House prices 'to recover by 2013'

[Bagpuss]

2012, there's bound to be an Olympics effect on the economy.

[BigTime]

It's like saying a critically wounded person will recover - that may well happen, but the recovery will be from the point of death, it does not necesserily mean 100% recovery to the peak previous condition that might not be achieveable anytime soon.

The only reason house prices might not tank big time is inflation, so on face value they might reach old valuations in 2013, however in real terms those money might not be worth as much as they used to.

Granted, I think with commodities falling we face deflation for some time, so many of the home owners will be stuck with huge debts and inflation won't be there to help them. That's Japanese scenario basically, which means this kind of lull will last for a long time - over 10 years easy.

why are you being so pessimistic. prices will definitely recover due to inflation. everyone agrees that 3-4 x average salary is a fair value for house prices but on occasion a bubble occurs and if you want a house you have to pay the market rate. another one is round the corner.

[sasguru]

why are you being so pessimistic..

Coz he's a know-nothing numpty. He hasn't read about past booms and busts going back centuries, he's only lived through irrational exuberance but not irrational pessimism. In other words, he hasn't a clue.

HTH

[PRC1964]

why are you being so pessimistic. prices will definitely recover due to inflation. everyone agrees that 3-4 x average salary is a fair value for house prices but on occasion a bubble occurs and if you want a house you have to pay the market rate. another one is round the corner.

Haven't you heard? This time it's different.

[AtW]

why are you being so pessimistic. prices will definitely recover due to inflation.

I think we will see deflation, the "devaluing" element will be dropping pound (already happened in large part but I think some more will happen), and this would in theory make house prices and other assets more attractive to people with foreign currency, problem is that UK is not Spain or something like this, so the only rich folks that will come to this country will continue to be dodgy rich people from 3rd world who want to have safe heaven around here. They won't be exactly buying typical 2-3 bedroom houses, so their effect on main housing market will be next to zero.

I am not being pessimistic here - just trying to make a reasonable projection of the future and it ain't orange.

[BigTime]

Haven't you heard? This time it's different.

looking at the data this time it does look different. from 89-95 prices stagnated until they took off again. today we have a proper crash which could accelerate the gloom element of the cycle. just need the lack of demand to filter through to redundancy and we'll be at the bottom pretty soon.

[AtW]

just need the lack of demand

The demand is there, it's the cheap huge amount of money that can be lent as 125% morgages is no longer available. So unless salaries raise (which won't happen unless serious inflation happens - in recession people are grateful to keep their job rather than demand a pay increase), banks won't lend out 3-4 times salary and apparently more of them use disposable income calculation rather than totally retarded 3-4x gross multiplier. That's pretty much sets the bare minimum level to which house prices will have to fall before serious buying happens, that will probably be 50%+ from the peak price.

[Stan.goodvibes]

real house value = actual drop in price + devaluation from inflation. Not sure what happens when you get deflation, which is looking likely. Hmmmm.

I think everyones gut feeling is that the slump is a big one (its different LOL) and people writing articles predicting the resurrection of house prices any time in the next 5 years are seriously off the mark.

Given the difference in the Gross Income/House Price ratio (was around 8x) from the norm of 3-4, for house prices to get back to 2007 levels, assuming we are back at that 3-4x, everyones income would have to go up by about 70%.

[Beefy198]

It's not just how many times more the house is than your annual income, it's also the deposit needed.

At currently prices the majority of the population simply cannot afford to find 10% of property value as a deposit.

[PAH]

House prices will recover when the supply of cheap credit returns. Both are inevitable.

My plan B is to save as much as I can to use as a deposit when the next bubble comes along, so 5-10 years is fine by me.