Is a Housing Price Drop a Disaster for All?

Getting_greyer

Hi all,

I'm asking is a house price crash a disaster for all homeowners and are there negatives for buyers as well?

I'm will be buying this year or next. Decision point is in a couple of months. Whilst I'm not planning/hoping/banking on it, I've been musing whether a house price crash would affect me that much.

I'm going to make the assumption that I buy some where with 20% deposit, 3 to 5 year fixed term, and affordability does not include my wife's income only mine. I also assume, in my thought experiment, that a crash begins 6 months after I have bought.

I'm thinking I'm not really affected up until I try to remortgage, but house prices would have to be sustained low for so long for me to end up in negative equity. Even if I moved to standard rates would interest rates go up that much?

For the alternative let's assume I buy during a crash. Prices are dropping, how to lenders value a house that may continue to drop in the future. The benefits maybe that I get a cheaper house but they will be harder to come by?

So I'm thinking a crash generally hurts only those who are compelled to sell or need to remortgage with small equity? Apart from the fact you might kick yourself if you could have saved 20k on a purchase.

Interested in your thoughts.

staffie1

Price ‘crashes’ usually accompany tougher economic conditions, resulting in unemployment. So unless you have lots of money, it could be bad news whatever you’re doing.

Getting_greyer

That's a good point. At what point does a slowdown became a crash?

Herzlos

Price crashes are great for cash buyers to grab a bargain.

They are terrible for anyone who needs a mortgage.

triathlon

Herzlos wrote: »

Price crashes are great for cash buyers to grab a bargain.

They are terrible for anyone who needs a mortgage.

Just remember though, if there is an economic crash, and I am sure at some point there will be one at some point , the one thing this government will have to increase spending on, and will, is unemployment welfare and most importantly for the likes of me and many housing investors, housing benefit .. It is so hard to crash the housing market in these times

A_Lert

Depends on the cause.


If house prices drop because economic trouble and banks not lending means there's less demand, that's not really helping buyers.


If house prices drop because more homes are being built, and the economy and mortgage lending remain strong, that benefits buyers.


As long as the majority of voters are homeowners and family of homeowners, I do not expect to see any lasting drop in house prices.

RelievedSheff

Having bought our last property at completely the wrong time at the back end of 2007 just before the 2008 property market crash I can say that no it wasn't a disaster for us.

So long as we could afford to pay the mortgage it didn't really matter that the house was not worth what we owed on it. It was our home. It did mean that we had to stay in that house longer than we had anticipated but we plugged away at the mortgage and eventually had enough equity in it to move on.

As others have already said it isn't necessarily the fall in house prices that causes people problems but the other factors that have led to the fall in house prices in the first instance.

lisyloo

RelievedSheff wrote: »

Having bought our last property at completely the wrong time at the back end of 2007 just before the 2008 property market crash I can say that no it wasn't a disaster for us.

So long as we could afford to pay the mortgage it didn't really matter that the house was not worth what we owed on it. It was our home. It did mean that we had to stay in that house longer than we had anticipated but we plugged away at the mortgage and eventually had enough equity in it to move on.

As others have already said it isn't necessarily the fall in house prices that causes people problems but the other factors that have led to the fall in house prices in the first instance.

This has been mentioned on another thread but staying put is not a problem for most people.
For a minority who need to move for work or family reasons it can be Very difficult, but not always being able to sell when you want is one of the downsides of buying property.

MobileSaver

A_Lert wrote: »

If house prices drop because economic trouble and banks not lending means there's less demand, that's not really helping buyers.
If house prices drop because more homes are being built, and the economy and mortgage lending remain strong, that benefits buyers.

Both valid observations but you are talking about price "drops"; there is no way in my lifetime that more homes being built will ever result in a price "crash", it simply won't happen.

RelievedSheff wrote: »

So long as we could afford to pay the mortgage it didn't really matter that the house was not worth what we owed on it. It was our home.

+1

The other points being that the worth of a home is more than just the buy/sell price; how do you put a price on you choosing when to move rather than a landlord or you choosing when/how to decorate, who can stay over, whether you can have pets etc.?

Thrugelmir

Getting_greyer wrote: »

That's a good point. At what point does a slowdown became a crash?

When the market moves out of kilter. Around 15% of transactions is sufficient to cause a correction.

Crashy_Time

A_Lert wrote: »

Depends on the cause.


If house prices drop because economic trouble and banks not lending means there's less demand, that's not really helping buyers.


If house prices drop because more homes are being built, and the economy and mortgage lending remain strong, that benefits buyers.


As long as the majority of voters are homeowners and family of homeowners, I do not expect to see any lasting drop in house prices.

Voters were told Brexit would knock 30% off house prices, they still voted for it? Sales transactions are half what they were at the last "economic trouble" as well, not sure bubble house prices are seen in the same light by the public as they were a few years ago TBH.