Can anyone tell me why house prices won’t drop another 50% ?
Discussion
Okay, a fairly outrageous question but, I have been wondering recently, if this is likely?
Heres why;
“In Britain, it has been contended, the long term average ratio of average house prices to average annual incomes has been 3.5 - in 2005 the ratio was around 6 - leading to some analysts claiming that house prices were overvalued by about 40%.”
Further evidence taken from the following article from 2003:
http://news.bbc.co.uk/1/hi/programmes/inside_money...
The consensus seems to be that average house price in November 2008 was around £160k
Average household income is around £30k from what i can gather;
http://www.statistics.gov.uk/cci/nugget.asp?id=334
So to get back to the 3.5 times, house prices need to fall from
£160k down to £105k
That’s a drop of around 50%
It’s hard to imagine it happening, the government, the banks, and almost every man on the street seems to think it’s not going to happen.
But why not ?
Through the early 90’s property fell 30% , and it would appear this recession is more severe
- As more businesses go pop, and more people are out of work, more people get repossessed, we have a snowball effect causing house prices to carry on falling
- are the banks really going to be permitted/stupid enough to lend at more than say 4 times?, if not then how will people get the money to buy
- House prices have been over valued for years
- The government and banks are trying to stop it and say it won’t happen, but how much integrity do they have?
The way I see it, everyone has an interest in this, the majority of the population don’t want house prices to fall, it’s their pension, they like the idea of having that much money to play with, their inheritance when their parents die, or they don’t want to be in negative equity. In my view this could be stopping them from seeing what could potentially happen.
The “boom” in house prices which cause the whole property bubble in our country, was fueled by:
- Increasing population, compared to available housing (more people getting divorced ect)
- Growing confidence in the economy
- amateur buy to let (failing stock market, pensions)
- lower interest rates
There are arguments that they won’t drop this much, but none i can think of in my mind stop this from potentially happening.
What’s everyone else's view?
Heres why;
“In Britain, it has been contended, the long term average ratio of average house prices to average annual incomes has been 3.5 - in 2005 the ratio was around 6 - leading to some analysts claiming that house prices were overvalued by about 40%.”
Further evidence taken from the following article from 2003:
http://news.bbc.co.uk/1/hi/programmes/inside_money...
The consensus seems to be that average house price in November 2008 was around £160k
Average household income is around £30k from what i can gather;
http://www.statistics.gov.uk/cci/nugget.asp?id=334
So to get back to the 3.5 times, house prices need to fall from
£160k down to £105k
That’s a drop of around 50%
It’s hard to imagine it happening, the government, the banks, and almost every man on the street seems to think it’s not going to happen.
But why not ?
Through the early 90’s property fell 30% , and it would appear this recession is more severe
- As more businesses go pop, and more people are out of work, more people get repossessed, we have a snowball effect causing house prices to carry on falling
- are the banks really going to be permitted/stupid enough to lend at more than say 4 times?, if not then how will people get the money to buy
- House prices have been over valued for years
- The government and banks are trying to stop it and say it won’t happen, but how much integrity do they have?
The way I see it, everyone has an interest in this, the majority of the population don’t want house prices to fall, it’s their pension, they like the idea of having that much money to play with, their inheritance when their parents die, or they don’t want to be in negative equity. In my view this could be stopping them from seeing what could potentially happen.
The “boom” in house prices which cause the whole property bubble in our country, was fueled by:
- Increasing population, compared to available housing (more people getting divorced ect)
- Growing confidence in the economy
- amateur buy to let (failing stock market, pensions)
- lower interest rates
There are arguments that they won’t drop this much, but none i can think of in my mind stop this from potentially happening.
What’s everyone else's view?
50% or 160k is not 105k 
But anyway....
I totally agree with what your saying and have been thinking the same to myself.
Bottom line is if people can not borrow the money then they can not buy houses and if the people selling them lose their jobs then they can not service their aggrement so imo house prices will come down for as long as this goes on.
A point to add though which will be relevant to some (like me) and not others is this.
I could afford as a first time buyer to spend say 200k ish with relative ease, however if that 200k house comes down to 50k (unlikely i know just an example) but i have no work then i cant afford the 50k house and i would have been better off staying in work and buying the 200k place.
I just want things to stabilise (much like every other working person i,d imagine).
But anyway....
I totally agree with what your saying and have been thinking the same to myself.
Bottom line is if people can not borrow the money then they can not buy houses and if the people selling them lose their jobs then they can not service their aggrement so imo house prices will come down for as long as this goes on.
A point to add though which will be relevant to some (like me) and not others is this.
I could afford as a first time buyer to spend say 200k ish with relative ease, however if that 200k house comes down to 50k (unlikely i know just an example) but i have no work then i cant afford the 50k house and i would have been better off staying in work and buying the 200k place.
I just want things to stabilise (much like every other working person i,d imagine).
The difference between the housing market now and in the early 90's is that in the early 90's people continued to buy and sell as the prices went down at a smilar rate as the previous years however this time the market is stagnant with a great reduction of property on the market and sales.
