Agent valuations in a declining market

Sunday_Morning

Back in November 2007 I wrote......

Sunday_Morning wrote: »

What will drive a housing crash is not the fact that some people are struggling to get anyone to meet their valuations, but when a lot more people NEED as opposed to WANT to seel their houses.

Although interest rates have risen of late, and certainly some people will be in for a shock when they come to the end of fixed rate mortgages arranged some time ago, it's been nothing as dramatic as it was last time.

Then the crash was fueled by two things... people who were making short term investments in a rising stock exchange who got caught out by the crash and HAD to sell their houses to meet their obligations to buy shares at prices which had collapsed since they had made the deal.

That was followed by a period of steeply rising interest rates which caught out many who had stretched themselves bought in times of cheap and generous mortgage deals who, as a result, could not afford their repayments and HAD to sell or simply give up their homes.

At the moment I don't sense that the desperation to sell is there in such a way as would fuel a housing crash. Many people are putting their houses up for sale not because they NEED to sell, but on the basis that if they can get x then they will go for y. It involves no more than a lifestyle choice and one that doesn't require them to take the best offer going.

From what we are told, there's nothing to drastic in the economic indicators to suggest that anything out there is about to trigger a collapse.

It depends whether you believe in what government's tell you though and if the immigrant numbers farce tells us anything, it tells us you trust the government numbers at your peril.

Personally I believe that inflation is running at far higher levels then they would have us believe. I believe that government borrowing is running at far greater levels than they publically announce it to be. It's disguised in PFIs which commit us to paying large sums of money in the future.

This could all come home to roost. In particular the governments willingness to back Northern Rock to the hilt could unfold spectacularly.

I don't believe that government's have that much impact on the economy. I see their importance as being the "Joseph" role... in good times put aside enough to see us through the bad times when they come.

For fifteen years we've enjoyed relatively good times. This Labour administration inherited an economy that was performing well and a healthy "set aside" fund. While the economy has continued to perform well, the "set aside" they inherited as been blown and rather than being re-established, more and more of our future income as been hostaged as repayment for what is being spent today.

So I believe that the potential for something drastic is huge. If the world economy experiences a severe downturn, then I believe the impact on the UK will be several degrees times that severity, with the UK government unable to respond much because it's not been putting anything by, but spending spending and spending.

I'd like to believe that the simple logic of demand exceed supply would keep the housing market buoyant. But when belts are tightened people become much more willing to share on space to save cost, and parents begin to think it's not so important that every Johnny and Jenny in their family needs to have their own room. Expansive lifestyle choices of today that the current economic climate allows can change overnight if need be.

I give it two years. Then we simply won't know what's hit us and will be wondering just how we didn't see it coming.

My apologies for overestimating how long it would take