How far will house prices fall [volume 4]

[Justayellowbadge]

Ari said:

Yup. Happened in the last 80s/90s recession. Doesn't put 'blood on the streets' though, just means people get stuck in the houses they're in. Happened to a few people I knew at the time.

Arguably better than being completely priced out though, as many are now.

The market has never dropped 75%. It would be catastrophic.

A lot of people did get burned before. One consequence of negative equity is you cannot do a bloody thing about your mortgage when rates rise, so people were in homes that were worth less than owed and stuck with double digit interest rates. People lost their homes and were paying the outstanding debt for years afterwards.

75% across the board would be something else entirely. Even those with no debt would be screwed because every bank would go under. Every single financial institution would be like Northern Rock. On meth.

[AstonZagato]

Ari said:

turbobloke said:

Also, in terms of Ari's comment "if values halve and you want to move up the 'ladder' you'll be better off as the gap will have narrowed" is it very easy these days to transfer to or remortgage on a more expensive property (even with a smaller gap) when in negative equity after your existing property halves in value?

People managed it last time in certain circumstances if I recall correctly. They effectively transported their negative equity to the new place. Probably not easy though.

I remember that my SiL was trapped by negative equity. In the end, BoMaD had to lend her the negative equity under the table to allow her to buy the next place

[Ari]

I don't think anyone is suggesting that a drop in property values not have no negative effect on people (although equally, massively inflated prices is having plenty of negative effect for plenty of people).

I thought Northern Rock's problem was a different issue though. That they'd borrowed 'short' at low interest rates and loaned 'long'. So the rate they borrowed at went up and they couldn't pass it on.

Point remains though, we wouldn't 'lose trillions of pounds' if prices dropped, any more than we gained trillions of pounds when they rose. Yes it would effect the over-committed, but arguably they will have an issue if interest rates rise irrespective of what their house if worth. Fortunately for them the government seem keen to ensure they remain 'bailed out'.

For most people life would go in as normal earning their wages and paying their mortgages.

Edited by Ari on Sunday 3rd May 08:53

[robinessex]

DoubleSix said:

Ari said:

You will only ever realise that gain/loss when you sell but don't buy again. And for most people that only happens after they die.

Or downsize... which a lot of people do when their kids leave home.

Actually, lots of people DON'T downsize when the kids leave home, because it's a HOME, with memories, not a HOUSE, they're established where they are. It's nice to have spare rooms for friends and family to visit and stay.

[DoubleSix]

robinessex said:

DoubleSix said:

Ari said:

You will only ever realise that gain/loss when you sell but don't buy again. And for most people that only happens after they die.

Or downsize... which a lot of people do when their kids leave home.

Actually, lots of people DON'T downsize when the kids leave home, because it's a HOME, with memories, not a HOUSE, they're established where they are. It's nice to have spare rooms for friends and family to visit and stay.

But if you wanted to release this fictional capital that apparently doesn't exist you could - and many do.

Just as people often capitalise on London house price inflation by selling up and moving out to less expensive parts of the country.

I'm simply challenging the view on here that there is no real benefit to house price inflation when clearly some do very nicely out of it.

[Ari]

There will always be some that benefit, but for the vast majority, whether their house is worth £20K more tomorrow or £20K less really doesn't make a lot of difference to them.

[robinessex]

DoubleSix said:

robinessex said:

DoubleSix said:

Ari said:

You will only ever realise that gain/loss when you sell but don't buy again. And for most people that only happens after they die.

Or downsize... which a lot of people do when their kids leave home.

Actually, lots of people DON'T downsize when the kids leave home, because it's a HOME, with memories, not a HOUSE, they're established where they are. It's nice to have spare rooms for friends and family to visit and stay.

But if you wanted to release this fictional capital that apparently doesn't exist you could - and many do.

Just as people often capitalise on London house price inflation by selling up and moving out to less expensive parts of the country.

I said it before. The reality is that very few sell up and move on when the kids leave home.

I'm simply challenging the view on here that there is no real benefit to house price inflation when clearly some do very nicely out of it.

[Cheib]

Justayellowbadge said:

wc98 said:

Ari said:

You've fallen for the scam that is (or was, during the mega boom time) the British economy - that house value is somehow wealth. It isn't.

My house has gone up over £100,000 since I bought it. Am I £100,000 better off? Of course not.

I still earn what I earn, pay what I pay and my house keeps the rain off. And if it drops £100,000 of that mythical money I never had, so what? You can point to a computer screen and scream that me and millions like me are collectively trillions of pounds 'worse off' but we're not, and more than we were trillions of pounds better off when our houses soared to these stratospheric prices.

Sure, I could sell it, stick the £100,000 in the bank and live in a tent. But I'm not going to do that, I'm going to buy another house, and guess what? And if I'm upgrading then the £100,000 I've made will be more than offset by the £200,000 the house I want has gone up in the same time.

Its all a big con, no one is really 'richer' because of rampant house price inflation, save for a few developers and estate agents. They're just made to believe that they are so they'll borrow more money and lease a bigger Audi.

I'm old enough to remember the eighties boom/nineties crash. I bought a property for 40% off the peak in the early nineties. It dropped that much in four years! Don't recall any blood drenched streets...

spot on.

It's borderline valid, of you are talking about an individual, in an unmortgaged house.

I wasn't.

Or you can ride the wave and move to a cheaper property. Nobody is forcing anyone to buy more expensive houses when they move. I am about to buy a house (this week I hope) which is 30% plus cheaper than the one I am selling.

[princeperch]

Cheib said:

Justayellowbadge said:

wc98 said:

Ari said:

You've fallen for the scam that is (or was, during the mega boom time) the British economy - that house value is somehow wealth. It isn't.

My house has gone up over £100,000 since I bought it. Am I £100,000 better off? Of course not.

I still earn what I earn, pay what I pay and my house keeps the rain off. And if it drops £100,000 of that mythical money I never had, so what? You can point to a computer screen and scream that me and millions like me are collectively trillions of pounds 'worse off' but we're not, and more than we were trillions of pounds better off when our houses soared to these stratospheric prices.

Sure, I could sell it, stick the £100,000 in the bank and live in a tent. But I'm not going to do that, I'm going to buy another house, and guess what? And if I'm upgrading then the £100,000 I've made will be more than offset by the £200,000 the house I want has gone up in the same time.

Its all a big con, no one is really 'richer' because of rampant house price inflation, save for a few developers and estate agents. They're just made to believe that they are so they'll borrow more money and lease a bigger Audi.

I'm old enough to remember the eighties boom/nineties crash. I bought a property for 40% off the peak in the early nineties. It dropped that much in four years! Don't recall any blood drenched streets...

spot on.

It's borderline valid, of you are talking about an individual, in an unmortgaged house.

I wasn't.

Or you can ride the wave and move to a cheaper property. Nobody is forcing anyone to buy more expensive houses when they move. I am about to buy a house (this week I hope) which is 30% plus cheaper than the one I am selling.

It's what I did a few months ago. Moved to a decent 2 bed house 2 miles up the road from my old 1 bed flat, and even after all the fees, taxes and expenses I pocketed just under 40 grand.

[DoubleSix]

And it's also what I intend to do. Having maxed out on a far bigger house than we actually need. Thus taking advantage of house price inflation over the last few years to swell our equity we will downsize soon and be in a much better position.

[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?