How Far Will House Prices Fall? [Volume 6]

[Mr Whippy]

Rick1.8t said:

A family member is buying right now, their offer was accepted around 5% below asking.

They are first time buyers being advised to go for a 5yr fixed right now - I am not sure if 2 would be a better bet with discussion around rate cuts to help deal with the unfolding banking trouble.

Anyone with a better understanding than me want to chime in on what they would do with their term if they were to mortgage / remortgage right now?

Crystal ball time.

Inflation is still at 10% and increasingly embedded into services/salaries.

Any easing will probably cause inflation to run harder.

We’ve seen that before, and it resulted in even higher interest rates needed later.

A 2yr fix might land you renewing right into even more ludicrous interest rates at a time of even more difficult economic times, and thus lending criteria.


Good luck assuming rates will just magically come back down again and inflation with it.


While people are still acquiring big pay rises and finding jobs easily, this won’t end.

[skwdenyer]

Mr Whippy said:

Rick1.8t said:

A family member is buying right now, their offer was accepted around 5% below asking.

They are first time buyers being advised to go for a 5yr fixed right now - I am not sure if 2 would be a better bet with discussion around rate cuts to help deal with the unfolding banking trouble.

Anyone with a better understanding than me want to chime in on what they would do with their term if they were to mortgage / remortgage right now?

Crystal ball time.

Inflation is still at 10% and increasingly embedded into services/salaries.

Any easing will probably cause inflation to run harder.

We’ve seen that before, and it resulted in even higher interest rates needed later.

A 2yr fix might land you renewing right into even more ludicrous interest rates at a time of even more difficult economic times, and thus lending criteria.


Good luck assuming rates will just magically come back down again and inflation with it.


While people are still acquiring big pay rises and finding jobs easily, this won’t end.

Except that inflation isn't being driven by wage rises. This is IMHO the fallacy of raising interest rates.

[TTmonkey]

Mr Whippy said:

Rick1.8t said:

A family member is buying right now, their offer was accepted around 5% below asking.

They are first time buyers being advised to go for a 5yr fixed right now - I am not sure if 2 would be a better bet with discussion around rate cuts to help deal with the unfolding banking trouble.

Anyone with a better understanding than me want to chime in on what they would do with their term if they were to mortgage / remortgage right now?

Crystal ball time.

Inflation is still at 10% and increasingly embedded into services/salaries.

Any easing will probably cause inflation to run harder.

We’ve seen that before, and it resulted in even higher interest rates needed later.

A 2yr fix might land you renewing right into even more ludicrous interest rates at a time of even more difficult economic times, and thus lending criteria.


Good luck assuming rates will just magically come back down again and inflation with it.


While people are still acquiring big pay rises and finding jobs easily, this won’t end.

If they can afford the monthlies right now, fix for five years, because first time buyers. Even if they end up over paying for a couple of years they can presumably still afford to pay it

Otherwise they might step off a 4.5% rate onto an 8/9/10 % if it all continues to go to hell, and then they will be looking at failure to pay and losing their home.

Some have fixed for ten years. Not sure I would do that, but even so, you know what the bill will be every month going forward.

[TTmonkey]

skwdenyer said:

Except that inflation isn't being driven by wage rises. This is IMHO the fallacy of raising interest rates.

Agreed it isn’t.

Yet.


I think the days of controlling inflation by hitting people on variable rate mortgages must come to an end. There’s simply too many people on fixed rates.

[skwdenyer]

TTmonkey said:

skwdenyer said:

Except that inflation isn't being driven by wage rises. This is IMHO the fallacy of raising interest rates.

Agreed it isn’t.

Yet.


I think the days of controlling inflation by hitting people on variable rate mortgages must come to an end. There’s simply too many people on fixed rates.

The whole rationale of using interest rates to control inflation is (or should be) aimed at new borrowing, not existing. The lack of really long-term fixed rates in the UK means that (unlike the USA, say), existing borrowers get clobbered - so small interest rate rises have a disproportionate effect.

Furthermore, the logic entirely ignores the impact on business borrowing - raising interest rates directly increases costs, thus creating more inflation (not just primarily, but secondarily through the cost of supplies, etc.).

