House prices: 50% falls before fair value

[Turion]

Wow! after last nights offensive remarks, feels like the calvary have arrived to save the day. Thanks for the great reasoning and arguments. We are not property doomsters, more like realists. The fact is property has been allowed to get grossly over priced, due to two factors. Easy availability of cheap money and speculative activity. Both are now over, and mortgage approvals have dived by 50%. This will have a major effect. Th bulls arguments are tepid. Regardless of any supply constraints, in the long term, people can only buy houses they can afford. Hence income/price ratio must come down from 7+ to 3-4. A combination of actual price drops and inflation will take care of this. The affect will be major pain for the highly indebted and much lower aspirations for the get rich by property brigade. Until next time, hard work and productive investments is the way to financial security now.

[snaw]

Anyone else think Turion is an AtW bot?

[oracleslave]

Anyone else think Turion is an AtW bot?

Perhaps they did the same economics course together?

[ASB]

Wow! after last nights offensive remarks, feels like the calvary have arrived to save the day. Thanks for the great reasoning and arguments. We are not property doomsters, more like realists. The fact is property has been allowed to get grossly over priced, due to two factors. Easy availability of cheap money and speculative activity. Both are now over, and mortgage approvals have dived by 50%. This will have a major effect. Th bulls arguments are tepid. Regardless of any supply constraints, in the long term, people can only buy houses they can afford. Hence income/price ratio must come down from 7+ to 3-4. A combination of actual price drops and inflation will take care of this. The affect will be major pain for the highly indebted and much lower aspirations for the get rich by property brigade. Until next time, hard work and productive investments is the way to financial security now.

A lot of what you say there is fair. But the title of this thread was: "House prices: 50% falls before fair value" that is not what the article says at all. It is talking abut the growth trend. (It's only really since '97 that this has gone a bit bonkers really. You discount the possibility that a new trend could be emerging. Any trend includes all the data within it)

Ignoring supply constrains may be an error. Demographics do suggest that the population is increasing, if this is true then housing supply is in fact tightening - check the current recommendations from most councils now that the EA has stronger powers of objection to development on flood risk grounds. This is likely to make the target of 'n' new build before 2020 very unlikely.

Why "must" the income/price ration drop from 7+ (if it is) to 3.4? A justification for higher prices can be in affordability. Lower interest rates have tended - historically - to be reflected in higher house prices. The cost of service of the loan then maintains the same proportion of income (but the borrower is simply far more exposed).

There is (or was) more demand than supply, it is the position of those that are prepared to gamble that dictates the volume of transactions.

If you want to pick historical trend to justify your thoughts then fine - you may turn out right. In my view it is much more likely we will follow the trends exemplified by all previous crashes. i.e. some fairly rapid falls which tend to overshoot "fair value". Then a period of fairly stagnant prices, then after about 6-7 years a recognition that house are perhaps once again "cheap". Then short memories kick in and the next cycle begins.

Bizzarely there is some strange activity out there. An agent I know has seen at 85% fall in transaction volume in the past 6 months. This seems to be propping up prices in a strange way - those who actually need to move have much less choice available.

[BlasterBates]

Perhaps they did the same economics course together?

How's your BTL empire?

[Cyberman]

Bizzarely there is some strange activity out there. An agent I know has seen at 85% fall in transaction volume in the past 6 months. This seems to be propping up prices in a strange way - those who actually need to move have much less choice available.

This is not bizarre at all and was in fact highly predictable, except by a New Lie government that have no idea about anything.
The introduction of HIPS means that people will not bother to put houses on the market unless they definitely intend to sell. as a HIP can cost around 700 quid. I was telling people last year that this will actually cause a shortage of houses on the market and was one reason that I marketed my house last June, just before their crazy introduction.

[DimPrawn]

This is not bizarre at all and was in fact highly predictable, except by a New Lie government that have no idea about anything.
The introduction of HIPS means that people will not bother to put houses on the market unless they definitely intend to sell. as a HIP can cost around 700 quid. I was telling people last year that this will actually cause a shortage of houses on the market and was one reason that I marketed my house last June, just before their crazy introduction.

Which means that anyone selling now is probably quite desparate to sell (falling prices and £700 HIPS cost), therefore they are probably open to quite low offers, which is turn will be reflected in falling prices next month, etc.

[tay]

Not what I meant! Just meant that someone on an average wage would be looking for an average property.

Absolutely not!

A person of average wealth would expect an average house, a person of average wage has to start at the bottom and work up till he has average weath. It has always been this way.

[BrilloPad]

Anyone else think Turion is an AtW bot?

I don't. Turion is a pessimist(IMO) - but has very very good arguments. He might persuade me to the doomed side.