The real house price crash.
Discussion
So far we haven't really seen anything believe it or not.
Prices may have dipped after 2007 but there hasn't been any real increase in supply, in fact it has been artificially throttled by Government preventing banks from forclosing on defaulters.
However, inflation finally appears to be rearing its head and this has always been the most likely trigger to the real pricing correction.
Various elements are all begining to come together:
Rising inflation.
Soon to be rising interest rates.
A new Government.
Re-capitalised banks able and willing to begin forclosures.
It's the gathering of the Clans.
It is almost impossible to concieve that the BofE has printed exactly the right amount of money. In fact all the evidence points to a massive over printing in hindsight. Asset values of anything didn't realisticly decline and many appear to be back to pre 07 levels.
As inflation data confirms a rise then interest rates are going to have to go up. Again, this will start in an orderly fashion, a quarter point announced after a regular committee meeting after weeks of press speculation that briefs the markets. However, soon you will still to get mid meeting half point increases to try and stem the rise of inflation.
Now consider that anyone mortgaging or re-mortgaging for the last 2 years has faced a product range where a variable is almost half the monthly cost of a fix and most fixes have only been for 2 years and you can begin to see a real issue. These variables were often 2 to 300 points above base as well.
Many people were saved from forclosure as rates fell sharply from 5% to 0.5%. Back then a variable was only a handfull of points above base, not the 2 or 300 they are today. Plus, the top of the rate cycle is almost certainly going to be well above 5%. Meaning that it is entirely possible that within the next 2-3 years we may be seeing double digit rates.
If many people were struggling at 5% in a well employed market with rising asset values what are we going to be looking at with 8%+ rates, poor employment prospects, declining asset values and no Govt support?
I think that house prices are a real elephant in the room and that we will look back in 2-3 years and realise that 2010 was the opportunity to get out of the market on a deadcat bounce for anyone who didn't have the revenue or capital to finance high rates.
Hopefully, the general economy will be in a clear revival when the resi market does finally correct and this will soften the blow but I do fully believe this could get very nasty as rates begin to rise and could lead to an absolute shocker once they reach 4% and the average mortgage rate is then 6%+.
Prices may have dipped after 2007 but there hasn't been any real increase in supply, in fact it has been artificially throttled by Government preventing banks from forclosing on defaulters.
However, inflation finally appears to be rearing its head and this has always been the most likely trigger to the real pricing correction.
Various elements are all begining to come together:
Rising inflation.
Soon to be rising interest rates.
A new Government.
Re-capitalised banks able and willing to begin forclosures.
It's the gathering of the Clans.
It is almost impossible to concieve that the BofE has printed exactly the right amount of money. In fact all the evidence points to a massive over printing in hindsight. Asset values of anything didn't realisticly decline and many appear to be back to pre 07 levels.
As inflation data confirms a rise then interest rates are going to have to go up. Again, this will start in an orderly fashion, a quarter point announced after a regular committee meeting after weeks of press speculation that briefs the markets. However, soon you will still to get mid meeting half point increases to try and stem the rise of inflation.
Now consider that anyone mortgaging or re-mortgaging for the last 2 years has faced a product range where a variable is almost half the monthly cost of a fix and most fixes have only been for 2 years and you can begin to see a real issue. These variables were often 2 to 300 points above base as well.
Many people were saved from forclosure as rates fell sharply from 5% to 0.5%. Back then a variable was only a handfull of points above base, not the 2 or 300 they are today. Plus, the top of the rate cycle is almost certainly going to be well above 5%. Meaning that it is entirely possible that within the next 2-3 years we may be seeing double digit rates.
If many people were struggling at 5% in a well employed market with rising asset values what are we going to be looking at with 8%+ rates, poor employment prospects, declining asset values and no Govt support?
I think that house prices are a real elephant in the room and that we will look back in 2-3 years and realise that 2010 was the opportunity to get out of the market on a deadcat bounce for anyone who didn't have the revenue or capital to finance high rates.
Hopefully, the general economy will be in a clear revival when the resi market does finally correct and this will soften the blow but I do fully believe this could get very nasty as rates begin to rise and could lead to an absolute shocker once they reach 4% and the average mortgage rate is then 6%+.
We could be in for some interesting times, no doubt about it.
You have to have serious equity (around 40%) to get a tracker at even the low 200 points above base range at the moment.
If you consider interest rates of 4-7% as "normal" people's mortgage payments could well be going through the roof in the near future.
You have to have serious equity (around 40%) to get a tracker at even the low 200 points above base range at the moment.
If you consider interest rates of 4-7% as "normal" people's mortgage payments could well be going through the roof in the near future.
AJI said:
Hopefully house prices will crash...they are way over priced in the UK.
At this moment in time they aren't over priced at all. Uber low rates, traditionaly low supply and Govt underwriting has under pinned values. 2008 saw some forced selling and some spooked sellers but supply never materialised to back up any real fall. Even the fall in new build values was not only an isolated facet of the market but also driven from a slightly unconventional angle of the builders running out of operating debt and shutting down.Property is priced correctly at present. The traditional formulae of 3 times one household income has been permanantly altered due to massive post war social changes which has seen reducing costs of debt and a vast increase in the number of two income households, compounded with a reduction in supply due to a shift in population dynamics producing more old people who then go and live longer. No, factor in social changes and house prices are fair value.
What is likely to change is the price of debt. This could spiral above the medium and short term average and the long term average and it is this which will alter the dynamics of property value and precipitate (potentially) a monumental correction.
