House price crash?

dannyboycey

Soprano wrote: »

A crash is coming simply because the media is feeding on this hype...

Nothing to do with the fact we've had years of irresponsible lending and greed-fuelled borrowing then? Did you really think it could continue forever? After every big party, there is a big hangover.

Austin_Allegro

Soprano wrote: »

A crash is coming simply because the media is feeding on this hype pointing its bony fingers at America and saying "Looky here!!! It's coming over here too!!!!" Even though you couldn't link the US to the UK housing market, they will create one.

So every news report will have an 'expert' come on and say "credit crunch" as many times as possible in their 3 minute slot. Which the average person doesn't know what it means, but it sounds grim so they will start to worry.

The more long faced journo's pop up on TV saying the housing market is slowing down and heading for a crash, the more likely it will actually happen as people start to panic sell.

I'm not bias. I don't own my home. I have a fair bit of savings to put towards my first. But I'm not one of those silly enough to wish for a crash, somehow thinking I'll get a great bargain... Maybe I will, but there are 1,000's of others out there waiting to buy.

As I understand it the bad debts in the US sub-prime mortgage market were cut up and sold on to other banks around the world, including those in Britain. That's the main connection between the US and the UK markets. UK banks thus don't have sufficient money to loan out in the UK, so are being very careful how much they loan out and to whom.

Even if there were no connection with the US, there would still be an affordability problem in the UK. There's only so much debt you can take on at ridiculous multiples and with daft schemes like 'buy with a friend' and interest only mortgages, before people simply can't afford any more repayments unless wages increase. Wages aren't increasing, so prices can't go up any further.

Add to that the problem of lots of people having to reset fixed mortgages onto higher interest rates this year, and the decrease in CGT scheduled for April which will probably cause a glut of BTL properties on the market, and things are not looking rosey for property in 2008.

It's far from just being 'talked down' by the media.

I do agree with you about not waiting for a crash to get a bargain. People should just buy when it is reasonably affordable for them, but it certainly is not for most people at the moment. And as for the thousands waiting to buy, what are they going to buy with if mortgages are being restricted? The rates of indebtedness would suggest most people don't have huge 'war-chests' stashed away just waiting to be splurged on cheap property.

Soprano

dannyboycey wrote: »

Nothing to do with the fact we've had years of irresponsible lending and greed-fuelled borrowing then? Did you really think it could continue forever? After every big party, there is a big hangover.

I totally agree with your points and am not trying to blame the media for the whole thing even if thats how it sounded. The media just thrives on misery and loves to spread fear which causes people to panic.

Soprano

Austin_Allegro wrote: »

As I understand it the bad debts in the US sub-prime mortgage market were cut up and sold on to other banks around the world, including those in Britain. That's the main connection between the US and the UK markets. UK banks thus don't have sufficient money to loan out in the UK, so are being very careful how much they loan out and to whom.

Even if there were no connection with the US, there would still be an affordability problem in the UK. There's only so much debt you can take on at ridiculous multiples and with daft schemes like 'buy with a friend' and interest only mortgages, before people simply can't afford any more repayments unless wages increase. Wages aren't increasing, so prices can't go up any further.

Add to that the problem of lots of people having to reset fixed mortgages onto higher interest rates this year, and the decrease in CGT scheduled for April which will probably cause a glut of BTL properties on the market, and things are not looking rosey for property in 2008.

It's far from just being 'talked down' by the media.

I do agree with you about not waiting for a crash to get a bargain. People should just buy when it is reasonably affordable for them, but it certainly is not for most people at the moment. And as for the thousands waiting to buy, what are they going to buy with if mortgages are being restricted? The rates of indebtedness would suggest most people don't have huge 'war-chests' stashed away just waiting to be splurged on cheap property.

Yeah, I really should have put a little more effort into my post after looking over it as I do agree with most of your points.

Just hang around in this forum for a while and you get the feeling there are a lot of people rubbing theirs hands together at the prospect of a crash. They will move in and buy from those who were too silly in buying a home they can no longer afford. While they may not have war-chest style savings, they must have at least a 'healthy' stash, otherwise their plan is as doomed as the those they hope to buy from??

Austin_Allegro

Soprano wrote: »

I totally agree with your points and am not trying to blame the media for the whole thing even if thats how it sounded. The media just thrives on misery and loves to spread fear which causes people to panic.

