How far will house prices fall [volume 4]

[9mm]

I'm in the process of going liquid on all of my property, here and abroad, and no-one will convince me I haven't done well out of house price inflation or that the cash I'll have in the bank isn't real. That isn't to say I don't see the gamble or luck element in it, which is one reason why I'm taking my stake out of the game for a while. Some will definitely go back into residential property, but not all of it.

I've seen and heard all of the Armageddon stories of property being worth feck all and frankly they're just daft. If property falls in value by half or some other doom- laden percentage, all that will happen is that cash rich investors will hoover it up. What's more likely, is another blip like 2008/9 when there will be a good opportunity to jump in. e.g my partner's house bought for about £240K in the teeth of the crisis and now valued at around £400K. She'll be realising some of that profit as well.

If true Armageddon does arrive, house prices will be the least of anyone's worries as we're then talking about scenarios like WW3, zombie apocalypse, etc. The biggest risk (not probability) that I envisage is a dramatic increase in interest rates, because hundreds of thousands of repos would totally destabilise the housing market. All the time rates are low, people can stay put, whatever their house is worth compared to last year. But as we see, interest rates have been kept low and will be kept low for the forseeable. 10 year fixed rates below 3% now available:

http://www.telegraph.co.uk/finance/personalfinance...

[9mm]

okgo said:

2008 was a fairly small blip on the graph of upward trajectory in London though?

I have mixed views about the London market. I'm not in London so I watch from a distance with purely academic interest. For me the interesting thing will be what happens if the new overseas money dries up. However, I think London is seen as a very safe haven by people all round the world and so huge problems elsewhere could make it even more attractive. There's a lot of exaggeration about London prices. Sure, many people can't afford to live in the trendy part of town they aspire to but that's the same just about everywhere - there's always something out of reach. You have to cut your cloth and live somewhere less trendy and desirable or move somewhere you can afford on your salary. Things change; one of them being the notion of staying in the same town and moving up the property ladder pretty much as far as you liked because prices were stable but your income increased. I might want to live in Sandbanks, Belgravia or a posher part of Bath. I can't, too bad.

[TheLordJohn]

It matters to me what it's perceived to be worth as I need to to be worth as much as possible so I can get re-ortgaged up to my eyeballs and buy a few more houses.
I don't care if it's worth £250k, if someone'll 'value' it at half a million I can borrow an extra £250k!
I won't be selling it, I'll just keep remortgaging to leverage it as much as I can.

[TheLordJohn]

It matters to me what it's perceived to be worth as I need to to be worth as much as possible so I can get re-ortgaged up to my eyeballs and buy a few more houses.
I don't care if it's worth £250k, if someone'll 'value' it at half a million I can borrow an extra £250k!
I won't be selling it, I'll just keep remortgaging to leverage it as much as I can.

[Cheib]

9mm said:

okgo said:

2008 was a fairly small blip on the graph of upward trajectory in London though?

I have mixed views about the London market. I'm not in London so I watch from a distance with purely academic interest. For me the interesting thing will be what happens if the new overseas money dries up. However, I think London is seen as a very safe haven by people all round the world and so huge problems elsewhere could make it even more attractive. There's a lot of exaggeration about London prices. Sure, many people can't afford to live in the trendy part of town they aspire to but that's the same just about everywhere - there's always something out of reach. You have to cut your cloth and live somewhere less trendy and desirable or move somewhere you can afford on your salary. Things change; one of them being the notion of staying in the same town and moving up the property ladder pretty much as far as you liked because prices were stable but your income increased. I might want to live in Sandbanks, Belgravia or a posher part of Bath. I can't, too bad.

The overseas London market thing is overblown....yes they buy whole blocks of flats overlooking the Thames off plan and mansions in Belgravia but we are hopefully about to sell our home which is in a pretty good part of London and one where you'd expect "lots of foreigners"...it's being bought by an English couple. Not that amazing but of the maybe 15 viewings 80% of them were from locals from all walks of life...law, fashion, acting, finance etc. We actually tried to sell our place in 2010 but couldn't find anywhere to buy (moving out of London) and delayed it until now. Two of the people that looked at it in 2010 (one of them offered asking price back then) are still looking. That's been a very expensive hesitation on their parts. We sold our place very easily...I was stunned...I thought it would be a long process given the election. Far from it. Apart from the flats overlooking The Thames and Mansions in Belgravia it's locals buying the vast majority of homes.

[okgo]

Based on your experience of one place?

I don't disagree that plenty of people who will actually live in the homes are buying but it's more than just new builds and Belgravia that have seen foreign money surely.

[Derek Chevalier]

9mm said:

If property falls in value by half or some other doom- laden percentage, all that will happen is that cash rich investors will hoover it up.

This will be the first time in history that Me Joe Punter hasn't bought at the top and sold at the bottom.

[Cheib]

okgo said:

Based on your experience of one place?

I don't disagree that plenty of people who will actually live in the homes are buying but it's more than just new builds and Belgravia that have seen foreign money surely.

Honestly don't think so talking to friends....you average two bed flat in a conversion in decent part of London for £700k for a 99 yr leasehold just isn't what your Chinese property buyer wants to buy. Expats that work and live here do buy but typically in my experince only after they have lived here for three or four years and know they're here for the long term. Most get sticker shock at the cost and look at rental yields in the low single digits and choose to rent.

