Does it matter if house prices fall?

brit1234

Hi, Just read this article below on if it matters if house prices fall. I was just wondering what's your opinion?


Does it matter if London house prices fall?

How vulnerable are London house prices? asked one Sunday paper this week. Very, if any of the talks with sellers I’ve had recently are anything to go by. One friend has been trying to sell his house in Notting Hill on and off for a year or so. Several potential sales at the full asking price have fallen through for one reason or another but he has now finally exchanged with a new buyer – at 10 % below the asking price. He says his experience is being replicated all over the centre of London from Chelsea to Clapham: it has become standard to offer 15-20% below the asking price and get 10% off.

Numbers out from Rightmove yesterday pointed to a slowdown in London prices but a real fall is only a matter of time: right now, not many people are prepared to accept low-ball offers (my friend wasn’t much bothered – he’s moving to the country and just wanted out before the offers started coming in at 30% down) so they’re hanging on hoping things get better.

But does it matter if prices fall? Depends on who you ask. Estate agents and the PRs for buy-to-let clubs think it matters. But most first-time buyers don’t and the truth is that most London home owners don’t think so either. In fact a lot of them are thrilled. Why? Because right now they are trapped in their current homes by high prices. Say you bought a three-bedroomed house in Shepherds Bush in 1999 when you were earning £55,000, for £400,000. Now you earn £85,000 and it’s worth £950,000. That sounds good but it isn’t always so. Say you also have three children (six years - it happens) and you need another bedroom. To move to another house in the same area you are going to need another £200,000 plus £40-60,000 in moving costs upfront. You haven’t got it and your income hasn’t gone up enough to borrow it. So that’s that. There you are stuck in the same house indefinitely. So why would you care if prices came down? You might be worth a little less on paper but you might also be able to start dreaming about moving house.

http://www.moneyweek.com/file/42542/does-it-matter-if-london-house-prices-fall.html

HelzBelz

Just a couple of thoughts on the article, most places it's the norm to put in an offer on a house rather than going straight for the asking price so maybe it's just that London is starting to play the property game the same as the rest of the country.
Also in the example of having 3 children and "needing" another bedroom it's really "wanting" as there isn't really any reason why 2 of the children couldn't share.

Andy_L

If the price of the bigger house has fallen so will the value of the house you are selling. Probably by a similiar %age so you're likely to be in the same situation

andysstuff_2

Only matters if you are coming into the market new, or getting off the market(!)

In all honesty, for the majority of people with plenty of equity, there are definate benefits from a fall in prices, especially if you want to trade up to a more expensive property as it narrows the gap and means you need to borrow less to make the move.

Mac_Sami

The way I see it is that if you're buying property as an investment then the possible price fall could be an issue, if you wanted to sell.

If you're a first time buyer, you could pick up a great bargain - or if you're a buyer, you could sell your home and move into another one. Even if the prices then go down for the next few years, if it's a home you're buying, over a 10 year period I don't think you would lose.

Of course, we can only predict these things based on the statistics and trends, and some may suggest that putting your money in the bank instead is a better investment. I guess the question is whether you see property as purely an investment.

Sisyphus

Andy_L wrote: »

If the price of the bigger house has fallen so will the value of the house you are selling. Probably by a similiar %age so you're likely to be in the same situation

Are you sure?

What's 20% of £500,000? Is that more or less than 20% of £1 million?

BettiePage

The City of London was perhaps the biggest casualty, the latest data suggesting a quarterly fall of -17.5% in the final quarter of 2007.

http://forum.globalhousepricecrash.com/index.php?showtopic=28132

van_persie

Andy_L wrote: »

If the price of the bigger house has fallen so will the value of the house you are selling. Probably by a similiar %age so you're likely to be in the same situation

Someone didn't do Maths at school...

A percentage drop or rise affects the higher priced property by a much greater degree.

Example:
Buy 2 bed house in 1997 for 100K while 3 bed is 120K.
20k margin.
Sell 2 bed 10 years later (assuming HPI @ 100%) for 200K. 3 bed now 240K.
40k margin.


That's why it's in the interest of upsizers to see a DROP in house prices while downsizers (and speculators) have a vested interest in RISES.

And don't forget, a percentage FALL is greater than a percentage RISE.
eg:
House rises 10% in value from 100 to 110K.

House falls 10% in value from 110K to 99K (10% x 110=11)

EdInvestor

van_persie wrote: »

That's why it's in the interest of upsizers to see a DROP in house prices while downsizers (and speculators) have a vested interest in RISES.

It's that generation gap again.Also looking for rises are those oldies who want to do equity release. STR speculators are looking for falls.

Landlords/developers will be mixed, happy with short term falls so they can buy in cheaper, but wanting rises over the long term..

Andy_L

van_persie wrote: »

Someone didn't do Maths at school...

A percentage drop or rise affects the higher priced property by a much greater degree.

Example:
Buy 2 bed house in 1997 for 100K while 3 bed is 120K.
20k margin.
Sell 2 bed 10 years later (assuming HPI @ 100%) for 200K. 3 bed now 240K.
40k margin.


That's why it's in the interest of upsizers to see a DROP in house prices while downsizers (and speculators) have a vested interest in RISES.

And don't forget, a percentage FALL is greater than a percentage RISE.
eg:
House rises 10% in value from 100 to 110K.

House falls 10% in value from 110K to 99K (10% x 110=11)

Oops, so it does. I'll get me coat :embarasse

nelly_2

Andy_L wrote: »

Oops, so it does. I'll get me coat :embarasse

ill phone you a taxi