But for the last ten years, 99% of media coverage of the housing market was almost hysterically bullish. Property was constantly ramped and the Daily Express, for example, had 'property prices to go up by x billion percent next year' stories every other day.

I think the media only changed its tune when it realised the situation was changing and people weren't falling for their constant price rise stories. But I agree, the 'fear factor' probably helped too.

dannyboycey

Austin_Allegro wrote: »

But for the last ten years, 99% of media coverage of the housing market was almost hysterically bullish. Property was constantly ramped and the Daily Express, for example, had 'property prices to go up by x billion percent next year' stories every other day.

Sadly, the Express are still guilty of this. They basically have 4 headlines:

• Maddie is alive
• Diana: The truth
• House prices soar
• Government to raise taxes again

Turnbull2000

Austin_Allegro wrote: »

But for the last ten years, 99% of media coverage of the housing market was almost hysterically bullish. Property was constantly ramped and the Daily Express, for example, had 'property prices to go up by x billion percent next year' stories every other day.

I think the media only changed its tune when it realised the situation was changing and people weren't falling for their constant price rise stories. But I agree, the 'fear factor' probably helped too.

Agreed.

I'm staggered that some people have the gall to accuse the media of talking down the market after willingly consuming their 10 years of outrageous property hype.

However, is does at least prove that the market is not based on fundamentals. If it were, the media would be of no concern.

WTF?_2

Soprano wrote: »

A crash is coming simply because the media is feeding on this hype pointing its bony fingers at America and saying "Looky here!!! It's coming over here too!!!!" Even though you couldn't link the US to the UK housing market, they will create one.

So every news report will have an 'expert' come on and say "credit crunch" as many times as possible in their 3 minute slot. Which the average person doesn't know what it means, but it sounds grim so they will start to worry.

The more long faced journo's pop up on TV saying the housing market is slowing down and heading for a crash, the more likely it will actually happen as people start to panic sell.

I'm not bias. I don't own my home. I have a fair bit of savings to put towards my first. But I'm not one of those silly enough to wish for a crash, somehow thinking I'll get a great bargain... Maybe I will, but there are 1,000's of others out there waiting to buy.

A slump in house prices is coming because an estimated $400 BILLION has been lost by financial institutions around the world as a result of the already in motion US house price crash. That has resulted in tightened lending criteria which are already showing signs of impacting the UK market, amongst others.

This may or may not turn into a full blown UK crash. I personally believe it will as house prices are so far out of line with reality. However, with the government going full tilt to try to 'save' the housing market at the expense of the long-term economy (lowering interest rates at a time when inflation is a stronger threat than ever and bailing out failed banks with huge 'loans') it's entirely possible we may see a 'soft landing' at least in terms of nominal prices. Too bad that inflation will be eating away at people's salaries, disposable income and savings.

The end result will be much the same - a return of average house prices to a sensible multiple of average earnings. The only question is whether or not we get there through substantial falls in real prices over the next few years or high inflation making those outlandish prices look reasonable 5 years down the line.

(If the government get their strategy of inflating out of trouble wrong, we could see both falling 'real' house prices and soaring inflation in things like food and energy. But who knows maybe they'll actually show some economic competence for a change and manage to balance the destruction of capital with exactly enough additional money :rolleyes:)

Gorgeous_George

So, what is a reasonable multiple?

In 1985, I was offered 2.75 x joint income or 3 x mine and 1 x 1st Mrs GG. Mortgage interest rates were high at 16.5% but I enjoyed MIRAS making the rate effectively 11%.

Rates are much lower today and I pay 6.24%. Salaries have increased of course so, what is a reasonable multiple.

Of course, we should remember that council tax is huge compared to the old rates. VAT is applied to almost everything. On the other hand, food and consumer goods are cheaper.

I think a 4 x multiple would be reasonable making a 2 bedroom terrace like my first home something around £100K. Today, they sell for nearer £150K. A 30% price drop would address the imbalance.

GG

EdInvestor

Austin_Allegro wrote: »

... the decrease in CGT scheduled for April which will probably cause a glut of BTL properties on the market...

....or maybe not.

#Longer term BTL investors ( those who bought before around 2000) will be selling now if they want to, as they do better under the old measures.
#Most BTL investors who bought since 2004 have not made much of a capital gain so won't benefit either way.
#That leaves BTLers who invested between 2000-2004.Many of those may have converted their former home to a BTL when moving , and thus won't be charged CGT under either set of rules and thus have no tax incentive to sell.