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  • FIRST POST
    meanmachine
    50% rise in house prices needed before crash
    • #1
    • 25th Mar 06, 4:40 PM
    50% rise in house prices needed before crash 25th Mar 06 at 4:40 PM
    OK, so I've looked at the whole affordability argument as a reason why the market hasn't crashed. I have to say, it's a pretty strong one.

    Now if int rates stay at 4.5%, then houses would have to go up from around 160K to around 240K to hit the same unaffordability as in 1989. That's 50%.

    If prices continue to rise @ 10% a year, we'll hit that point in 2010.

    Of course, it's unlikely that buyers will voluntarily push prices up that far. In 1989, IRs spiked and homeowners had no choice in the matter.

    Also, if IRs go up to, say, 5.5%, that will bring forward this tipping point by about 6-12 months.

    Of course, this assumes all other things being equal (low unemployment), and doesn't factor in wage inflation, which will help affordability a little.

    So there you go - if HPI is between 0-5% a year, that is sustainable beyond 2010. If it goes above that, then you're going to hit crisis point by 2010.

    But of course, anything can happen, which is why predictions aren't worth a damn..
Page 3
    • sm9ai
    • By sm9ai 27th Mar 06, 10:25 PM
    • 473 Posts
    • 171 Thanks
    sm9ai
    Reasonable? Houses are never reasonable. If I was FTB now I'd be unhappy at the house prices.. but then I was unhappy when I was a FTB.. looking back I should have bought 3 places!!
    by NastyMatt
    Could you of afforded 3 places back then?
    • sm9ai
    • By sm9ai 27th Mar 06, 10:26 PM
    • 473 Posts
    • 171 Thanks
    sm9ai
    Why dread something that may or may not happen? Why worry what your house might be worth in 3 months time? There is nothing you can do about it.

    I get the over whelming feeling that there is a group of forum members who want a crash so they can post "ahaha.. told you so". Doom merchants. If I was a FTB it wouldn't be the size of the mortgage that would horrify me it would be the posters on here!!

    In my experience the people who want a crash are the people that missed out 10 years ago..
    by NastyMatt
    Or perhaps ftb's who cannot afford a house due to being born about 4-5 years too late. Hardly their fault is it?
    • Kruger
    • By Kruger 27th Mar 06, 10:55 PM
    • 96 Posts
    • 60 Thanks
    Kruger
    Or perhaps ftb's who cannot afford a house due to being born about 4-5 years too late. Hardly their fault is it?
    by sm9ai
    I fall into the above boat, I was too young to catch the first boat, and I'd be lying if I said I was pleased that everyones houses were up in value, I'm waiting till the Buy to let brigade start offloading their houses if interest rates increase, other than that I'll have to wait for some relatives to die before I can afford to purchase anything half decent. ROLL ON THE CRASH.....
    I want to take on capitalism, but cant get the day off work....
  • NSR2
    I fall into the above boat, I was too young to catch the first boat, and I'd be lying if I said I was pleased that everyones houses were up in value, I'm waiting till the Buy to let brigade start offloading their houses if interest rates increase, other than that I'll have to wait for some relatives to die before I can afford to purchase anything half decent. ROLL ON THE CRASH.....
    by Kruger
    You are not alone:
    http://money.guardian.co.uk/news_/story/0,,1741079,00.html

    I've got an inheritance, and even with that you can't buy much.
    My biggest concern with buying right now is who can I sell to, when I move out?
  • NastyMatt
    Or perhaps ftb's who cannot afford a house due to being born about 4-5 years too late. Hardly their fault is it?
    by sm9ai
    What a ridiculous argument for wanting a crash.

    My Dad was born ooooh?!?! 29 years before me and he couldn't get a mortgage. They wouldn't even give him the time of day.. but he saved.. worked hard.. saved more.. worked 7 days a week and finally got a mortgage.

    Lets look at my Grandfather? Again.. no chance of a mortgage... so what did he do?? Oh.. he worked hard.. saved...

    I was not earning enough for a first place.. so guess what I did?

