FTB..confused

silvercar

geoffky wrote: »

GLEN000
This really does prove that at school level people should be taught economics. i despair at the level of financial knowledge at some of the working class..

The level of financial knowledge of some people in all classes is unbelievable, not just the working class.

Glen0000

geoffky wrote: »

GLEN000
We are just ordinary working class people.
it is really hard to see how a crash could be allowed to happen.

This really does prove that at school level people should be taught economics. i despair at the level of financial knowledge at some of the working class..

Ok then. Please explain to me in simple terms how a crash can happen. I read today on BBC news that the simple fact that there is a huge shortage of houses will prevent a crash.

I understand that prices are falling now, but I don't see how we can see falls of 30% or more as some people are thinking here.

I don't see how we can ever go back to the days where families like my parents (dad working, lower than average wage, mum at home) could afford to buy. My dad has never earned as much as me in his life, but still managed to buy his first house at 20 (a 3 bed semi), on the equivalent of a £12k wage today. That was the mid 70’s.

silvercar

In simple terms, its supply and demand. Supply has increased due to people having to sell from the credit crunch and builders swamping city centres with blocks of flats. Demand has fallen as people can't afford or can't secure mortgages.

dean_ham

Glen0000 wrote: »

Ok then. Please explain to me in simple terms how a crash can happen. I read today on BBC news that the simple fact that there is a huge shortage of houses will prevent a crash.

The main reason for a crash at the moment is the availability of credit (people cant get the 100% mortages they used to a few years ago), also peoples confidence in the market has gone as people are scared of the falls they wont buy. This leads to sellers desperate to sell and start knocking 5-20k off their asking prices to tempt some buyers.

dopester

Glen0000 wrote: »

Ok then. Please explain to me in simple terms how a crash can happen. I read today on BBC news that the simple fact that there is a huge shortage of houses will prevent a crash.

There is a shortage of money to lend. House prices have risen furiously these past few years because there was loads of money to lend, as companies, pension funds and other banks bought fancy named investment vehicles for billions and billions of pounds and dollars and euros and yen, which were AAA+ rated, but infact were toxic, as they consisted of homes in the USA sold to people who were not really ever in a position to buy a home*.

NINJAs (no income no jobs) and lots of others who bought on the never-never hoping to cash in on constant house price inflation on their capital and sell on for a profit. Yet the music has stopped.

So the pension funds and the investment banks aren't buying any CDOs or other toxic investments any more, as they've incurred mulit-billions in real losses on what they've already bought in the past.

So there is less money in the system to lend... and all the house prices in the UK which have been pushed up by the banks willingness to lend greater and greater amounts, to 100%+ mortgages, where people have thought "yeah... this bandwagon is great..." and carried on buying at ever increasing prices....

Well prices just have to revert because of affordibility. House prices are no longer affordable (and haven't been for a long time on salary calculations)... but aren't even affordable on borrowed money as there isn't enough money to lend at these prices to support current asking prices.

A lot of people thinking they've made money on property are actually non-existant profits. They don't profit unless they sell at somewhere near what they think their house is worth and then bank the money and don't buy again. If prices fall 25% and still no buyers.. are their profits still real? Or worse.. 50%+

Added to which we are facing a frightening economic situation in many sectors.

The outlook is bleak as I see it. If Governments could "prevent" house price crashes like you suggest they can "won't be allowed to happen" - then why have they happened in the past. You put too much faith in Government and we might well be going back to 70s crash prices in some areas.

Glen0000

How long is this likely to play out then? Are we talking 2 years or 10? How do we not know this "credit crunch" is just a blip?

dean_ham

Glen0000 wrote: »

How long is this likely to play out then? Are we talking 2 years or 10? How do we not know this "credit crunch" is just a blip?

No one knows, none of us has a crystal ball.

In my opinion prices should drop to affordable average levels. I.e prices should be there abouts 4 times the annual average salary. Whether this takes 12 months, 2 years, 10 years no one knows.

Put it this way i cant see house prices going up from their peak in 2007 for a very long time......

Conrad

Glen I would start looking with a view to buying in the next 6 months. I am on the frontline of this crunch and I predicted it on a thread on another forum in 2006.

The housing minister Caroline Flint was photo'd this morning with a document that read in terms - "house prices to fall this year 5 - 10% AT BEST"

When your Dad says they wont fall, tell him this;

EASY CHEAP MONEY = PRICES GO UP
HARD TO GET EXPENSIVE MONEY = PRICES FALL
50% LESS MONEY IS GOING INTO THE MARKET DUE TO CREDIT CRUNCH - SO SOMEONE SOMEWHERE HAS TO REDUCE PRICES AS THE MONEY SIMPLY ISNT THERE.

dean_ham

Conrad wrote: »

EASY CHEAP MONEY = PRICES GO UP
HARD TO GET EXPENSIVE MONEY = PRICES FALL
50% LESS MONEY IS GOING INTO THE MARKET DUE TO CREDIT CRUNCH - SO SOMEONE SOMEWHERE HAS TO REDUCE PRICES AS THE MONEY SIMPLY ISNT THERE.

Correct...

The media has a massive influance in the prices aswell in my opinion.

You switch the TV on, you open the news paper, you go on a website thats all you read is "house price drop / house price confidence at lowest" this effects peoples confidence that are 50/50 about buying a property.

Whereas 4 years ago all you heared was "price increase in property etc etc" people jumped on the band wagon, stretching themself to the max borrowing 6-8 times their annual salary at 100+% LTV scared that they will miss out if they didnt buy. This is the main reason why prices are so exaggerated at this present time.

beecher

The housing market has turned into a pyramid scheme - the government may like to blame the States, and the 'credit crunch' but this was always going to happen. The ratio of average salary to average house prices was getting more and more ridiculous - in my opinion house prices need to half to go back into line with what they should be. A fall of 1/3 sounds more than likely - where I live they've fallen by over 10% since last year already.

You are in a much stronger position than your friends who have 'made' £100k in 7 years, unless they've sold and realised that money.