Price correction on newish houses in last financial crisis

Chetnick

There is a common misconception that house prices are dictated by supply and demand. That is not the case. They are sustained only by the cost and availability of credit - by people’s ability to borrow money to buy a home.So dont do it..

artyclarty

Fellow North Easter here and in our area the prices haven't even recovered from the last recession!

My parents neighbours paid £200k for their house a decade ago and has been trying to sell for 2 years. Has been slowly lowering the price from £220k down to £150k. I paid £55k for our house that the vendor paid £80k in 2008.

The new build estate that went up 5 years ago nearby are starting to come up for sale and they are all asking for about 20% increase in price. The only one that sold however, took a hit of about 20% for a quick sale. For a 4 year old house, I really can't see how they could have added 10-20% value unless it is something very special.

Thrugelmir

Chetnick said:

There is a common misconception that house prices are dictated by supply and demand. That is not the case. They are sustained only by the cost and availability of credit - by people’s ability to borrow money to buy a home.So dont do it..

Supply and demand at a local level will most certainly influence prices. No one is going to pay more than they need to . Likewise in some circumstances a property just needs to be sold. 

Freecall

Chetnick said:

There is a common misconception that house prices are dictated by supply and demand. 

This is true but rarely recognised.

The real issue is price-demand elasticity.  When demand for something vastly outstrips supply as is the case with housing then other factors come into play.  In the case of housing the dominant factor is the supply of credit. 

Crashy_Time

Densol said:

I pulled out of buying a 1 year old house at £330k.  I just couldn't take the risk that the house would be worth less next year and Id be risking my 25% deposit if prices do go down as my equity would be gone. Many people could lose their jobs, businesses shut and far less money around and mortgages may be tougher to obtain. We just dont know. 

Mine was a BTL so I didnt “need” to buy it and I have somewhere to live. 

If I was paying high amounts of rent then I might think differently 

Quite likely rents will be dropping after this and less people will be forced into making rash decisions regarding mortgage borrowing just to get out of renting, of course as always the banks are controlling things and at the moment seem to be making the decision to restrict lending unless you can put a fair bit of skin in the game.

MobileSaver

Crashy_Time said:

Quite likely rents will be dropping after this

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

Crashy_Time

MobileSaver said:

Crashy_Time said:

Quite likely rents will be dropping after this

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

Yes, and there will be more people with reduced income unable to pay high rents. It stands to reason that a major hit to an economy means less people living and working in that economy.

Crashy_Time

princeofpounds said:

We have no idea, although 2008 may give a yardstick for a margin of safety. It's still too early for any real statistical evidence.

It's quite possible that the eventual effect is minimal, given the slashing of interest rates. Once/if that filters through into mortgage rates, houses will be even more affordable than before the virus shock. But who knows.

Can the government force the banks to comply though, that is the question.
https://news.sky.com/story/coronavirus-lenders-raise-interest-rates-on-mortgages-11970689

MobileSaver

Crashy_Time said:

MobileSaver said:

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

Yes,

OK, so where will all these renters be living after the lockdown is over?

Crashy_Time said:

MobileSaver said:

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

  there will be more people with reduced income unable to pay high rents.

If people have reduced income are they more likely to stop paying their rent or more likely to stop buying a Costa Coffee on their way to work every morning?

Crashy_Time

MobileSaver said:

Crashy_Time said:

MobileSaver said:

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

Yes,

OK, so where will all these renters be living after the lockdown is over?

Crashy_Time said:

MobileSaver said:

What is your basis for that? Do you think there will be less people looking to rent once the lockdown is over?

  there will be more people with reduced income unable to pay high rents.

If people have reduced income are they more likely to stop paying their rent or more likely to stop buying a Costa Coffee on their way to work every morning?

1) They will be living with their relatives in EE maybe, or with their parents in the UK, some of them not all, but enough to cause issues for BTL landlords IMO.
2) See 1)