    Is there a pattern emerging here????

    Quite simply.. houses are NEVER reasonably priced. If they ever are.. I.. you.. Tassoti.. every one else will buy 3 places.

    FTB's will always have it tough.

    Instead of wanting the easy way out.. i.e. a crash.. to allow people to buy their dream home as FTB or second time buyers.. how about some sound advice on here (which there is) as how to achieve it in the long run?!?

    The doom merchants/crash wannabe's seem to want it ALL.. now and easily. Life isn't like that.

    Matt
    Lady Astor: "Winston, if I were your wife I'd put poison in your coffee."

    Sir Winston Churchill: "Nancy, if I were your husband I'd drink it."
    • sm9ai
    • By sm9ai 28th Mar 06, 10:06 AM
    • 473 Posts
    • 171 Thanks
    sm9ai
    Lol, thats funny.
  • van persie
    A little simplistic and romantic, Matt; I bought my first place with ease at around 3 times my annual salary at a time when property wasn't seen as such a good investment. Within 5 years, everyone was clamouring to get a piece of the pie and property prices had doubled.
    It's all about timing in a cyclical market, I'm afraid, and those who got lucky (myself included) have been able to move up the 'ladder' a lot easier because of that first purchase. I applaud those who are prepared to wait for a price correction. It doesn't mean they expect 'something for nothing', as you seem to be suggesting. Rather it shows a fundamental knoweldge of economics and physics: what goes up...
    • Tassotti
    • By Tassotti 28th Mar 06, 10:19 AM
    • 1,446 Posts
    • 611 Thanks
    Tassotti
    I think it is dependent on the area. Granted in London, houses are completely overpriced for FTBs. Would probably be needing to earn 50K plus to get a studio flat in Camden.

    However, if you are on a London salary, and live in commuter belt, then houses are easily affordable, and will be for some time yet (even at 50% increase)

    That same 50K would get a decent 3/4 bed house in my local area.

    So the average wage in London is around 36K (ish) from a report someone linked to :rolleyes:

    But, I don't know any "average" people. My tube driver friend earns around 34K so he must be just below an "average" person. He is FTB and just bought v nice 2 bed house. Even if IRs rise to 12%, he could still afford the mortgage and living costs.

    However, my other friend is a trainee manager at pizza hut earning 22K salary and is trying to buy in Chelsea!!! Think he might get a mortgage on a lock up shed.
  • NastyMatt
    A little simplistic and romantic, Matt; I bought my first place with ease at around 3 times my annual salary at a time when property wasn't seen as such a good investment. Within 5 years, everyone was clamouring to get a piece of the pie and property prices had doubled.
    It's all about timing in a cyclical market, I'm afraid, and those who got lucky (myself included) have been able to move up the 'ladder' a lot easier because of that first purchase. I applaud those who are prepared to wait for a price correction. It doesn't mean they expect 'something for nothing', as you seem to be suggesting. Rather it shows a fundamental knoweldge of economics and physics: what goes up...
    by van persie
    I'd say your knowledge of economics and physics is simplistic and romantic! Just because the market is up (in your eyes) does not mean it WILL come down. You clearly suffer from irrational pattern recognition!

    I have no issue with people who predict a market adjustment based on fact or even complex and detailed market analyses, but all the crash mongers on here base all their arguments on their gut feeling.. or single page reports... or the even more laughable HPC brigade.. a website that has been predicting a crash for 3 years!!! ahaha.. how much has that cost people? 15% - 20% - 30%? Lets hope they'll refund all the lost people have lost listening to those fools.
    Lady Astor: "Winston, if I were your wife I'd put poison in your coffee."

    Sir Winston Churchill: "Nancy, if I were your husband I'd drink it."
  • van persie
    I'd say your knowledge of economics and physics is simplistic and romantic! Just because the market is up (in your eyes) does not mean it WILL come down. You clearly suffer from irrational pattern recognition!
    Hmm. So you really don't think the market is overvalued at present? Do you think it's going to plateau at its current level till wage inflation catches up? What are your feelings on the world economy right now - the universal raising of rates and its threat to sterling?
    Is the market not cyclical? Or are we entering a new paradigm in the market?
    These are a few of the questions I'd like answered before admitting to having 'irrational pattern recognition.'