The entire model is broken IMHO.

[brickwall]

TTmonkey said:

Agreed it isn’t.

Yet.


I think the days of controlling inflation by hitting people on variable rate mortgages must come to an end. There’s simply too many people on fixed rates.

This is an important point.

What the markets are expecting is that inflation will fall from the current c.10% to c.5% when energy falls out of the 12-month equation.

The problem is that still leaves 5% underlying inflation, and that’s what’s getting embedded into wage/price bargaining. That is
a) 2-3% above BoE target and suggests they will work to get it down and
b) Implies interest rates at 4-5% (or higher)for the foreseeable future to maintain avoid real rates dropping materially below zero (which would further encourage people to spend their money and drive inflation higher)

[rah1888]

okgo said:

Have earmarked a couple of nice ones in Guildford to monitor. A good indicator.

Anything sensibly priced is still moving ok (upper end), but there's frankly some absolutely crazy pricing going on at times.

[skwdenyer]

brickwall said:

TTmonkey said:

Agreed it isn’t.

Yet.


I think the days of controlling inflation by hitting people on variable rate mortgages must come to an end. There’s simply too many people on fixed rates.

This is an important point.

What the markets are expecting is that inflation will fall from the current c.10% to c.5% when energy falls out of the 12-month equation.

The problem is that still leaves 5% underlying inflation, and that’s what’s getting embedded into wage/price bargaining. That is
a) 2-3% above BoE target and suggests they will work to get it down and
b) Implies interest rates at 4-5% (or higher)for the foreseeable future to maintain avoid real rates dropping materially below zero (which would further encourage people to spend their money and drive inflation higher)

If that's the level of thinking of our "betters" then we're screwed.

Having a hard inflation target is frankly a bit daft, unless there's something meaningfully that can be done to achieve it. We're a huge net importer. We've got a weak economy and, quite possibly, a further-weakening currency. We're massively dependent on the outside world for energy.

And our businesses are heavily dependent upon debt.

To my way of thinking, it simply isn't possible to get inflation down to 2% just by hiking interest rates. That ship has sailed. Our inflation isn't being driven by demand. And if we do dampen demand, we weaken the economy, which in turn weakens the currency, which in turn drives up inflation.

Frankly I think the best solution would be to lower interest rates, and use completely different sets of financial and economic controls to try to effect change.

[brickwall]

skwdenyer said:

brickwall said:

TTmonkey said:

Agreed it isn’t.

Yet.


I think the days of controlling inflation by hitting people on variable rate mortgages must come to an end. There’s simply too many people on fixed rates.

This is an important point.

What the markets are expecting is that inflation will fall from the current c.10% to c.5% when energy falls out of the 12-month equation.

The problem is that still leaves 5% underlying inflation, and that’s what’s getting embedded into wage/price bargaining. That is
a) 2-3% above BoE target and suggests they will work to get it down and
b) Implies interest rates at 4-5% (or higher)for the foreseeable future to maintain avoid real rates dropping materially below zero (which would further encourage people to spend their money and drive inflation higher)

If that's the level of thinking of our "betters" then we're screwed.

Having a hard inflation target is frankly a bit daft, unless there's something meaningfully that can be done to achieve it. We're a huge net importer. We've got a weak economy and, quite possibly, a further-weakening currency. We're massively dependent on the outside world for energy.

And our businesses are heavily dependent upon debt.

To my way of thinking, it simply isn't possible to get inflation down to 2% just by hiking interest rates. That ship has sailed. Our inflation isn't being driven by demand. And if we do dampen demand, we weaken the economy, which in turn weakens the currency, which in turn drives up inflation.

Frankly I think the best solution would be to lower interest rates, and use completely different sets of financial and economic controls to try to effect change.

What kind of “other economic controls” were you thinking?

You know as well as I do that lowering interest rates weakens the currency - and that would be inflationary. That effect is particularly pronounced if we diverge from the Fed and weaken vs USD.

I do think low and stable inflation is a good thing, and that a consistent central bank target is a sensible policy in pursuit of that aim.