Depending upon which figures you use average house prices peaked anywhere upto about 200k(2007 peak), which would give you the 50%ish drop you are suggesting, however 50% 0f 160 would be 80, - Do you work for a bank or the government by any chance
30k average, people may of told the lender that, but the figure is closer to 25k I believe
30k average, people may of told the lender that, but the figure is closer to 25k I believe
Edited by Brite spark on Monday 12th January 19:37
changingman said:
The difference between the housing market now and in the early 90's is that in the early 90's people continued to buy and sell as the prices went down at a smilar rate as the previous years however this time the market is stagnant with a great reduction of property on the market and sales.
The other big difference is that people didn't have the early 90's information on the housing market to look at.Broccers said:
teapea said:
What’s everyone else's view?
My view is you live with your mum.Getting a truly impartial view on property is simply impossible.
Sort of like trying to measure the size of the hole in the Titanic. Its still sinking. I do believe that there is a lot more downside. The US market is bracing for the maturity of the next tranche of mortgages this year which will have massive defaults, and this will just add gloom worldwide. Also I suspect there will be a lot of credit card defaults. Hard to see any recovery without a US recovery, and that looks to be in the distance,Obama or not.
scotal said:
Property owners have an interest in house prices at worst remaining stagnant.
Not all owners. Take a couple who bought a two bed in 2000 and now have two kids, so are looking to move up, they would seriously benefit from a fall to 2003 levels as they will still have the equity required to move on in the traditional manner.
kedmattley said:
scotal said:
Property owners have an interest in house prices at worst remaining stagnant.
Not all owners. Take a couple who bought a two bed in 2000 and now have two kids, so are looking to move up, they would seriously benefit from a fall to 2003 levels as they will still have the equity required to move on in the traditional manner.I suspect 'my' example would prefer price levels to remain as they are now rather than drop to 2003 levels.
For some reason, people seem to think that the 'average house' is something that you buy without actually working for. Go back 20 years, 30 or even more and the average house was something you WORKED TOWARDS. You didn't just go out and buy a house that was bigger than your parents as a first time buyer! Your parents are likely to have worked 20+ years and only started to realise their efforts after a long period of time.
Quite why people think they can walk into a house bigger than their parents like that is beyond me! My parents worked for 45 years and had a mortgage for the majority of that. They worked up through two houses and paid their way through it all. They also made significant sacrifices in order to keep the house over our heads - now this is certainly NOT a unique story as this was the norm a couple of decades ago. These days, a FTB expects to spank £450k on a 4 bed house, and on the anticipated profit after a few years they will move up to a million pound pad....
Ok, I am vastly exaggerating here, but the principle is the same - ever town and city up and down the country has a solicitors row, or accountants drive etc... professional houses where the professional people lived. These people worked for decades in a professional job and afforded the large houses as a result - the long hours and work paid off in the long-term. They ended up with the 4/5 bed houses, but they also paid off their mortgages and worked for 45+ years in a consistently high paying job.
Now, the same streets are full of BTL'ers and people who happen to have landed a decent job a year or two ago - and we wonder why prices in the UK are completely screwed? What actually happened to working for 20+ years and paying off your mortgage?
Still, to answer the original question - why wont houses drop by another 50%? Because there are too many people with access to the funds and not enough houses. We have historically high(ish) employment with high average salaries and relatively cost effective lending - so this makes the amount that can be borrowed quite high. Cost of living is also quite high and those who own or build the houses need the money - so they will never drop to being nothing, because that means the whole economy will shrink....
Well, actually if you listen to the media this will happen and we will all live in houses worth 5p by the end of 2009 - and some PH members would have you believe that it will all end in civil war, but that's another story.
Quite why people think they can walk into a house bigger than their parents like that is beyond me! My parents worked for 45 years and had a mortgage for the majority of that. They worked up through two houses and paid their way through it all. They also made significant sacrifices in order to keep the house over our heads - now this is certainly NOT a unique story as this was the norm a couple of decades ago. These days, a FTB expects to spank £450k on a 4 bed house, and on the anticipated profit after a few years they will move up to a million pound pad....
Ok, I am vastly exaggerating here, but the principle is the same - ever town and city up and down the country has a solicitors row, or accountants drive etc... professional houses where the professional people lived. These people worked for decades in a professional job and afforded the large houses as a result - the long hours and work paid off in the long-term. They ended up with the 4/5 bed houses, but they also paid off their mortgages and worked for 45+ years in a consistently high paying job.
Now, the same streets are full of BTL'ers and people who happen to have landed a decent job a year or two ago - and we wonder why prices in the UK are completely screwed? What actually happened to working for 20+ years and paying off your mortgage?
Still, to answer the original question - why wont houses drop by another 50%? Because there are too many people with access to the funds and not enough houses. We have historically high(ish) employment with high average salaries and relatively cost effective lending - so this makes the amount that can be borrowed quite high. Cost of living is also quite high and those who own or build the houses need the money - so they will never drop to being nothing, because that means the whole economy will shrink....
Well, actually if you listen to the media this will happen and we will all live in houses worth 5p by the end of 2009 - and some PH members would have you believe that it will all end in civil war, but that's another story.
2something said:
changingman said:
The difference between the housing market now and in the early 90's is that in the early 90's people continued to buy and sell as the prices went down at a smilar rate as the previous years however this time the market is stagnant with a great reduction of property on the market and sales.
The other big difference is that people didn't have the early 90's information on the housing market to look at.Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff