'Will house prices crash in 2008?' Poll Results & Discussion

Nenen · 26 January 2008 at 1:25AM

Playing devil's advocate here (as I believe we should have a forum, or at least a sub-section of one, dedicated to discussing house prices on MSE) shouldn't this thread be on the sticky for discussing HPC as decreed by mods? How was this included in Martin's Weekly Money Tips when it breaks his own rules?

jedk · 26 January 2008 at 11:55AM

The banks have been lending out money that does not exist to people who can't afford to pay it back for years. The chickens are about to come home to roost. A depression will occur very shortly and house prices will fall by more than 30%. Enjoy yourself it's later than you think.

moonunit42 · 26 January 2008 at 1:58PM

Any one interested in this subject should read:

'Boom, Bust: House Prices, Banking and the Depression of 2010' by Fred Harris.

Available on Amazon or Google it for some potent reviews from bond traders, analysts and forecasters etc.

In doubt? Read this perceptive article on the book from 2005:

http://www.moneyweek.com/file/3075/housing-boom.html

See anything familiar? You could be at risk if you ignore it.

I sold all my UK property last year and have no intention of re-entering the UK market in the next few years. Buyers Beware.

Tiger_greeneyes · 26 January 2008 at 4:29PM

I don't think it's as simple as it being either one outcome or another. I live in an area where there are properties still reasonably priced for first time buyers so if anything, prices will probably stay the same if not increase slightly.

I think the areas where there are no properties in the budget range for first time buyers will see the biggest decrease.

cynic66 · 26 January 2008 at 7:14PM

Any predictions of this nature are more likely to be by luck rather than design! Having said as much - I offer these thoughts.
1) The presence of a much enlarged "speculative" element to the housing market (i.e. "buy-to-let") is likely to magnify the peaks and troughs in prices - in that respect the market could be expected to be much more volatile.
2) The long term trend is likely to be upwards. Statistically we are likely to see "regression to the mean" (otherwise the average growth wouldn't be the average growth) which means smaller increases (if not outright drops) than the average growth rate are more likely in the near future.
3) "Demand outstrips supply" doesn't add up to my mind. Anyone doing GCSE level Economics will know that the price is set where the demand and the supply is equal. If demand exceeds supply, then the price will increase until the equilibrium is restored. One could similarly state that "demand outstrips supply" for Ferraris, etc. - it's just that the price effectively means most of the people that want a Ferrari (the demand) can't afford it (the price). Unless the government intervenes by fixing the price of property, the same fundamental laws of supply and demand will continue to apply in the housing market.
Thank you for listening :-)

enigmam · 27 January 2008 at 10:57PM

I voted for a crash. I think (in my humble opinion) that many people are unestimating the credit crunch.

Some comments on this threads state that if prices are too cheap, BLT landlords will just snap them all up, or the interest rate won't rise too much so it won't be like the last crash. With the credit crunch, credit will be much harder to get, and more expensive, whatever the BOE base rate is. You won't be able to walk into a bank like the last few years and ask for a 100% mortgage and get 4x your income. If you do it will be much more expensive as the libor rate (the rate of interest that it costs banks to borrow money) is very very expensive at the moment, and likely to continue. An example of this is Nationwide and el putting up their mortgage rates, although the base rate has been steady.

Although I have no way of proving this, a friend of mine works in a major bank providing mortgages, he's told me they have been told to offer around 70-80 LTV (loan to value), so if you want a mortgage on a £100k house, you'll be offered £70k-£80k.

It won't be different his time. It will be much worse. The only question in my mind, is whether it will fully happen in 2008 or take a little longer. Also it might be worth pointing out I own a house, before I'm accused of being bitter about not owning a house or something.

HarryPotter_3 · 27 January 2008 at 11:30PM

BTW the goverment is here to look after us, cutting intrest rates supporting Northen Rock and the like.

They should be doing everything in their power to keep thinks stable, not many will beneft from a crash.

ManAtHome · 27 January 2008 at 11:41PM

Banks are certainly putting up their BoE-linked rates - maybe they don't want to get stitched-up again by central bank cuts when commercial rates are rising.

jakeshaw · 27 January 2008 at 11:43PM

I think the mentality "safe as houses" - shared by much of the British public is the primary reason we are in this situation today. One massive asset bubble.

Times can change and inevitably will, maybe not in 2008 - but it is extremely unlikely if not impossible to continue year on year gains at present levels. Why? Even if people are willing to borrow 80%+ of their earnings to buy, lenders wont be willing to lend. Why? Just look at Northern Rock and it's financing model - the financial markets finally reached a point of wanting nothing to do with it.

The notion that demand is outstripping supply may appear to justify today's prices and a continual long term increase. However, this is a very simple way of looking at it. Just look at Japans 1990 crash, which has lasted some 17 years and house prices continued to fall until 2007! Thus, the notion of being a 'small island' with an 'increasing population' is likely to bear little significance when:
a) Banks reduce credit avalibility between themselves and directly to mortgage market. The demand notion becomes irrelevant. People may want a house, but banks are not willing to lend the money to do so. We are already seeing evidence of this.
b) Inflation RPI ~4% - If prices remain static, they are actually falling 4% in Real Terms. If this continued for 4-5 years (typical of a slump) - this equates to a 15%-20% fall on the optimistic assumption of no nominal house price falls over the next 4-5 years.
c) Buy to Let Investors (many reaching retirement) need to sell to 'cash-in' their 'investment'. Roughly 10% of the housing stock is associated with BTL mortgages, but the real figure is likely to be massive 20-30% of ALL UK houses when accounting for those individuals who opted for cheaper residential mortgages with the intent to rent.

My prediction
Factoring inflation, and a reduction in global economic confidence I think prices are likely to fall 5%-8% in Real terms RPI adjusted (1-3% Nominal).
On a more positive note, I don't feel the fall in house prices will be felt as steeply as that of 1992. Why? Despite talk of a global economic slowdown, there exists some reasonable fundamentals alongside historically high employment. As such, if this trend is held - people will not be forced to sell and hence magnify the impact.

enigmam · 27 January 2008 at 11:51PM

HarryPotter wrote: »

BTW the goverment is here to look after us, cutting intrest rates supporting Northen Rock and the like.

They should be doing everything in their power to keep thinks stable, not many will beneft from a crash.

Interest rates are for inflation, not house prices. There's no point reducing interest rates for house prices if everything you buy becomes much more expensive because inflation is out of control.

Also I think it's a bit harsh to say 'the government is here to look after us......should be doing everything in their power to kept things stable'. Who do you mean by 'us', people who own houses? What about first time buyers? Your children or grandchildren, do you want them to pay £500k for a flat at 10x their salary.

Did the government keep things stable when we were making tens of thousands of pounds when they weren't stable, i.e prices going up 10% a year? If they can let it go up 10% a year, they can let it go down 10% a year

I think quite a few people would benefit from a crash, FTB's, people looking to upgrade (as in their new homes won't be so expensive, they might now be able to afford something better). The only people to really lose out is those who have bought recently or have withdrawn equity.

'Will house prices crash in 2008?' Poll Results & Discussion

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