FTB's - don't buy now!

wolvoman

gazzak wrote: »

The fact hat some people use the word "crash" is the problem. It's not a crash it's a correction. Of course prices are going to dip, it's been coming for years, but to call it a crash is similar to people who are against smacking children calling it "beating". You do your own cause no good.

A 90% reduction is what I'd call a crash, not a 10-20% correction.

Anyway, what is worse, seeing your house price fall £10K in a year or paying a landlord £15K for a years rent, (3 bed semi).

Ermmm, what if your house loses £10K AND you pay £15K in mortgage interest?

Anyhow I agree about your definition of crash vs correction. Prices down 1.5% in a quarter is hardly crashing.

wolvoman

Oh and incidentally to answer the points about Halifax/Nationwide et al 'bigging up' the market. At the start of 2006, they forecast HPI would be low single figure digits when it turned out to actually be double digits - so much for them always overstating growth forecasts.

born_again_saver

carolt wrote: »

If you are a FTB, DON'T BUY NOW!

I wouldn't worry too much, the majority of wannabe FTBs are likely to be woefully short of being able to buy anything at this point.

Mortgage deals are disappearing or becoming crappier by the day. If you've not got at least a 5-10% deposit you can just forget it, unlike in recent years. Even if you have got the necessary deposit, you'll probably struggle to earn enough to qualify for a mortgage, as income multiples are shrinking back from the recent "generosity" of lenders offering mortgages of four or five times annual income or more.

As for the fortunate few who ARE in a position to buy something that's affordable to them, they may just choose to buy anyway, and if they truly can afford it, have a decent deposit and have factored in rising interest costs etc, then they should be OK, assuming they don't want to move soon, or that nothing bad happens e.g. job loss, relationship break up. For most of the rest who can't really afford it, I don't think they'll be able to buy something at the edge of their affordability any longer. Lenders will no longer allow them to.

Maybe I've got a slightly naive view on things, as I know unexpected things do happen to put people into dire financial straits, and lenders, brokers, estate agents and the rest do still want to make lots of money, and so people should be really cautious at this point. But even so, for most of us wannabe FTBs, the thought of buying is a mere a pipe dream anyway.

John51

For a cash buyer with a view to a long term investment, housing is probably the safest investment. imo it's the ability to use a high level of leverage that is going to either crash or correct. It used to be true that for a FTB it would take 5 years for inflation to make your mortgage payment equal to a fair rent on your property. I think that's what the market will correct to.

If housing is not the best investment for cash then what is? Would you borrow 4 times your salary to invest in gold or shares?

So lets hear it, the price of the house you want to buy, at current market value against what? You pay rent on the house and have investments equaling the price of the house in ...?

I have this horrible sinking feeling that paper money is so overvalued that no-one wants to look just in case it really is worthless. If you think house prices are going to crash, it's nothing compared to the possible crash that paper money might experience. Not even paper now, just ones and zeros on a computer file but what is a house worth when beer is £1,000 a pint?

WTF?_2

John51 wrote: »

I have this horrible sinking feeling that paper money is so overvalued that no-one wants to look just in case it really is worthless. If you think house prices are going to crash, it's nothing compared to the possible crash that paper money might experience. Not even paper now, just ones and zeros on a computer file but what is a house worth when beer is £1,000 a pint?

That's the doomsday scenario which may well turn out to be a possibility.

If there were hyper-inflation and a depression then holding a house is one of the few ways to preserve your wealth, irrespective of overpaying for it at current prices.

Kind of telling that the only way buying a house at today's prices represents a good idea is if we have an economic meltdown though

fc123

!!!!!!? wrote: »

That's the doomsday scenario which may well turn out to be a possibility.

If there were hyper-inflation and a depression then holding a house is one of the few ways to preserve your wealth, irrespective of overpaying for it at current prices.

