Losing momentum

julz1982

People may WANT to buy, but if a bank will only lend you 90% of the value and 3x your salary and you earn £25k then you are not going to be able to buy anything (around here anyway)

When studying demand there is a big difference between what people want and what they can afford. There is and always will be demand for homes, but if you cant get the £s to buy it, price will come down until people can. And the long term average is 3.5x salary and thats SINGLE salary.

It hasnt sunk in yet how banks scaling back lending to everyone is what will cause the fall, in the same way unrestricted lending caused the rise. Everyone who took out even a 90% mortgage last year on a fixed deal, will after the falls since when they come to remortgage not have a 90% mortgage anymore, its now 100% becuase the price came down 10%, so they cant switch, and have to pay very high rates at SVR because they cant move. If they cant afford that, and many people stratched to the very limit with help from parents, lieing on the forms, taking 4x salary mortgages etc, then they will HAVE to sell, and at any cost, they have no choice. Once that flood hits the market, people who were before sitting pretty with 80% mortgages, may now find they are at 100% as well, and have the same problem, etc etc etc.

The main people hit by the above will be amateur BTL who had "geared up" and used that wonderfull "leverage" Inside Track charged so much to teach them about, buying houses with borrowed money at 90% or 100% of house value then after a 10% house price rise using that equity as the deposit on house 2 and then house 3 etc etc. Well on the way down anyone who followed that strategy would only need a small fall for the gains on early houses to be outweighed by losses on later houses as the mean average would be so high, and the whole pack of cards falls down, and there is another "set" of houses for sale, all HAVE to be sold at any cost, and chasing the same few scarce buyers who cant get the funds even if they wanted to.

House prices will crash, make no mistake, and they will crash hard, 10% is nothing, 50% is more likely on the cards once its all done and dusted, things overshoot both ways, always have done always will do.

m00m00

the last 'crash/slump/correction' took years to play out

and prices are falling from a relatively higher spot this time.

fc123

The word 'Crash' implies a sudden fall. Last time it didn't feel like a sudden crash as such...more like a slow (wading through mud feeling) decline.

We bought a house in Mch 96 that had been on the market since Nov 94.
I think the selling price stayed the same throughout that time ...we knocked £3000 off.
It was the right price to pay at that time.

The whole 'Crash' word doesn't truly describe what is going on (apart from newbuilds @ 40% off)...more like slow, slide down.

PS; I know a mini chain of local EA's who have shut one branch already and want to sell the rest on as a 'going concern'. They have made a fortune over the past decade though.
Any takers?

fc123

brit1234 wrote: »

Also Inside Track went bust today, together with more mortgage tightening record low mortgage approvals. There is only so much bear food I can take in a 24 hour period.:D

So no chance of the 'investors' doing them for misselling then?
Bet they are sitting pretty somewhere nice and hot right now.

teabelly

A few more reports of areas with rising prices in March/April/May and it will all be over. Once the media have forgotten they are supposed to be hyping up a crash it will nothing to report and time to moan about rising fuel and food prices. Fewer new builds available will lead to shortages in popular areas so prices will rise as buyers chase the remaining decent properties. Crap holes and new build flats in crap holes will be decimated.

Continued HPI will help the banks out of their current mess as they last thing they want is a load of repossessions. A small steady rise of a few percent a year over the next 5 years or so is what is best. Small rises will let wages catch up and stop so many ending up in negative equity. The small rises will also reduce speculation. That way those with 95% mortgages will be around the 90% mark at the end of 2 year fixes rather than 100% or more if prices fall.

julz1982

teabelly wrote: »

Continued HPI will help the banks out of their current mess as they last thing they want is a load of repossessions. A small steady rise of a few percent a year over the next 5 years or so is what is best. Small rises will let wages catch up and stop so many ending up in negative equity. The small rises will also reduce speculation. That way those with 95% mortgages will be around the 90% mark at the end of 2 year fixes rather than 100% or more if prices fall.

Yes that would be lovely and what might be "best" but there is not a hope in hell of it happening, thats not how things work. Find me one, just ONE example of a speculative bubble (defined by 5+ years of average 10%+ growth) which has peaked and then had a steady plateau? This would be the first bubble in history to do that.

"Small rises will let wages catch up", well possibly but wages grow on average how much? 5% a year? And thats a bit optimistic, so if house prices grow along with inflation at 2.5%, they are catching up at 2.5% a year, it wont make a dent on the differnce between lending an average of 3x salary and 4x salary or more, which would be a 100% reduction in wage purchasing power.

RE getting the banks out of this mess with continued HPI, how long could that go on for then? You dont grasp the fundamental problem, the money is just not there. There is absolutely no reason in the world that a house in 2004 was bought and sold for £100k and in 2007 for £150k other than the fact that someone was silly enough to think that was a good idea and had the ability to buy it because the banks lent it. The house is the same, the only difference was the ability of people to pay more for it. Intrinsicly it is the same, the only thing that changed its value was the ability of people to pay more during 2005 and 2006. Thats it. Now they dont have the ability, the price will fall.

And banks wont want a load of repossesions on their hands but they will take them none the less if people dont pay the mortgage (and very soon lots of people wont be able to, btl landlords as well as ordinary homeowners) and they will just dump them.

Prices will fall, and fall, and fall, and there is absolutely nothing to stop it. The main reason for the fall will be people can no longer get the credit they once could.

ALSO the UK will have a recession soon, oil prices are on the up, and this has and will trickle through to inflation, as well as hitting our competitivness, so exports fall, and interest rates go up to stop inflation, and the pound rises, and exports fall again, and people are not buying in shops as much as they can not just max out £10k on credit cards then "consolidate all the existing loans into one managable repayment" like before, so shops shut, and staff are unemployed, and they buy less, etc etc etc.

The effect of a recession on house prices, well average earnings far from rising and catching up, will be falling and so it will be 3.5x a lower amout when we get there. Also a lot of the demand for houses is from immigration, well you get lots of immigration when your a booming economy, in a recession people will not come here to work as there are not the jobs, in fact they will start going back. So less demand for houses there. Britain is actually an aging population, without immigration we would be shrinking in population size.

I have gone on a bit there, this is what happens when I cant sleep. Sorry!

Snooze

Shouldn't this be in the 'house prices' forum? :rolleyes:

IveSeenTheLight

julz1982 wrote: »

And the long term average is 3.5x salary and thats SINGLE salary.

This will simply mean that single people will be able to afford 1 or 2 bed flats and people will need to have a double income in order to afford anything larger.

The days of the single breadwinner are over. The Long Term Average for 3 to 4 bed homes will need to be double income, not what a lot of FTBers expect

Markyt

julz1982 wrote: »

Prices will fall, and fall, and fall, and there is absolutely nothing to stop it.

HBOS are currently saying a 'mid single digit' fall in house prices this year and next.

IveSeenTheLight

julz1982 wrote: »

Prices will fall, and fall, and fall, and there is absolutely nothing to stop it.

When do you envisage we will get houses for nothing then?:p