    Talk to even the most bullish economists and they'll tell you the same. It's a question of whether we're going to see a correction brought about by any number of factors (higher IRs, unemployment, etc.) or stagnation as wage inflation picks up. Where's your money?

    I gave you a perfectly good example of buying at the right time. Why not comment on that? I'd say my knowledge of economics were pretty sound - particularly as it's my job.

    I have no issue with people who predict a market adjustment based on fact or even complex and detailed market analyses, but all the crash mongers on here base all their arguments on their gut feeling.. or single page reports... or the even more laughable HPC brigade.. a website that has been predicting a crash for 3 years!!! ahaha.. how much has that cost people? 15% - 20% - 30%? Lets hope they'll refund all the lost people have lost listening to those fools
    .
    by NastyMatt
    You're quite right that people shouldn't form views based on one-page articles, whether they be bullish or bearish. But to scorn and mock them for making a decision to wait and see (and for visiting a website!) based on sound research is simply cruel. And as for fools, remember the 'greater fool' theory - it's never been more applicable than right now, IMHO...
  • NastyMatt
    Van persie.. as I have answered all your questions before in previous posts I will not bore you/everyone else with going over old ground.

    You have made your opinions known.. and I look forward to you sending me your house details when it is up for sale at Christmas in time for the market crash you are predicting next year.. i.e. putting your money where your etc

    Matt

    P.S. "Talk to even the most bullish economists and they'll tell you the same" - I have... they didn't... end of.
    Lady Astor: "Winston, if I were your wife I'd put poison in your coffee."

    Sir Winston Churchill: "Nancy, if I were your husband I'd drink it."
  • claz
    Sure, that's a good point. London is well ahead of the game in this mad race to "absolute unaffordability".

    I think the average wage is 30K to a 250K property, so yes, the capital could hit 1989 figures in the next 3 years.
    by meanmachine
    meanmachine where do you get your figures from as my partner and i have a joint income of 30k however we only could get a mortgage for 125,000 and then we had a lot of savings to purchase a property for 140,000
    Well we finally did it got a house not on a main road, next a railway line or any other werid and wonderful things that get on my nerves!!!


    • Tassotti
    • By Tassotti 28th Mar 06, 2:06 PM
    • 1,446 Posts
    • 611 Thanks
    Tassotti
    think mm meant 30k average wage versus 250k average property price...not mortgage related
  • meanmachine
    No I think Nasty has a good point - property is always valued at a level that makes it just too expensive.

    Right now there is a premium on capital, offest by lower interest payments.

    Previously it's been higher interest rates against lower capital (price of property).

    All I can do is save what I can and hope the pendulum swings back to higher interest rates and lower capital costs. If it doesn't then I won't ever buy. Instead I'll wait and inherit.

    By the way, for a few short years in the mid-late 90s it was extremely easy to buy. I know lots of people with poor wages who bought houses they couldn't hope to buy at today's prices. The reason they could do it was that there weren't any of these "investors" around. Property had just crashed and was seen as a dismal investment.

    The problem now is this: at 100K 10 of my mates can buy a place. At 150K 5 of my mates can still afford to buy, the rest rent or live at home. At 200K (where we are right now), one or two people can afford to buy.

    The higher your house goes the fewer people you can sell it on to, and/or the more stretched they are.

