A question re: the housing market....

Ms_Piggy_2

Well, two actually!

1) I know lots of people are waiting for 'the crash' in order to buy, but (and I'm no economist, so feel free to correct me!) I though that generally speaking, any house price drop will almost certainly come with a wider reaching recession (whether global or national)? Therefore to wish for a major drop in house prices is a bit shortsighted? Although of course, many would argue a correct is certainly due, surely a more gentle correction would be better for everyone?

2) If BTL landlords suddenly sell en-masse, prices will drop, but all those FTB and BTL will just jump in and buy pushing prices back up (at least by a little bit!)

abaxas

Ms_Piggy wrote: »

Well, two actually!

1) I know lots of people are waiting for 'the crash' in order to buy, but (and I'm no economist, so feel free to correct me!) I though that generally speaking, any house price drop will almost certainly come with a wider reaching recession (whether global or national)? Therefore to wish for a major drop in house prices is a bit shortsighted? Although of course, many would argue a correct is certainly due, surely a more gentle correction would be better for everyone?

2) If BTL landlords suddenly sell en-masse, prices will drop, but all those FTB and BTL will just jump in and buy pushing prices back up (at least by a little bit!)

1) Agreed, but boom and bust are integral to capitalism. Trying to avoid recessions just means a larger recession later.

2) I disagree, if people believe that prices are dropping they hold off. Would you buy a card if you knew next month it would be £1000 cheaper? I think not!

obsessed_saver

1) That is quite possibly true. Unfortunately, saying that it is not in the best interest of everyone won't stop it from happening. No one can just "will" it not to happen.

2) It's called market sentiment. If prices start to fall, who will want to stick out their hands and catch the falling knives? If you were in the kitchen, and you pushed a knife over the counter, would you try to make a grab for it or immediately jump back for fear it might land and stab you on your feet? Most people will wait for the knives to reach the floor before trying to grab one.

obsessed_saver

abaxas, we said the same exact same things, but worded differently. :rotfl:

IveSeenTheLight

abaxas wrote: »

2) I disagree, if people believe that prices are dropping they hold off. Would you buy a card if you knew next month it would be £1000 cheaper? I think not!

obsesses_saver wrote:

2) It's called market sentiment. If prices start to fall, who will want to stick out their hands and catch the falling knives? If you were in the kitchen, and you pushed a knife over the counter, would you try to make a grab for it or immediately jump back for fear it might land and stab you on your feet? Most people will wait for the knives to reach the floor before trying to grab one.

If the above two quotes were true then nobody would ever buy houses while they are dropping. By this philosophy, all houses will be free in the future. Good news for SquatNow

Of course if there is a house price drop / correction / stagnation then the amount of people waiting to get on the ladder or investors wanting to get back in at lower prices which will drive houses back up.

To use the boom and bust analogy - If after a boom, there must be a bust, then surely it is followed by boom again

Where are all these people going to stay who are holding off awaiting the prices to bottom out? If they are not on the ladder then I guess they are either renting or staying with others who are renting / on the ladder.

obsessed_saver

Exactly. The boom will start again when the market sentiment changes again.

The people who are waiting would be renting, so the next phase might a boom in the rental market, but this would be more controlled by wages and affordability because there would not be an "emotional" factor to want to rent some where.

If you can't afford the monthly rentals, you'll get kicked out by the landlord. There won't be a bank to loan you more money just so you can afford to rent that nicer house. If the rental is overpriced, then it would remain empty until the landlord reduces the price accordingly.

When the rental (and the underlying wage) meets the mortgage repayments, then the property prices will start to rise again.

IveSeenTheLight

obsessed_saver wrote: »

Exactly. The boom will start again when the market sentiment changes again.

The people who are waiting would be renting, so the next phase might a boom in the rental market, but this would be more controlled by wages and affordability because there would not be an "emotional" factor to want to rent some where.

If you can't afford the monthly rentals, you'll get kicked out by the landlord. There won't be a bank to loan you more money just so you can afford to rent that nicer house. If the rental is overpriced, then it would remain empty until the landlord reduces the price accordingly.

When the rental (and the underlying wage) meets the mortgage repayments, then the property prices will start to rise again.

I agree with most of what you have said there.
For the last part, both of my BTL rental income exceeds the mortgage payments.
I'm sure there are many BTL LL's out there in the same situation, so may not necessarily sell if the rental income meets or exceeds the mortgage payments.
Will this lead to a crash?prices are more likely stagnate while some may drop if the sellers are forced to sell.
Whats the economic state that will force people to sell though?

I understand what you intend to mean is that when the cost of a new mortgage repayments meets the rental, then you believe house prices will rise again as people jump on or back on the ladder.
For this I agree and thus starts the new boom

Ms_Piggy_2

But if all these people are renting, then surely things will start looking up for BTL? I'm not being awkward, just interested!

obsessed_saver

Yup, if the BTL LL bought when the price was low enough that their mortgage repayment is less than/equal to their rental income, then they have got it right and would have no inclination to sell. That level of house price is the "floor", as it were.

Right now, this is not the case, hence there is a bubble in the housing (BTL) market.

Also, house prices are quite a way beyond the reach of a lot of young single FTB (in their 20-30).

Now, it's pushed beyond the reach of the "couple" FTB because of credit tightening and lenders not willing to give higher multiples to them.

So, unless it's parents/inheritance, FTBs have left the scene.

Yes, people with families have to move up the ladder and buy bigger houses, etc. But if the BTL doesn't add up and the FTBs can't afford it, who's left to come in at the bottom of a chain?

Guy_Montag

This is how it works in my imagination - house prices start to drop, around the same time we get a recession (as has tended to happen in the past). People lose interest in housing as an investment, so the speculators stop buying, meanwhile as jobs dry up we get lower immigration, in fact as the recession gets worse we get net emigration - Eastern Europeans going home to set up businesses with their savings; Brits taking jobs abroad; normal background emigration of oldies to the likes of Spain & so on.

Meanwhile back with house prices - the pressure to get on the ladder before it's too late is off. People take their time, they put in low-ball offers knowing that if they are refused, well something else will be along shortly. Maybe if they wait another 6 months they'll get one with a south facing garden for about the same, or there will be one on a slightly quieter street.

In my view (from my nice, relatively safe job), we could do with a recession - there's too many crappy companies giving bad service out there & I'm fed up of my local high-street being over-run with estate agents & mobile phone shops. From a capitalist point of view they are good at redistributing jobs from unproductive areas (estate agents & mobile phone shops) into more productive areas. They send the poor performing companies to the wall, while allowing the stronger companies to survive.

carpetbelly

I'd agree with that... If prices start to fall a bit in my opionion you're going to get the savvy BTL's thinking 'oooo, cheap property where the rental yield will easily cover me' and buy up some more.

BTL is a way of life now for some people. It's a different market to what it was previously. BTL'ers have a bigger share of the first rung than they had previously and why shouldnt they? If that's what they choose to spend their money on, fair play. But that has created a slightly different style market to what we've had previously.

I get rather annoyed that every man and his dog seems to think it's their divine right to purchase a house. I worked really really hard to get a deposit together and sacrified a lot to get my first house which I am now in.

**edit**
I spent to long waiting to put this reply in, should have been further up the page