Kind of telling that the only way buying a house at today's prices represents a good idea is if we have an economic meltdown though

My dad is with this view (and he's pretty smart in financial stuff). You can live in a house, you can't live in a gold bar (or sail in it, eat it, wear it or hang it on your wall and admire it)

Carolt isn't a 'typical' FTB (usually 20 something couple or high earning single looking for a flat or small house) as she already has kids and now works P/T.
She needs to be cautious about how much to borrow etc though, when our kids were small we just went for it, worked all hours and made ourselves afford the house we wanted. Kids have turned out ok too...but each family has different ways of doing things.

A crash would suit us BTW as we want to trade up....but I don't believe it will be like the 90's this time.

FWIW I'm going with David Smith (Sunday Times)

PS: With the Nationwide reporting a fifth successive fall in house prices, immediately and clumsily after an increase in the rates it is charging new borrowers, memories are stirring of the early 1990s. In prime minister's questions, Gordon Brown claimed rates rose to 18% then, while Nick Clegg, the Liberal Democrat leader, said the rise by the Bank of England recently was proportionately the same as then.
Both were wrong. The rate peak was 15%, not 18%, but it had doubled from 7.5% to get to that point. In any case, jousting about the early 1990s misses the point. The current situation is very different.
Then we had an economic crisis that spilled over into housing. Now, as Mervyn King put it, "the heart of the problem is not in the real economy; it is in the financial sector itself". He thinks, as do I, that the outlook for house prices in the coming years is broadly stable.
To achieve that, however, the Bank has to help solve the problems in the financial sector to prevent a vicious cycle developing. That means dealing with the overhang of assets which is bearing down on the markets while not exposing the taxpayer to losses. We are still awaiting details of how it plans to take a leaf out of the Federal Reserve's book and do that, despite plenty of positive noises. This is not the moment for a leisurely review of the options. Time is of the essence.
The Bank insists it is doing its bit and is fed up with unfavourable comparisons with the European Central Bank, which announced new liquidity operations on Friday. The Bank says it has increased long-term funding by 113% during the crisis, compared with 80% for the ECB.
What about an April rate cut, or will the monetary policy committee wait for its inflation report in May? I had thought May but April is coming up fast and starting to look irrestistible. More on this next week.
From The Sunday Times, March 30 2008

m00m00

fc123 wrote: »

My dad is with this view (and he's pretty smart in financial stuff). You can live in a house, you can't live in a gold bar (or sail in it, eat it, wear it or hang it on your wall and admire it)

Carolt isn't a 'typical' FTB (usually 20 something couple or high earning single looking for a flat or small house) as she already has kids and now works P/T.
She needs to be cautious about how much to borrow etc though, when our kids were small we just went for it, worked all hours and made ourselves afford the house we wanted. Kids have turned out ok too...but each family has different ways of doing things.

A crash would suit us BTW as we want to trade up....but I don't believe it will be like the 90's this time.

FWIW I'm going with David Smith (Sunday Times)

PS: With the Nationwide reporting a fifth successive fall in house prices, immediately and clumsily after an increase in the rates it is charging new borrowers, memories are stirring of the early 1990s. In prime minister's questions, Gordon Brown claimed rates rose to 18% then, while Nick Clegg, the Liberal Democrat leader, said the rise by the Bank of England recently was proportionately the same as then.
Both were wrong. The rate peak was 15%, not 18%, but it had doubled from 7.5% to get to that point. In any case, jousting about the early 1990s misses the point. The current situation is very different.
Then we had an economic crisis that spilled over into housing. Now, as Mervyn King put it, "the heart of the problem is not in the real economy; it is in the financial sector itself". He thinks, as do I, that the outlook for house prices in the coming years is broadly stable.
To achieve that, however, the Bank has to help solve the problems in the financial sector to prevent a vicious cycle developing. That means dealing with the overhang of assets which is bearing down on the markets while not exposing the taxpayer to losses. We are still awaiting details of how it plans to take a leaf out of the Federal Reserve's book and do that, despite plenty of positive noises. This is not the moment for a leisurely review of the options. Time is of the essence.
The Bank insists it is doing its bit and is fed up with unfavourable comparisons with the European Central Bank, which announced new liquidity operations on Friday. The Bank says it has increased long-term funding by 113% during the crisis, compared with 80% for the ECB.
What about an April rate cut, or will the monetary policy committee wait for its inflation report in May? I had thought May but April is coming up fast and starting to look irrestistible. More on this next week.
From The Sunday Times, March 30 2008

that sunday times quote is just the usual VI drivel of 'it's different this time'


yes, interest rates were higher then

but house prices and debt levels in general are MUCH higher now.

