other hand, affodability, inflation (restricting monetary policy) etc suggest that prices will fall.

I'm not convinced either way, and personally think house prices will be largely unchanged this year.

People say that houses are less afforable than they were 10 years ago. Affordability is at an all time high. First tiome buyers can't get on the housing ladder.......

I'm not for one minute suggesting this is a good thing, But i'm suggesting that this may actually be the norm going forward, where due to the scarcity of land and planning restrictions, immigration etc, the goal line has been moved and its no longer the case that your first house will cost 2.5 times income or you can no longer expect to buy a house and have money left over at the end of the month.

just a thought.

Like the price of anything else, house prices are set by supply and demand.

Unusually for something that 'normal people' buy, the majority of houses are bought with mortgages so a big part of the demand part of the market is down to borrowed funds.

As you say damn, supply is constrained by the planning laws in this country. Also, to a lesser extent, supply is constrained by the British predeliction for living in a three bed semi with a garden rather than living in appartments which use a lot less land. It is further constrained by the number of people actually willing to sell - when prices are rising quickly you only sell if you really have to (hence BTLers apparently being happy to sit with an empty property or to subsidise the mortgage).

If lending falls (which looks likely although not certain) then that may well cause a drop in demand - for most if they cant get a mortgage, they can't get a house. Usually falling demand would lead to falling supply as prices fall making it less profitable to sell. However in this case it may well be that it will cause supply to increase as investors look to lock in profits while they can.

tr3mor

danm wrote: »

Was thinking about house prices on the way in this morning, and whilst sitting in a dentsist chair for an hour.

Theoretically, could the current house prices, affordability etc be a new equilibrium?

There are arguments for and against house price falls.

Changing demographics (i.e. more immigration), planning laws, strong economy, downward interest rate trends etc are all given as reason why a crash is unlikely.

On the other hand, affodability, inflation (restricting monetary policy) etc suggest that prices will fall.

I'm not convinced either way, and personally think house prices will be largely unchanged this year.

People say that houses are less afforable than they were 10 years ago. Affordability is at an all time high. First tiome buyers can't get on the housing ladder.......

I'm not for one minute suggesting this is a good thing, But i'm suggesting that this may actually be the norm going forward, where due to the scarcity of land and planning restrictions, immigration etc, the goal line has been moved and its no longer the case that your first house will cost 2.5 times income or you can no longer expect to buy a house and have money left over at the end of the month.

just a thought.

Yes. It's a new paradigm.

This is exactly the kind of things people were saying in 91/92.

danm

agree,

however, i'm not convinced investors will look to lock in profits. Speculators yes, but 'proper' BTL landlords do not necessarily worry about house prices (unless as you say, they have to sell).

more important to a landlord should be the yeild on the property. If people are selling owner occupied property, then this must cause an increase in demand in the rental market, rents up, yeilds up, demand for houses up.......

and so we go on.

Obvioulsy housing, like other assets follow a cycle, but i wonder if what economists would call the 'steady state equilibrium' has moved

HammersFan

Interesting post danm. It seems likely that with unemployment good, there won't be many forced sellers, hence keeping a lid on supply of bargain houses. This may off-set the impact of tightening in lending, hence keeping the lid on buyers. Maybe we are in for a few years of very small growth (i.e. in line with RPI). Lots of people seem to argue against growth ending in stagnation - the assumption being that growth is a bubble, rather than a correction in itself (i.e. rapid growth of an under-valused asset). But to me a flat market seems to be entirely within the bounds of possibility.

As an aside, I heard Hamish McRae (the Independent) talk at a conference last week. His view was that an economic downturn in 2008 was unlikely, but that 2009 might be very bad. Didn't really understand it all, but something to do with the time lag over which a shortage of cheap money 'dries up' growth.

boinging_2

In terms of house owners as a whole surely only investors are the ones who lose out by falling prices?

If I sell and move, then HP falls have little or no effect as a get less for my house but pay less for the one I'm moving to.

First time buyers have a better chance of getting on the market.

So only downsizers (though they are probably still well protected especially as they are likley to have been in the house of 10 years +) will bit hit by HP falls outside of investors.

HammersFan

boinging wrote: »

In terms of house owners as a whole surely only investors are the ones who lose out by falling prices?

If I sell and move, then HP falls have little or no effect as a get less for my house but pay less for the one I'm moving to.

First time buyers have a better chance of getting on the market.

So only downsizers (though they are probably still well protected especially as they are likley to have been in the house of 10 years +) will bit hit by HP falls outside of investors.

I agree, but a fall would also hit people hard if they have used equity in their house to buy assets that have fallen in value e.g. a car, TV, holiday etc etc. Of course it is an unwise strategy, but a lot of people rely on equity to fund a particular standard of living that they find hard to give up.