I agree interest rates alone won’t be enough - we will need
- Control over money supply (quantitative tightening)
- Wage restraint (and government can have an influence on this through public sector wages)
- Supply-side reform (but this takes time…see NIMBY protests whenever a new power station is proposed)

[number2]

https://www.ft.com/content/c3a1726b-1724-41d8-bde4...

Stripping out the volatile food, energy and tobacco prices gives a core annualised inflation rate of 6.2%, up from 5.8% the previous month and above the 5.7% expected.

Costs are high across the board and being driven by increases in important things like food and energy...

As Whippy says, pay rises aren't helping, but they are going to those who need them least... it's the low to minimum wage earners who spend all their income on boring stuff like food and energy.

Anyway, this is the house prices thread.

This went on sale (was a rental) recently, not far away, and now has a sold board outside of it... seems a reasonably quick sale... added to RM on 3rd March for £1.25m. Asking price wise it's between around 20% to 30% above where it would have been in 2019.

https://www.rightmove.co.uk/properties/132230552#/...

Be interesting to see what it went for if it all goes through.

It's original so will "need" bathrooms replacing, kitchen, windows, complete refurb really. Which could cost anywhere up to 250k depending on how the job is done and the quality of fixtures/fittings. It won't be bought thinking of that of course, and/or it may end up a dogs dinner.

[Rick1.8t]

TTmonkey said:

Mr Whippy said:

Rick1.8t said:

A family member is buying right now, their offer was accepted around 5% below asking.

They are first time buyers being advised to go for a 5yr fixed right now - I am not sure if 2 would be a better bet with discussion around rate cuts to help deal with the unfolding banking trouble.

Anyone with a better understanding than me want to chime in on what they would do with their term if they were to mortgage / remortgage right now?

Crystal ball time.

Inflation is still at 10% and increasingly embedded into services/salaries.

Any easing will probably cause inflation to run harder.

We’ve seen that before, and it resulted in even higher interest rates needed later.

A 2yr fix might land you renewing right into even more ludicrous interest rates at a time of even more difficult economic times, and thus lending criteria.


Good luck assuming rates will just magically come back down again and inflation with it.


While people are still acquiring big pay rises and finding jobs easily, this won’t end.

If they can afford the monthlies right now, fix for five years, because first time buyers. Even if they end up over paying for a couple of years they can presumably still afford to pay it

Otherwise they might step off a 4.5% rate onto an 8/9/10 % if it all continues to go to hell, and then they will be looking at failure to pay and losing their home.

Some have fixed for ten years. Not sure I would do that, but even so, you know what the bill will be every month going forward.

They are going forward with the 5yr fixed - for essentially the same reason as you and others here have said, security and the ability to plan for the next 5 years, understandable especially after todays rise and who knows what to come in the near future.

As you say, they may pay a little more than they should for a few years but at least they know they wont see huge rate rises and can plan for the other things they need to get done in the next 5 yrs.

[princeperch]

Interesting article in the torygraph today.

At least the couple concerned haven't yet been forced to choose between heating and eating.

[nickfrog]

princeperch said:

At least the couple concerned haven't yet been forced to choose between heating and eating.

[Flooble]

princeperch said:

Interesting article in the torygraph today.

At least the couple concerned haven't yet been forced to choose between heating and eating.

[brickwall]

Rick1.8t said:

They are going forward with the 5yr fixed - for essentially the same reason as you and others here have said, security and the ability to plan for the next 5 years, understandable especially after todays rise and who knows what to come in the near future.

As you say, they may pay a little more than they should for a few years but at least they know they wont see huge rate rises and can plan for the other things they need to get done in the next 5 yrs.

This is a sensible move I think. If you can afford the payments today, it’s generally unlikely your nominal income will reduce over a 5 year period (especially in an inflationary environment), so that should give comfort you can continue to afford the payments for the next 5 years. There’s value in that certainty.

Also worth noting that over-payment facilities mean you can pay down the debt and in effect get a higher net interest rate on any savings.

[Fusion777]

princeperch said:

Interesting article in the torygraph today.

