How far will house prices fall [volume 4]

[Welshbeef]

Derek Chevalier said:

In the last downturn repossessions weren't insignificant IIRC - one would expect this unwind to be a lot worse based upon the >15 year unprecedented bubble, but who knows when it will pop.....

But unless you've been leveraging up and up all the time then even if you took out a mortgage at he peak in 2007 on a 25 year mortgage you now would only have 16 years to go assuming no overpayment and let's say you took out a 90% LTV then I'm fairly sure you'd be looking at around the 55-60% max now assuming price was the same as then but none the less absolute mortgage debt is massively less.

This is the key. People don't NEED to buy and sell houses unless they outgrow or divorce or need to move for relocating for work purposes. The rest is purely for a nicer house stepping up the location or simply up the ladder where you live.
Worst case you live there for 25 years then mortgage free job done.

[boxst]

A friend of mine is a two-man band surveyor in London and his work has more or less dried up -- all the bookings that he had (and he has them through August) are fine, but literally no new clients in the last week which is unheard of in the last 5 years of his business.

[Welshbeef]

Looking at my area right now it has a 2011 consensus population of c24,000 people but in that area only 25 houses for sale. Of which in a narrower area I look at there are 6 houses which have been for sale is say at least a year. Make of that as you will.

[Jockman]

Welshbeef said:

Derek Chevalier said:

In the last downturn repossessions weren't insignificant IIRC - one would expect this unwind to be a lot worse based upon the >15 year unprecedented bubble, but who knows when it will pop.....

But unless you've been leveraging up and up all the time then even if you took out a mortgage at he peak in 2007 on a 25 year mortgage you now would only have 16 years to go assuming no overpayment and let's say you took out a 90% LTV then I'm fairly sure you'd be looking at around the 55-60% max now assuming price was the same as then but none the less absolute mortgage debt is massively less.

This is the key. People don't NEED to buy and sell houses unless they outgrow or divorce or need to move for relocating for work purposes. The rest is purely for a nicer house stepping up the location or simply up the ladder where you live.
Worst case you live there for 25 years then mortgage free job done.

Plus UK banks are a lot more prepared for a downturn. This has not always been the case in the past.

PS, I know, you just want to watch the football

[Welshbeef]

Jockman said:

Plus UK banks are a lot more prepared for a downturn. This has not always been the case in the past.

PS, I know, you just want to watch the football

Yep - football on and Brains SA in hand .
Come on Wales

[Jockman]

Welshbeef said:

Yep - football on and Brains SA in hand .
Come on Wales

All us Jocks are with you

[Pork]

jonah35 said:

I used to follow what text books and economists said about inflation and the boe 2% target etc etc but the past 10 years or so have proven it all to be rubbish.

The underlying issue is for the government to keep house prices propped up forever. If they fall in any big way, say 30% plus then it will be a disaster so i truly cant see rates going up any time soon, 10 years plus really, unless theres a black swan event.

This broadly aligns with my thinking too. Theory is great, reality is house price falls lose votes and lose businesses money.

[Mr Whippy]

Pork said:

jonah35 said:

I used to follow what text books and economists said about inflation and the boe 2% target etc etc but the past 10 years or so have proven it all to be rubbish.

The underlying issue is for the government to keep house prices propped up forever. If they fall in any big way, say 30% plus then it will be a disaster so i truly cant see rates going up any time soon, 10 years plus really, unless theres a black swan event.

This broadly aligns with my thinking too. Theory is great, reality is house price falls lose votes and lose businesses money.

There will be a black swan I'm sure.

Now if it's caused by chaos or by design is another matter.

Either way expect lots of new legislation and policy during and after to 'prevent it happening again'... but actually just stopping normal people making or having as much wealth/power/liberty/freedom as they did before.

No doubt if we see a big crash now, we'll blame 'democracy' and 'referendums' for it... the idiots will cheer en mass, and we won't be having any more of those again

[Hitch]

Demand, general public sentiment that house prices only ever go up and government protectionist policy could suggest that periods of stagnation causing a limited correction in real terms may be the new house price crash. House price rebound post-2008 just underlined confidence in the 'system' so everyone still wants to be an owner.

London may indeed be a bubble on a bubble but if they've witnessed 10% growth YoY for the last 15 years will a 20% correction bother anyone who doesn't need to sell now? Probably not, and returning to my first point, that 20% correction just opens up a greater market of hungry buyers able to access virtually free money.

[V6Alfisti]

Hitch said:

Demand, general public sentiment that house prices only ever go up and government protectionist policy could suggest that periods of stagnation causing a limited correction in real terms may be the new house price crash. House price rebound post-2008 just underlined confidence in the 'system' so everyone still wants to be an owner.

London may indeed be a bubble on a bubble but if they've witnessed 10% growth YoY for the last 15 years will a 20% correction bother anyone who doesn't need to sell now? Probably not, and returning to my first point, that 20% correction just opens up a greater market of hungry buyers able to access virtually free money.

Is it as high as 10% YOY since 2001? I thought it was high in the last few years (and nearer 14%) but not as crazy before.

I guess you also have to consider the differential of increases on a smaller amount, to decreases on a bigger amount.

E.g.

500
550
605
665
730

Vs

730-20% = 584k

So it may only really cause concern for those with neg equity, or for those that bought more recently, or for those that rely on buying and selling houses to pay off mortgages on their portfolio etc

Also I believe that btl was a large source of demand following the last crash and I can't see that demand being as high now given the additional stamp duty and taxation. Also this was about the time that interest rates dropped about 5%. They can't really do that now.

That's not to say there isn't a lot of demand still there, there certainly is but mindful that we aren't in the same position we were in 2008 in terms of levers of demand.

