How far will house prices fall [volume 4]

[Pork]

Ari said:

Fine. So you're fifteen years in to the mortgage on a house you bought in 2000 for £150,000 now worth, what, £250,000?

Tomorrow property values tank, suddenly - shock horror - it's 'only' worth £200,000.

So what?

I'm with you. Madly, most people would think they had lost £100k, regardless of what their costs are. Don't you know that everyone who's made money is properdee is a genius and there be such shame if they lost all that well earned money.

[kiethton]

Bit flip that scenario around...

How often do people move, every 10 years?
How many people own their own homes?

If you bought 4 years ago and lost the 40% you've gained you're no worse off, however what about the million houses bought the year after, the one following etc, where are they? Negative equity...

Also remember that the elder generations typically buy houses with a higher propertion if equity...the top, elder demographic will e fine, what about those that are younger? Working for years to pay back those "paper" losses...what's the point in working then? Etc. etc. etc.

[wc98]

kiethton said:

Bit flip that scenario around...

How often do people move, every 10 years?
How many people own their own homes?

If you bought 4 years ago and lost the 40% you've gained you're no worse off, however what about the million houses bought the year after, the one following etc, where are they? Negative equity...

Also remember that the elder generations typically buy houses with a higher propertion if equity...the top, elder demographic will e fine, what about those that are younger? Working for years to pay back those "paper" losses...what's the point in working then? Etc. etc. etc.

negative equity is still no big deal . if you can afford the mortgage payments until you own the house ,it is still your home , no matter what it is actually worth.

[Ari]

kiethton said:

what about those that are younger? Working for years to pay back those "paper" losses...what's the point in working then? Etc. etc. etc.

You do understand that the amount you have to pay back doesn't vary dependant on what your house is worth don't you?

Once you've bought, you have to pay the money back exactly the same whether your house has doubled or halved. It doesn't make any difference.

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

This 'I've made money if my house value increases/lost money if it decreases' really is deeply ingrained in the British psyche isn't it?

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.

[DoubleSix]

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.

[kiethton]

Ari said:

kiethton said:

what about those that are younger? Working for years to pay back those "paper" losses...what's the point in working then? Etc. etc. etc.

You do understand that the amount you have to pay back doesn't vary dependant on what your house is worth don't you?

Once you've bought, you have to pay the money back exactly the same whether your house has doubled or halved. It doesn't make any difference.

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

This 'I've made money if my house value increases/lost money if it decreases' really is deeply ingrained in the British psyche isn't it?

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.

Indeed, but how long can people be forced (through inability to move) to live in a studio flat, delaying life milestones?

[turbobloke]

kiethton said:

Ari said:

kiethton said:

what about those that are younger? Working for years to pay back those "paper" losses...what's the point in working then? Etc. etc. etc.

You do understand that the amount you have to pay back doesn't vary dependant on what your house is worth don't you?

Once you've bought, you have to pay the money back exactly the same whether your house has doubled or halved. It doesn't make any difference.

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

This 'I've made money if my house value increases/lost money if it decreases' really is deeply ingrained in the British psyche isn't it?

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.

Indeed, but how long can people be forced (through inability to move) to live in a studio flat, delaying life milestones?

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?

[Justayellowbadge]

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.

[Ari]

Justayellowbadge said:

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.

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.

[Ari]

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.

[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.