15% on 50k, or 6% on 200k, I know which I'd be rather paying.

fc123

m00m00 wrote: »

that sunday times quote is just the usual VI drivel of 'it's different this time'


yes, interest rates were higher then

but house prices and debt levels in general are MUCH higher now.

15% on 50k, or 6% on 200k, I know which I'd be rather paying.

D Smith doesn't do drivel. He does cautious + informed.

I hang onto the phrase "broadly stable" and really want it to be true.

My boutique has been 25% down on T/O since NR and our whole city is feeling the effects of the credit crunch. However 75% of our T/O is still coming in as normal.
I conclude that 75% of my customers haven't felt the pinch at all....or not yet anyway.

HammersFan

carolt wrote: »

Thanks baileysbattlebus for your find - it certainly shows that predicting house prices is not an easy call! However, the fact that some people were predicting house prices would fall in 2003 does not, to me, disprove the likelihood of them falling in 2008-9; in fact rather the reverse. If people thought prices stood in need of a correction in 2003, how much more have prices moved out of kilter with average earnings since then!

Factor in the credit crunch, and I know which way I think house prices will be going pretty soon.

JonnyBravo, thanks for acknowledging, albeit in the penultimate paragraph, that maybe I am 'reasonable' after all! (After several paragraphs explaining why I'm not!).

I've never made any secret of which side of the fence I'm on - as a history graduate, I'm well aware that everyone has a bias: the ones you have to watch are the ones who don't declare it.

After all, as you correctly point out, it's not as though the title of this thread was subtle.

You're right - I do presume to advise other FTB's - partly, I'm older than a lot of FTB's and so have a slightly longer perspective, having been trying to buy my first home since 2000 (and failing); partly, because as an educated part-time working mum, I have more time than most and plenty of inclination to read as much as I can on the subject of the housing market. I'm shocked by the number of FTB's who come on here still posting the 'house prices can only ever go up, renting is dead money...' mantra they've swallowed hook line and sinker off some property !!!!!! show. I am old enough to remember the last crash, and if I can save a few of those innocents from a ghastly mistake, then, yes, I do think I've done some good in my day.

If that's patronising, then I'm happy to be patronising.

Carolt - I just read through this very interesting post. You've created some good debate here.

I do, however, think that its a bit strange that you are giving out advice since by deciding not to buy 5-6 years ago you have put yourself in a significantly worse financial position than you would have been if you had bought property. By now you would have had some good equity in your pocket to sell and rent with for a while.

Why shouldn't first time buyers take a risk and go for it? If there's a good deal about then why not take it - there's nervousness in the market and some deals to be done. In loads of places renting is no cheaper than a mortgage (still).

By staying out of the market people are betting everything on a fall in the market.

You seem to think it is impossible - but what if the credit markets free up along with a drop in interest rates? Mortgage lenders will be back sniffing out business with good deals and prices can rise very quickly. And the longer the 'stand off' between buyers and sellers goes on (not many forced sellers) the more pent up demand there is in the market. What would you do if this happened - would you sit and wait for the crash (still) or would you bite the bullet and accept that prices aren't going to fall significantly?

You present a very one sided view of the situation and people are right to pull you up on it. The press just love a good story - they know house price stories sell papers. Its just not possible to call the market with any certainty.

I have asked this question before but.....if I offered you a house at two prices: price 1 is the price it is today, price 2 is the price it will be in 5 years time, and you didnt know how much either price was, which would you take?

m00m00

but people who are staying out of the market, aren't staying out for a fixed period like 5 years.

they are staying out until conditions are right for their particular situation.

for most ftb'ers/renters at the moment, the tipping point will probably come when buying a house is cheaper then renting.