How far will house prices fall [volume 4]
Discussion
Hitch said:
Has there ever been a point at which people have not looked back 10-20 years and said house prices are insanity though? It seems to be a constant generational feature. The variance between house prices and wages is pretty big but people in employment still s33m to have a lot of disposable income because other major spend areas such as food, cars, petrol and even newer spend areas such as technology are relatively low cost.
There was a comparison produced, showing % outgoings for housing (including high interest rates) vs salary through the last 30-40 years. I don't think it represented the huge deposit requirements required now though.If I recall correctly it was around 20% in the late 70/80's raising to around 40+% (maybe higher) in more recent times. I think it is fair to say that things were tough then, but much tougher now. Add in the factor of interest rates going up in the medium to long term .... I dread to think of the level of payment defaults. People were very short termist imo, and were fuelled by fears of continued house price increases.
As I walk through the doors of the office today, I can hear the obvious shock but many people talking about property and how risky they feel it now is. Sentiment has changed.
I am just listening to a big 4 post referendum call, the question of housing was raised and they are saying that interest rates are likely to stay low, but the property market is hugely risk adverse and they expect large falls in demand. Not hugely surprising and reflects the big drops in Berkeley, Foxtons e.t.c
Edited by V6Alfisti on Friday 24th June 12:09
I guess that one thing that also matters for anyone else in the "literally about to buy" camp is how long they plan to stay in the property. If it is 5 years or longer (which mine is) then I think it would still be reasonably safe to go ahead. If on the other hand you are looking to stay for a year or 2 then move then perhaps not.
Al U said:
I guess that one thing that also matters for anyone else in the "literally about to buy" camp is how long they plan to stay in the property. If it is 5 years or longer (which mine is) then I think it would still be reasonably safe to go ahead. If on the other hand you are looking to stay for a year or 2 then move then perhaps not.
Even the longer term purchasers need to be wary imo, if people take out 2 to 5 year fixed mortgages then what happens if your house price drops 20% and you move into negative equity? You will then struggle to move to a competitive mortgage and may be stuck on a high variable rate. When I looked at mortgages a few weeks ago, interest rates on fixed were about 2% but nearer 4.8-5% on current SVR.
V6Alfisti said:
Al U said:
I guess that one thing that also matters for anyone else in the "literally about to buy" camp is how long they plan to stay in the property. If it is 5 years or longer (which mine is) then I think it would still be reasonably safe to go ahead. If on the other hand you are looking to stay for a year or 2 then move then perhaps not.
Even the longer term purchasers need to be wary imo, if people take out 2 to 5 year fixed mortgages then what happens if your house price drops 20% and you move into negative equity? You will then struggle to move to a competitive mortgage and may be stuck on a high variable rate. When I looked at mortgages a few weeks ago, interest rates on fixed were about 2% but nearer 4.8-5% on current SVR.
Al U said:
Can you clarify that in a bit more detail with some numbers?
Others please correct me if I am being a fool (quite likely on this point)….. Note: I am using completely fictional figures, it requires about 20 minutes to pull exact numbers but it will give an example. I will repeat again an EXAMPLE.Say you have a £50k deposit on a £500k property on a 2 year fixed rate of 2%.
If after 2 years the value of the property is worth £400k, and your outstanding mortgage is £430k then you are in negative equity.
I understand that you would then need to find another £43k (10% of £430k to maintain your 90% LTV), or is it £70k (10% of £400k, and the missing £30k) to cover the short fall, or face being moved onto the SVR, which would more than double your interest rate payments. (I suspect there is more play here than my black/white view)
So it could be the difference of paying a monthly (2% fixed rate) £1900 on a 25 year mortgage on £450k, vs (4.9% SVR) £2600 and that’s assuming base interest rates aren’t higher (massively unlikely in 2 years, but 5-10 years….?)
Edited by V6Alfisti on Friday 24th June 14:26
robinessex said:
Treat the bloody thing as a HOME, not an investment. You only realise the equity from your HOME if you sell it, and then go live in a field in a tent. When I bought my houes, it value dropped to 75% within a year. But it's now worth 5x's what I paid. You never loose on property in the end. Don't care anyway. Not interested in moving.
You are dead right. I'm close to exchanging and I'm just concerned someone in the chain panics and pulls out.What happens after I move, I couldn't care less. It's a home I intend to enjoy for many years and like you've experienced, I ridden out a few peaks and troughs in my time.
walm said:
Al U said:
Can you clarify that in a bit more detail with some numbers?
??2% is less than 5%.
Does that clarify?
If you can't remortgage at the end of your fix you go onto SVR.
Which is usually cripplingly expensive.
valiant said:
You are dead right. I'm close to exchanging and I'm just concerned someone in the chain panics and pulls out.
What happens after I move, I couldn't care less. It's a home I intend to enjoy for many years and like you've experienced, I ridden out a few peaks and troughs in my time.
Not your first house I take it!What happens after I move, I couldn't care less. It's a home I intend to enjoy for many years and like you've experienced, I ridden out a few peaks and troughs in my time.
Hitch said:
Has there ever been a point at which people have not looked back 10-20 years and said house prices are insanity though? It seems to be a constant generational feature. The variance between house prices and wages is pretty big but people in employment still s33m to have a lot of disposable income because other major spend areas such as food, cars, petrol and even newer spend areas such as technology are relatively low cost.
Yes, the early/mid 90s were very cheap. The market fell in the late 80s and took 10 yrs to recover. This was a great time to buy and we knew it at the time, not just in retrospect. In Leeds it was significantly cheaper to buy than rent, and I mean 95% mortgage was 2/3 the monthly rent.I have a suspicion it will become a self fulfilling prophecy now. People will pull out of buying "just in case", which will then stall the market somewhat, which will then cause people to wait longer in case they continue to go down, and thus prices will have to be discounted even more to get someone to buy. And so on.
NRS said:
I have a suspicion it will become a self fulfilling prophecy now. People will pull out of buying "just in case", which will then stall the market somewhat, which will then cause people to wait longer in case they continue to go down, and thus prices will have to be discounted even more to get someone to buy. And so on.
Bingo!valiant said:
robinessex said:
Treat the bloody thing as a HOME, not an investment. You only realise the equity from your HOME if you sell it, and then go live in a field in a tent. When I bought my houes, it value dropped to 75% within a year. But it's now worth 5x's what I paid. You never loose on property in the end. Don't care anyway. Not interested in moving.
You are dead right. I'm close to exchanging and I'm just concerned someone in the chain panics and pulls out.What happens after I move, I couldn't care less. It's a home I intend to enjoy for many years and like you've experienced, I ridden out a few peaks and troughs in my time.
- No property = short the property market (you want/need the market to fall)
- One property = no view on property, assuming that the house is correctly sized for your future needs (you need somewhere to live)
- Two or more properties = bullish on the property market (you want property to go up in value)
walm said:
NRS said:
I have a suspicion it will become a self fulfilling prophecy now. People will pull out of buying "just in case", which will then stall the market somewhat, which will then cause people to wait longer in case they continue to go down, and thus prices will have to be discounted even more to get someone to buy. And so on.
Bingo!robinessex said:
Trying it on ? What sound financial reason backs this up then ?
Prices are at record highs, where even with the ‘assistance’ of HTB many still don’t have the numbers to stretch themselves to get on the ladder.Affordability is therefore maxed, property volumes are pitiful, BTL demand has fallen off, Chinese and Russian demand has fallen off. House prices were predicted to drop even if we did remain, now we have the added uncertainty of Brexit.
Basically, it is hugely likely that house prices will drop and if you take the case of London which has seen property growth of 30-40% in 5 years and thus rated as one of the top two areas in the world as being in a ‘Property bubble’ and a huge risk…you probably shouldn’t be surprised that people want to mitigate their risks by asking for discounts or to pull out entirely.
Let alone the impact on the economy and whether employment is affected.
We aren’t talking about a 80p mars bar, we are talking about the biggest purchase in most peoples life.
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