There will not be a crash

Generali

baileysbattlebus wrote: »

Walter J..
"So what caused the crash of 1989?

I was there and remember it well. There was no internet, just the telly and the papers. No-one predicted a crash in house prices - it just happened. When I sold to rent in late 1989 everyone thought I was mad..."

It just happened ....

Remember this?

1. Inflation was 9% and peaked at about 11%
2. Interest rates peaked at 15%
3. We were members of the ERM (Exchange rate mechanism). countries agreed to keep there currencies within set limits linked to Germam DM and the DM was king. We left as we couldn't stay within the parameters. The value of sterling fell through the floor.
4. High unemployment
5. Affordability of housing - mortgages cost on average 36% to 40% of gross income (ours was 50% at interest rate high)
The ecomony was an absolute mess, interest rates didn't increase by 1/4% or 1/2% they usually increased by 1 or 2% at at a time.

It didn't "just happen"

I think you're putting together a lot of things that happened at different times. Sterling left the ERM in late 1992 for example whereas house prices started to fall in 1989.

In fact, if memory serves it wasn't until after Thatcher (1990) that Britain entered the ERM although Lawson was getting the (non-independant) BoE to shadow the Deutschmark at a rate of about £1 = DEM 3.00. It was that policy that was largely responsible for sparking off inflation as interest rates were kept too low for too long to keep the pound low which led to inflation as the price of imports rose and domestic demand increased too, further bidding up prices.

TTMCMschine

Let's look at other factors:

BTL

Interest rates are temporary, house prices are now so high, that interest rates even though historically low - people struggle with payments. People weren't lent silly mortgages as much back then.

The housing shortgage doesn't affect everywhere, yet it is used by all as an excuse for why prices should be silly.

Credit card debt - yes that's gone a tad silly. You no longer need to lose your job to become repossesed.

Ressesion in America.

Number fiddling - what's the real rate of inflation? I think they went to the numberwang school of economics.

Debt_Free_Chick

I have to admit there's been flood of properties onto the market (Rightmove) in the past couple of weeks, within three miles of my postcode. I guess those who want to hit the Easter viewers.

And I suspect there might be more post April 6 (new CGT rates) whether they're BTLs, second homes or holiday homes.

My own view is that an increase in properties coming to market is likely to lead price reductions. Perhaps not a crash ..... but a continuing slide, this year, I think. But then, whaddoo I know? I'm just speculating like everyone else

Generali

dolcevita wrote: »

and interest rates were 15% for, ooh, let me see, about 6 hours IIRC

Perfectly true although interest rates were above 10% for a period of time.

To my mind it's a myth that a bubble needs something to happen to make it burst. Nothing particularly happened in 1987 to burst the stock market bubble, nor in 2000-1 to burst the dot com bubble, nor 1929 to cause the Wall Street Crash, nor in 1720 to end the Mississippi Scheme or the South Sea Bubble (the Bubble Act from the time is where the term 'bubble' comes from I think).

I'm a bit of a student of bubbles and people always seem to look back to see what made the bubble burst. Lots of very clever people come up with lots of very clever explainations but the ultimate answer is usually, 'Nothing'.

If you accept that the UK house market is in bubble mode (and not everybody does) then my understanding of things is that nothing will need to happen to burst the bubble in particular. It'll just happen (although the current problems in the banking system won't help much!).

Jonbvn

TBeckett100 wrote: »

If we look at our landscape, we are an island. It isnt going to get bigger and we have a shortage. Since we cant access more land, keep tight control on greenfield sites and have a need for housing, demand still outstrips supply.

Seems like you could be describing Japan. Have a quick google to find out what happened to real estate prices there.

adr0ck

Jonbvn wrote: »

Seems like you could be describing Japan. Have a quick google to find out what happened to real estate prices there.

and what have property prices in Japan got to do with the UK?

dannyboycey

baileysbattlebus wrote: »

Walter J..
"So what caused the crash of 1989?

2. Interest rates peaked at 15%

We had nowhere near the scale of consumer debt we have now though. I'd rather borrow 1k at 15% than 10k at 5%

sideysid

Nenen wrote: »

The problem with ladders is they are often wobbly and very prone to toppling over unless you have someone extremely reliable holding on tight at the bottom!

Tell that to Rod Hull....

pinkshoes

No one can predict if the market is going to crash or not, but if it does crash, no one can predict what is going to happen either.

We could end up with millions of houses worth only 70% of what they were worth a few months before, but due to wide-spread negative equity, we could end up with the situation where no one wants to sell (or can't afford to sell), so those in rented accomodation waiting to bag a bargain, might find themselves fighting over a few properties no doubt up for sale due to repossession.

Along with everyone else I know that owns a property, if prices drop, then instead of selling (should we need to relocate or something), then we'd just rent it out, and rent elsewhere. Or stay put!

The only ones that will get stung by a crash are those irresponsible few who didn't borrow sensibly, and end up not being able to make mortgage payments. Just because a bank offered a mortgage 6x your salary, didn't mean you had to take it!

Hoario54

pinkshoes wrote: »

No one can predict if the market is going to crash or not, but if it does crash, no one can predict what is going to happen either.

I can, the correction started around 12 months ago. Lots of people will lose their homes. Sorry, but it won't be pretty.

pinkshoes wrote: »

We could end up with millions of houses worth only 70% of what they were worth a few months before, but due to wide-spread negative equity, we could end up with the situation where no one wants to sell (or can't afford to sell), so those in rented accomodation waiting to bag a bargain, might find themselves fighting over a few properties no doubt up for sale due to repossession.

Ahhh....the old everyone just sits tight theory...

Of course the only problem with that is we are also on the verge of a world wide recession, possibly a depression, which means sadly many of us will be unemployed and unable to pay the mortgage regardless of the LTV.

Go on, call me a doom monger, I can handle it.

By the way, if house prices return to a figure that matches up more closely with wages you will be looking at properties worth more like 50% of there value a few months ago.

pinkshoes wrote: »

Along with everyone else I know that owns a property, if prices drop, then instead of selling (should we need to relocate or something), then we'd just rent it out, and rent elsewhere. Or stay put!

And who is going to rent all of these properties?

pinkshoes wrote: »

The only ones that will get stung by a crash are those irresponsible few who didn't borrow sensibly, and end up not being able to make mortgage payments. Just because a bank offered a mortgage 6x your salary, didn't mean you had to take it!

If only it worked like that.

Justice in the world would mean the fat bankers taking huge profits whilst everyone pays through the nose would take huge hits at times like these.

They won't, you and I will, regardless of how prudent or sensible we may have been.