Were there many STRs before/during the last crash?

Turnbull2000

EdInvestor wrote: »

The main reasons for the last crash were the ratcheting up of interest rates ( to 15%!) and the rise of unemployment due to an economic recession.

A chart posted on the more respectable GHPC indicated that unemployment spiked after the initial falls in prices and wasn't a trigger. It might be worth looking up some government figures to verify this though.

And is using interest rates whilst excluding actual debt levels a reliable comparison? I don't think so. And 15% lasted what, less than a day?

edit:

Nationwide Price Index indicates crash began Q4 1989. ONS (statistics.gov.uk) indicates unemployment began to creep up Q3 1990, then accelerated in 1991 despite the crash being already well underway.

Jorgan_2

born_again_saver wrote: »

I just wondered if much of this "selling to rent"/STR behaviour was seen during 1989-1991? If so, how did these people do out of it? Or is it something fairly new this time around? If large numbers of people STR, what kind of effect will this have now and in the next few years?

From memory there wasn't a lot of STR going on, I don't believe many people saw the crash coming, house sales & HPI dried up over night with abolition of double MIRAS in August '88.

chappers

Turnbull2000 wrote: »

A chart posted on the more respectable GHPC indicated that unemployment spiked after the initial falls in prices and wasn't a trigger. It might be worth looking up some government figures to verify this though.

And is using interest rates whilst excluding actual debt levels a reliable comparison? I don't think so. And 15% lasted what, less than a day?

The two things were definitely linked the fact that unemployment continued to rise , does not mean that unemployment wasn't responsible or didn't affect the housing crash.
The comparable trigger to now I think was the relatively easy access to credit 100% mortgages, borrowers overstretching themselves etc and last time coupled with high interest rates and a deep recession , the market plummeted.
One thing stays constant and that is people always try to the death to pay their mortgage regardless of the interest rate, however if you are made unemployed with little possibility of finding employment what happens to your house and more to the point if half the country's in the same boat as you who do you sell it to and so the whole market spirals down.
In the last recession unemployment was right across the board, in fact if you were in alow paid unskilled job you were probably in a better position.
I knew a guy who's brother had a house with a mortgage that was more than the price of a brand new indentical house just round the corner, he just handed the keys in and there were many more in his situation.
Until unemployment makes asignificant increase i don't see the housing market making the same sort of plummet we saw in the last recession.

Generali

Turnbull2000 wrote: »

A chart posted on the more respectable GHPC indicated that unemployment spiked after the initial falls in prices and wasn't a trigger. It might be worth looking up some government figures to verify this though.

And is using interest rates whilst excluding actual debt levels a reliable comparison? I don't think so. And 15% lasted what, less than a day?

Interest rates were put up to 15% for less than a day IIRC - the news at the time described queues outside banks to buy gilts the following morning.

However, they were above 10% from 21/7/88 - 5/5/92 and were 14.875% from 6/10/89-8/10/90.

IMO, the credit contraction caused by raising interest rates caused both falls in house prices and decreased growth, the latter of which increased unemployment.

Where we are right now is that a credit contraction is being caused by weakness in the banking system. Presumably that will have a similar impact to rates being increased - it doesn't matter so much why funds can't be borrowed, more that they can't be borrowed.

EdInvestor is certainly right about the quality of privately rented accomodation, for the most part at least. People used to rely much more on the public housing sector for rentals the quality and availability of which was patchy at best.

Turnbull2000

House prices fell 18% before unemployment began to rise. Slightly under half of total falls.

Generali

Turnbull2000 wrote: »

House prices fell 18% before unemployment began to rise. Slightly under half of total falls.

If that's nominal then most of the inflation adjusted/real falls would have come before unemployment rose - interest rates were hiked to defeat the inflation genie let out of the bottle by the Lawson boom, the linking of the Pound to the Deutschmark and a refusal to raise interest rates before the 1987 election.

benood

According to Halifax average prices fell from about £69k in 1989 to £62k in 1995 - overall a fall of just under 11%.

Remarkable really, at the time it felt as if the world had ended and no one would ever be foolish enough to buy a house ever again.

Benefits_Blagger

EdInvestor wrote: »

The size of the private rented sector before the last crash was negligible because rent controls had not been lifted, so there were no BTLs.Most people were desperate to buy because the standard of rented accommodation was appallingly low and the rents high.

No comparison with the position now.

.

and if mortgages were harder to get, where the bloody hell did people live!

Generali

Benefits_Blagger wrote: »

and if mortgages were harder to get, where the bloody hell did people live!

The level of owner occupation hasn't risen hugely (by 4% over the period 1992-2002) but what has changed is a shift from public to private provision of housing.

Council housing in the 40s and 50s was not just meant for one-legged single mother lesbians from Somalia*. It was meant for pretty much everyone in that sort of post-war, cradle-to-grave, quasi-socialist idealism that many had. Right up until the mid-80s, a large proportion of rented accomodation was local authority in varying states of repair (under the Glorious Socialist Revolution, you weren't supposed to repair your council house without permission which very often was not given).

People in privately rented housing were given security of tenure (effectively indefinitely) and rents were controlled by a state-run body. Generally, if you planned to stay long-term, you would be free to do the place up if you wanted. If you were after a shorter term rental and didn't want to put money into the place then quality often varied between poor and dangerous (no compulsory gas certificate in those days!) although I'm sure that there were some better places at higher rents aimed at particular sectors of the market.

If you're interested in privately rented housing conditions between the wars read, "The Road to Wigan Pier" by George Orwell (link to free online version).





*This is a joke. I don't belive that council houses only go to OLSMLFSs. Several are from other war-torn parts of the world like Iraq or Slough.

Gorgeous_George

Turnbull2000 wrote: »

And 15% lasted what, less than a day?

A popular misconception. The following table shows the average BANK OF ENGLAND base rate over the previous SIX MONTHS.

Mortage rates were typically a couple of percent higher.

01/03/1988.....9.0
01/06/1988.....8.3
01/09/1988.....9.1
01/12/1988.....11.3
01/03/1989.....12.5
01/06/1989.....13.0
01/09/1989.....13.5
01/12/1989.....14.1
01/03/1990.....14.7
01/06/1990.....14.9
01/09/1990.....14.9
01/12/1990.....14.5
01/03/1991.....13.9
01/06/1991.....12.7
01/09/1991.....11.5
01/12/1991.....10.7
01/03/1992.....10.4
01/06/1992.....10.3
01/09/1992.....10.0

GG