However, do not think that this correction will re-define values as it won't. It will clear out a huge number of unfortunates and also silly billys but it will pave the way for the next generation to climb on and also you have to factor in the relatively new propensity for the British to purchase additional properties.
Any fall will be relatively short lived before a period of joyful catch-up back to where we are now and beyond. So long as there is employment then asset values will continue to rise and rise above inflation over the long term.
Any inflation spike will be a curse for many but as with any event a boon for many others, some speculators and opportunists and others first time buyers.
I don't think it is any different from any other asset class when it overheats.
youngsyr said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
I'm still not convinced that house prices will tank, Panorama the other night was anticipating a housing shortfall of several million properties in the medium term during their programme this week.Ask everyone whether they want a house and they will say yes, deduct those who already have one and you have a massive 'shortfall'.
Panarama won't have run a meaningful calculation to remove those from that list who may want but cannot have.
Hell, I want a Veyron and I bet millions of people do. Does this mean that there is a Veyron shortfall?
Zod said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
No, just people like AJI, who are deluded enough to believe that they will be able to buy the house they want if prices crash.I think the deluded ones who think prices will stay the same.
IR rises will see people default. With the absence of people with ready money ready to go, the supply/demand will alter.
Certainly, the local big knob around here who sold out his 100 or so properties in 2007 doesn't seem to have done anything with his money.
Again, there are people who seem to think that house prices are remote from the bigger economic picture.
Yes, you won't get your dream home if prices crash, unless you are financially different from those masses.
Also, it's easy to oversimplify house prices into 1 big fat band. There will be micro ups and downs, but the overall trend will be down.
I doubt we'll see a crash, but the market has a long long way to adjust downwards.
.....unless banks start throwing money around again. Which isn't totally out of the equation. Give them a few years and we'll be back to normal.
youngsyr said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
I'm still not convinced that house prices will tank, Panorama the other night was anticipating a housing shortfall of several million properties in the medium term during their programme this week.A lack of supply always means a comodity has a higher than actual what its worth price.
There will always be a lack of supply for bottom of the market houses. So the price of first time buyer houses will always remain unfairly high.
Its the other end of the market thats going to correct itself bigstyle. People who were 'millionaires on paper' and borrowed against this will find the value of their asset plummetting, and they wont be able to sell due to negative equity. So they'll be stuck there long term, and this will cause the market to stagnant.
When these people with houses worth considerably less than their mortgages eventually hit some kind of problem meeting their commitments, that when reposetions will really kick in, and following on from that, serious deflation in house values at the higher end of the market. Oversupply of high end houses with much less people able to buy them.
There will always be a lack of supply for bottom of the market houses. So the price of first time buyer houses will always remain unfairly high.
Its the other end of the market thats going to correct itself bigstyle. People who were 'millionaires on paper' and borrowed against this will find the value of their asset plummetting, and they wont be able to sell due to negative equity. So they'll be stuck there long term, and this will cause the market to stagnant.
When these people with houses worth considerably less than their mortgages eventually hit some kind of problem meeting their commitments, that when reposetions will really kick in, and following on from that, serious deflation in house values at the higher end of the market. Oversupply of high end houses with much less people able to buy them.
cs02rm0 said:
youngsyr said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
I'm still not convinced that house prices will tank, Panorama the other night was anticipating a housing shortfall of several million properties in the medium term during their programme this week.Either way, prices will go up, all other things being equal.
DonkeyApple said:
youngsyr said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
I'm still not convinced that house prices will tank, Panorama the other night was anticipating a housing shortfall of several million properties in the medium term during their programme this week.Ask everyone whether they want a house and they will say yes, deduct those who already have one and you have a massive 'shortfall'.
Panarama won't have run a meaningful calculation to remove those from that list who may want but cannot have.
Hell, I want a Veyron and I bet millions of people do. Does this mean that there is a Veyron shortfall?
Perhaps I'm being naive, but a housing shortage should be pretty easy to identify: if its predicted that there will be more people in the country than properties (taking into account people living together with family/spouses) then you have a housing shortage and an upward pressure on house prices.
Dr Phibes said:
If you can cover your payments and are happy with your current abode what's the problem, surely its only Mr and Mrs over-extended with the new Range Rover to impress the neighbours and family on the drive that need to worry.
... and those with several Mr and Mrs Over-Extended living on their street. If they sell under value in a fire sale, then their valuation will rub off on your house for years to come.The same thing happens on a larger sale, lots of people selling off cheaply brings down all house prices, quite possibly for years.
Ok if you're not intending to move this decade, but a lot of people are (or at least would like to).
youngsyr said:
DonkeyApple said:
youngsyr said:
ln1234 said:
Are there still cash rich buyers waiting to pounce when the market tanks?
I'm still not convinced that house prices will tank, Panorama the other night was anticipating a housing shortfall of several million properties in the medium term during their programme this week.Ask everyone whether they want a house and they will say yes, deduct those who already have one and you have a massive 'shortfall'.
Panarama won't have run a meaningful calculation to remove those from that list who may want but cannot have.
Hell, I want a Veyron and I bet millions of people do. Does this mean that there is a Veyron shortfall?
Perhaps I'm being naive, but a housing shortage should be pretty easy to identify: if its predicted that there will be more people in the country than properties (taking into account people living together with family/spouses) then you have a housing shortage and an upward pressure on house prices.
I wonder when the communitarian equality rights crap will regulate this particular market...... or are the powers in the game on the side?
Where will these alternatives find finance?
I'm guessing property bizz is probably even more of a shaky bet than someone who has the motivation to keep a roof over their head....
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