Edited by V6Alfisti on Thursday 7th July 12:31

[Derek Chevalier]

Pork said:

jonah35 said:

I used to follow what text books and economists said about inflation and the boe 2% target etc etc but the past 10 years or so have proven it all to be rubbish.

The underlying issue is for the government to keep house prices propped up forever. If they fall in any big way, say 30% plus then it will be a disaster so i truly cant see rates going up any time soon, 10 years plus really, unless theres a black swan event.

This broadly aligns with my thinking too. Theory is great, reality is house price falls lose votes and lose businesses money.

Why do lower house prices lose business money in the longer term?

[Sheepshanks]

Hitch said:

House price rebound post-2008 just underlined confidence in the 'system' so everyone still wants to be an owner.

Depends where you are. Many areas in the NW haven't moved in 10yrs.

[kiethton]

Derek Chevalier said:

Why do lower house prices lose business money in the longer term?

House price growth is typically linked to the wealth effect:

http://www.investopedia.com/terms/w/wealtheffect.a...

Which in turn increases consumer and thus business confidence. Typically coincides with loosening credit conditions by banks etc precipitating growth.

Lower house prices, more people save/cut back and thus don't spend on goods or services

[Derek Chevalier]

kiethton said:

Derek Chevalier said:

Why do lower house prices lose business money in the longer term?

House price growth is typically linked to the wealth effect:

http://www.investopedia.com/terms/w/wealtheffect.a...

Which in turn increases consumer and thus business confidence. Typically coincides with loosening credit conditions by banks etc precipitating growth.

Lower house prices, more people save/cut back and thus don't spend on goods or services

Not sure how this is sustainable longer term - just leads to non-productive speculation and people taking on more debt. Conversely, with lower house prices, living costs are reduced meaning people will work for less making UK based companies more competitive in global markets.

[mike74]

kiethton said:

House price growth is typically linked to the wealth effect:

http://www.investopedia.com/terms/w/wealtheffect.a...

Which in turn increases consumer and thus business confidence. Typically coincides with loosening credit conditions by banks etc precipitating growth.

Lower house prices, more people save/cut back and thus don't spend on goods or services

Utter rubbish... it's higher house prices that force people to save/cut back, they're having to spend such large proportions of their income on rent/mortgage payments that they don't have any spare money to consume goods and services in the wider economy.

And how much economic growth have we seen precipitated in the last 8 years of extremely loose credit conditions and record high house prices?

[kiethton]

Derek Chevalier said:

kiethton said:

Derek Chevalier said:

Why do lower house prices lose business money in the longer term?

House price growth is typically linked to the wealth effect:

http://www.investopedia.com/terms/w/wealtheffect.a...

Which in turn increases consumer and thus business confidence. Typically coincides with loosening credit conditions by banks etc precipitating growth.

Lower house prices, more people save/cut back and thus don't spend on goods or services

Not sure how this is sustainable longer term - just leads to non-productive speculation and people taking on more debt. Conversely, with lower house prices, living costs are reduced meaning people will work for less making UK based companies more competitive in global markets.

Not quite, if people work for less our manufactured products would be cheaper however we are a net importer of goods so we'd be hugely worse off as a whole and living standards would fall hugely.

Also what the global banks and the IMF have been trying to do throughout this cycle is the opposite of what the above would cause - inflate the debt away. However the lack of global confidence to invest in core value-add businesses, poor productivity and piss poor allocation of QE has just led to asset inflation, not the wage inflation (with trickle-down) originally intended to provide stable balanced growth.

Recent changes (minimum wage increases, punitive SDLT rates) have tried to address this but its a stable door moment. With wages the huge increases in minimum wage have tried to address this but as the QE hasn't fed down to the wider economy (due in part to the requirement for banks to boost their capital requirements) so people can't afford to pay it/cheaper labour becomes attracted from abroad etc. and asset bubbles inflate further as people seek safety/return on capital to either house the new arrivals or provide places for them to work - the SDLT changes have tried to dissuade this. Until this capital flows down (more lending to core business and confidence returns to make them want to invest in their own businesses) this will continue to happen...

All the above is my opinion only

[Hitch]

Sheepshanks said:

Hitch said:

House price rebound post-2008 just underlined confidence in the 'system' so everyone still wants to be an owner.

Depends where you are. Many areas in the NW haven't moved in 10yrs.

Exactly. In that period the financial world was on life support, the UK was in and out of recession and your overpriced suburban home in Sheffield (or anywhere else with zero external factors influencing demand) didn't lost value!

[Sheepshanks]

Hitch said:

Sheepshanks said:

Hitch said:

House price rebound post-2008 just underlined confidence in the 'system' so everyone still wants to be an owner.

Depends where you are. Many areas in the NW haven't moved in 10yrs.

Exactly. In that period the financial world was on life support, the UK was in and out of recession and your overpriced suburban home in Sheffield (or anywhere else with zero external factors influencing demand) didn't lost value!

Well actually it did - they were down 20% at their lowest. Both my daughters bought houses in the last few years for less than the vendors paid for them. But recently they've been pretty well back at 2006 levels although anything that looks remotely "toppy" is just sitting there so that's keeping a lid on prices.

[Pork]

Derek Chevalier said:

Why do lower house prices lose business money in the longer term?

People don't have the perception of financial security so they spend less.

[NRS]

Pork said:

Derek Chevalier said:

Why do lower house prices lose business money in the longer term?

People don't have the perception of financial security so they spend less.

I guess it depends what you count as long term. If house prices crash it will stop people spending for a while, but it does theoretically mean that people will have more money once they get used to the new normal, and so less is going into the house (can spend more on other stuff). But obviously that ignores people being able to remortgage to free cash etc. Also at some point it has to slow down when wages are not growing at the same rate, so that longer term may be somewhat different to the normal cycles.