    Homeowners are basically impoverishing an entire generation. They might not give a damn now, but they will soon when retail goes down the tubes and the service sector goes into recession. when that happens, what will there be to bail us out? Manufacturing? Nope.
    • zappahey
    • By zappahey 28th Mar 06, 2:41 PM
    • 2,203 Posts
    • 2,003 Thanks
    zappahey
    I much prefer Keynes' observation that
    The market can remain irrational longer than you can remain solvent
    Maybe just change the word solvent to patient
    What goes around - comes around
    • Wickedkitten
    • By Wickedkitten 28th Mar 06, 3:12 PM
    • 1,820 Posts
    • 2,135 Thanks
    Wickedkitten
    I have been reading this discussion with great interest as good points are being made on both sides. However, there is one factor nobody has yet taken into account:

    On the Day of Fools,
    In the House of Fools,
    HE is coming back!
    by THE PROPHET
    What, is Jesus planning on coming back to magick up some affordable housing from toothpicks?
  • van persie
    Van persie.. as I have answered all your questions before in previous posts I will not bore you/everyone else with going over old ground.

    You have made your opinions known.. and I look forward to you sending me your house details when it is up for sale at Christmas in time for the market crash you are predicting next year.. i.e. putting your money where your etc

    Matt

    P.S. "Talk to even the most bullish economists and they'll tell you the same" - I have... they didn't... end of.
    by NastyMatt
    When did I say I'd be putting my house up for sale? Quite happy in it, thanks.
    Also, I seem to remember you replying with pretty much the same prediction as me as to when the market would take a noticeable downturn, so are you now changing your tune? Maybe since chatting to those economists...
    Good luck with your BTL portfolio!
  • NastyMatt
    When did I say I'd be putting my house up for sale? Quite happy in it, thanks.
    Also, I seem to remember you replying with pretty much the same prediction as me as to when the market would take a noticeable downturn, so are you now changing your tune? Maybe since chatting to those economists...
    Good luck with your BTL portfolio!
    by van persie
    I did not have the same prediction as you. Ergo, I am not changing my tune. I predicted a slow down in the rise of prices not a downturn. Secondly, I never said you WERE going to put your house up for sale, I said I am looking forward to when you do - which will prove to me that you beleive in what you say.

    Quite clearly you will not put it up for sale! But you WILL tell people that there is going to be a crash and they should hold tight. It's like gambling.. predictions mean nothing until you put your money on it... and you are not putting your money on it.
    Lady Astor: "Winston, if I were your wife I'd put poison in your coffee."

    Sir Winston Churchill: "Nancy, if I were your husband I'd drink it."
  • heathcote123
    What a ridiculous argument for wanting a crash.

    Quite simply.. houses are NEVER reasonably priced. If they ever are.. I.. you.. Tassoti.. every one else will buy 3 places.

    Matt
    by NastyMatt
    Thats just utter rubbish. I bought my first flat at just over 2 X my rather junior wage around 1998 sometime.

    That same flat is now 'worth' 4 times my wage, even though I have doubled my income in that time !

    It really wasnt 'hard' at all.

    I certainly believe house prices will come down, as to the timescales though, that I'm not so sure of.
    Last edited by heathcote123; 28-03-2006 at 4:20 PM.
  • van persie
    I did not have the same prediction as you. Ergo, I am not changing my tune. I predicted a slow down in the rise of prices not a downturn. Secondly, I never said you WERE going to put your house up for sale, I said I am looking forward to when you do - which will prove to me that you beleive in what you say.

    Quite clearly you will not put it up for sale! But you WILL tell people that there is going to be a crash and they should hold tight. It's like gambling.. predictions mean nothing until you put your money on it... and you are not putting your money on it.
    by NastyMatt
    Matt,
    I do not need to put my house up for sale or 'put money on it' in order to back up a prediction! That is the most ridiculous comment yet!
    I will move house when I feel the time is right, thanks.

    Apologies, I didn't realise you said 'a slow down in the rise' of prices, not a downturn. Then we are indeed at odds.

    However, I have merely voiced an opinion that I think there will be a correction - along with many others. I also welcome any suggestions as to why there will not be. And how there could be a plateau/stagnation in house prices for many years. So far nobody, including you, has successfully argued why this might be the case. Please copy me a thread if I am wrong - I am new to this site.
    Are you about to buy somewhere?
    Is this why you're so intent on shouting down anyone who suggests there might be a correction?
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