At least the couple concerned haven't yet been forced to choose between heating and eating.

Paunchfully built directors.

[A.J.M]

We went with a 5 year fixed.
Got it sorted in January.

£98 more per month than old rate but we can afford it.
It’s everything else going up that’s putting pressure on the finances.

Given how things could go for the future, I feel some relief at knowing what comes out every month is manageable.

[2gins]

princeperch said:

Interesting article in the torygraph today.

At least the couple concerned haven't yet been forced to choose between heating and eating.

In the article the couple were saying they'd cut out going to the gym. They've never seen a gym in their lives

[Mr Whippy]

skwdenyer said:

Mr Whippy said:

Rick1.8t said:

A family member is buying right now, their offer was accepted around 5% below asking.

They are first time buyers being advised to go for a 5yr fixed right now - I am not sure if 2 would be a better bet with discussion around rate cuts to help deal with the unfolding banking trouble.

Anyone with a better understanding than me want to chime in on what they would do with their term if they were to mortgage / remortgage right now?

Crystal ball time.

Inflation is still at 10% and increasingly embedded into services/salaries.

Any easing will probably cause inflation to run harder.

We’ve seen that before, and it resulted in even higher interest rates needed later.

A 2yr fix might land you renewing right into even more ludicrous interest rates at a time of even more difficult economic times, and thus lending criteria.


Good luck assuming rates will just magically come back down again and inflation with it.


While people are still acquiring big pay rises and finding jobs easily, this won’t end.

Except that inflation isn't being driven by wage rises. This is IMHO the fallacy of raising interest rates.

It’s circular.

Supply and demand.

Too many jobs means wage inflation, not enough goods means price inflation… and people can pay it.


Whatever your belief, or understanding, it’s irrelevant, inflation is a whopper and they’re going to have to smash the wheels off the bus to get it to stop.


ALL the projections, from the early days when it was a transitory blip, have been proven wrong and it’s tracked worse… to todays suggestion it’ll be coming down in summer and rates with it.

Suddenly, for the first time in two years, the experts are right?


Jeez I’d rather err on the side of caution, reversion to the mean, and history rhyming.

[skwdenyer]

Mr Whippy said:

It’s circular.

Supply and demand.

Too many jobs means wage inflation, not enough goods means price inflation… and people can pay it.


Whatever your belief, or understanding, it’s irrelevant, inflation is a whopper and they’re going to have to smash the wheels off the bus to get it to stop.


ALL the projections, from the early days when it was a transitory blip, have been proven wrong and it’s tracked worse… to todays suggestion it’ll be coming down in summer and rates with it.

Suddenly, for the first time in two years, the experts are right?


Jeez I’d rather err on the side of caution, reversion to the mean, and history rhyming.

Inflation is real. How to stop it? That's the question. Is it being fuelled by wage rises? I see no signal of that. Is it being fuelled by cheap credit? Again, I see no signal of that. Inflation is being led by food and fuel. Assuming that quantities of both consumed haven't gone up massively, this is not inflation that will respond to a credit squeeze - all that does is make people poorer and bake in more inflation (because so many businesses rely upon borrowings, not to mention the impact on housing).

Given the sources of inflation right now, a conventional interest rate led approach is only going to tip the UK into a functional (if not statistical) recession. How much further can standards of living drop before it causes real trouble?

The inflation that is caused by credit-fuelled demand (housing) has largely already happened. It was stupid Govt policy to get us there, but it is done now. Even precipitating a house price crash wouldn't do much to fix that.

If the Govt wishes to really control inflation, it is going to have to take very different steps: rent controls, price controls, tiered energy costs, and so on. At the same time, it needs to invest heavily in building up the UK's manufacturing and food sectors to improve our balance of trade - because otherwise imported inflation is going to get us time and again - not least because we're way past the point where interest rates have any macro impact on FX.

Right now, we've got huge asset prices (so the asset-rich are OK), but high inflation and poor wage growth (so everyone else is doing badly). You seem to be supportive of an approach to this that punishes everyone but the asset-rich even further, just because the only tool we currently are deploying is unsuitable for the job?