[z4RRSchris]

okgo said:

Based on your experience of one place?

I don't disagree that plenty of people who will actually live in the homes are buying but it's more than just new builds and Belgravia that have seen foreign money surely.

Asians don't like buying old stock that someone else has lived in.

[okgo]

z4RRSchris said:

Asians don't like buying old stock that someone else has lived in.

So they gut it and start again, but its surely not just Belgravia that this happens?

[z4RRSchris]

okgo said:

z4RRSchris said:

Asians don't like buying old stock that someone else has lived in.

So they gut it and start again, but its surely not just Belgravia that this happens?

nah. they don't like doing that on the whole. new only

they don't buy in belgravia either, that's more your flashier overseas purchaser

I'm not connected to the old stock market so no idea really on who is buying

[jdw1234]

okgo said:

z4RRSchris said:

Asians don't like buying old stock that someone else has lived in.

So they gut it and start again, but its surely not just Belgravia that this happens?

Chris, I thought the reason was it is considered unlucky to live where someone has died previously (likely in a victorian/georgian place)?

Is that rubbish?

[z4RRSchris]

they just don't like where others have lived in general, but death is a part of it.

there are of course exceptions, but if they can new build for them

[gibbon]

princeperch said:

I don't regret selling my flat in bow in q2 2014. I think it's probably worth 10pc less than I sold it for now (which I think was a record in e3- as far as I know no one has ever achieved 435 for a 1 bed in that area). I could have remortgaged the backside out of it but the figures only just stacked up and to be honest I was stting myself over the service chRge fun and games. 220 quid a month for fk all - no porter, no facilities, nothing.

In the meanwhile my little victorian terrace in leytonstone appears to be worth about 430 which is about 10pc more than I paid last year. The market for these little houses is pretty strong.

E3 is still going up i think. No way its come off 10% from q2 2014 imho. I know the market quite well as own two properties there.

[TheAnimal]

So, house prices could double again under Conservatives?

Spoke with a good agent in Canary Wharf who says he has received a number of post election calls looking for good investment stock.

[Mr Whippy]

Justayellowbadge said:

Ari said:

And indeed, if values halve and you want to move up the 'ladder' you'll be better off as the gap will have narrowed.

Forgetting for a moment that the original argument was that a 75% drop would have 'no material effect'.


You buy a 200k house with a 50k deposit.

It halves.

You now owe the bank the entire house plus 50 grand.

How are you moving, exactly?

If you sell you will owe 50 grand and have no deposit. You're going nowhere.

Simple policy to fix this whole logic why dropping prices are bad.

Let people carry the debt.

Downgrade, upgrade, same value move.

Carry the 'debt'

Make it law that the carried debt is ignored for single property owners just "owning a home"


I'd rather see the government do this to help end users and help natural price discovery, than government bail banks because their balance sheets look bad when property prices drop, doing nothing but inflating unsustainable bubbles further.


As for everyone who uses property as an investment, let them get burned. Investments go up and down.




But since Conservatives are back in now, expect prices to keep going up and up, QE to push them even higher, more borrowing, higher taxes...
And when it fails in the next 5 years, it'll be public bail ins ala Cyprus account skimming, despite Cons saying they'd reward hard working sensible people, it'll be those who are trying to save for expensive houses, or retirement, or whatever else, that get to pay the banks off for free, for taking risks on property!

Conservatives, privatise the profit, socialise the debt... we're all screwed when this property roulette wheel stops spinning, well all of us except the politicos and their crony mates who will be laughing all the way to the bank!

Dave

Edited by Mr Whippy on Friday 8th May 13:22

[thelawnet]

TheAnimal said:

So, house prices could double again under Conservatives?

Immediate sentiment has to be for another upward whack.

What that will mean in the long term is hard to say.

[sugerbear]

It's going to be an interesting ride.

In this parliment Help to buy loans will come to the end of their interest free period
Benefit cuts on the way
low growth for the forseeable future
Running out of things to keep the equity bubble flowing (QE, Pension Freedom all done)
Europe Referendum uncertainty
Promise to increase building to 200,000 houses by 2020
Greece leaving the euro

[Mr Whippy]

thelawnet said:

Immediate sentiment has to be for another upward whack.

What that will mean in the long term is hard to say.

Prices up, rents up, salaries static, interest rates near zero so no depreciating debt over mortgage lifetimes which normally lets people 'upgrade' (assuming prices don't outrun inflation which they will)

This isn't good for the short, medium or long term.

Where will the entire next generation live?

Something has to break.


My 2p is that if prices don't crash, then hyperinflation will be round the corner.

The end result is that the entire market will probably renormalise at some point, and the more we try hold the correction back, rather than letting it actually slowly occur, the more likely it'll be an unstoppable correction when it does occur.


As I've said before, own what you own outright. Anything you don't will probably disappear the way the banks operate these days.

Dave

[p1stonhead]

Mr Whippy said:

As I've said before, own what you own outright.

Dave

And for how many people is that remotely possible unless they have paid off a long mortgage?

Edited by p1stonhead on Friday 8th May 15:35