50% house price crash does not = more affordable homes

MaxiRobriguez

venison wrote: »

Might make life easier for first time buyers if prices crashed 50%, for those already on the property ladder it makes no difference

Not true.

I'm in a well paying, relatively secure job. My wife would like to move to a 4 bed detached but we simply cannot afford it because we wouldn't be lent the money as it would exceed the 4.5x earnings check. A 50% decrease in house prices would mean we would easily pass these checks, even if lending criteria tightened.

However, that's just one scenario, you need to look at the cost/benefit analysis of it from a national level. The costs would include such things as negative equity, reduction in tax take, reduction in DIY home improvements, estate agents job losses, tightening of lending criteria etc. The benefits would be younger people have a route into the housing market, people making the step up the ladder would find it easier, capital investment would (as long as markets falling) be re-routed to productive investments, migration for work would be easier for people moving from cheaper to expensive areas, people would rely less on inheritance for their wealth.

We have a major problem at the moment whereby 25-35 year olds - the people who are just about to create families - cannot do so (easily) because they aren't in their own homes, or if they are, are in homes far too small for a family to live in. It's a ticking time bomb and something needs to change both from a social and economic-20-years-down-the-line POV.

Markie76

Great news if you're a cash buyer.

Bad news if you're a property investor 'stashing cash' in empty over-priced new builds.

The flip side of that is the satisfaction that property investors make massive losses :rotfl:

chucknorris

Markie76 wrote: »

Great news if you're a cash buyer.

Bad news if you're a property investor 'stashing cash' in empty over-priced new builds.

The flip side of that is the satisfaction that property investors make massive losses :rotfl:

You can only realise a loss when you actually sell an asset, in the 2008 downturn our properties had dipped by about £1m, but we had no intention of selling (why would we?). Although we had a notional paper loss, it was not realised. We did however take advantage of the low prices, and we bought another London house in 2008 for £253k (it is worth about £450k now). By about 2012 our properties had increased by £2m, so £1m more than the pre 2008 correction peak.

Property is a long term investment.

westernpromise

chucknorris wrote: »

You can only realise a loss when you actually sell an asset, in the 2008 downturn our properties had dipped by about £1m, but we had no intention of selling (why would we?). Although we had a notional paper loss, it was not realised. We did however take advantage of the low prices, and we bought another London house in 2008 for £253k (it is worth about £450k now). By about 2012 our properties had increased by £2m, so £1m more than the pre 2008 correction peak.

Property is a long term investment.

If only you'd listened to Crashy, the Gerald Ratner of wealth management, and sold up in 2008 before everything went to zero!

spadoosh

The affordability of a house is not determined by its value. The affordability of a house is determined by income, expenses (general) and the cost of housing.

Wages are stagnant. Wage are diminishing when you include inflation. House prices have had massive inflation, costs, not so much. It far exceeds RPI inflation.

So you start with £1, expenses are £0.60. You have £0.40 for housing costs. Next year wages are £1, expenses are 65p so you have £0.35 for housing costs. Year after that its £1 income, £0.70 expenses. So 30p for housing costs.

The fact that there are proportionately less homeowners today than there was 20 years ago suggests either fewer people want to own their own homes or that they are being restricted due to affordability issues.

Its riddiculous to suggest a single factor is a reliable metric for judging the housing market. Its incredibly variable, and this can be between properties a few hundred metres away from each other, never mind the likes of a townhouse in london vs a townhouse in glasgow.

Im on the bottom end of earnings nationally and property is very easily affordable to me because of where i live. If i did not live in this area it wouldnt be, obviously im a low earner so whatever opinions you might have on my deserving of a property are completely down to you.

Its economics 101 there is a supply issue in quite a few areas in this country. It seems apparent demand is there due to the very nature of house prices increasing, very obvious the house prices and housing costs had a period of massive inflation where wages did not. This is where and when the disparity occurred.

All emotion out of thats the situation. IF you want to correct it you either need to build more houses which will increase competition and thus limit price increases or you increase wages quicker than house prices are increasing.

Seeing as this seems to be a localised issue, mainly towards the south east and london. Id argue pay rises would be the best course of action for the in demand areas. The premiums in wages you get from those areas do not align with the additional cost of living for those areas.

Uk gov seem to be going with the house building idea. Whilst it looks ok nationally, theres an issue when you build an extra 10,000 homes in an area with already cheap housing and you dont build enough houses in areas with huge demand. Youre not going to convince the people of the south to move to Burnely because houses are cheaper.

Markie76

chucknorris wrote: »

You can only realise a loss when you actually sell an asset, in the 2008 downturn our properties had dipped by about £1m, but we had no intention of selling (why would we?). Although we had a notional paper loss, it was not realised. We did however take advantage of the low prices, and we bought another London house in 2008 for £253k (it is worth about £450k now). By about 2012 our properties had increased by £2m, so £1m more than the pre 2008 correction peak.

Property is a long term investment.

Tell me something new.

And woohoo for you :T

SpiderLegs

spadoosh wrote: »

The affordability of a house is not determined by its value. The affordability of a house is determined by income, expenses (general) and the cost of housing.

Yes, great ape and his two besties from Cambridge don’t seem to twig this.

It’s actually a bit embarrassing that such Mensa dignitaries can’t grasp the concept that if a person has access to 100k they can afford a 100k house, but if that house price increases by 50% they are a bit stuffed.

I’m predicting the wise one will return and tell us that of course he meant everything else went up by 50% too, but as that’s not what was originally claimed and not something that bears any relation to reality it’s not going to be any more convincing .

Markie76

SpiderLegs wrote: »

Yes, great ape and his two besties from Cambridge don’t seem to twig this.

It’s actually a bit embarrassing that such Mensa dignitaries can’t grasp the concept that if a person has access to 100k they can afford a 100k house, but if that house price increases by 50% they are a bit stuffed.

I’m predicting the wise one will return and tell us that of course he meant everything else went up by 50% too, but as that’s not what was originally claimed and not something that bears any relation to reality it’s not going to be any more convincing .

LOL... :T

GreatApe wrote: »

What this tells us is, affordability of homes for uk citizens does not change much with prices...up or down!

This is such a key concept yet almost no one seems to understand it

So if I lose (or just quit as I'm a lazy ****) my job I'll still be able to splash out on that £750k 4-bed Bucks detached I've had my eye on?

Please say YES........ :A

AG47

50% crash would be a huge equalisation the rich get poorer and the poor get richer.

There will be less huge house with only a few people living in them, they will need to have more people living in all these huge rich homes that only have a few people in them at the moment

andrewf75

AG47 wrote: »

50% crash would be a huge equalisation the rich get poorer and the poor get richer.

There will be less huge house with only a few people living in them, they will need to have more people living in all these huge rich homes that only have a few people in them at the moment

It wouldn’t affect the rich at all, the people it would affect would be those in ordinary jobs paying mortgages who would suddenly be in negative equity.