Reply to: House prices: 50% falls before fair value

[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.

[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.

[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.

[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.

[BlasterBates]

Perhaps they did the same economics course together?

How's your BTL empire?

[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.

[oracleslave]

Anyone else think Turion is an AtW bot?

Perhaps they did the same economics course together?

[snaw]

Anyone else think Turion is an AtW bot?

[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]

The population growth comes exclusively via immigration, which as I said before, is looking less likely due to:

1. Deteriorating economy / weakening pound
2. The poles, etc. will soon be allowed to work in the rest of the EU

The underlying demographics point to negative population growth.

Actually that's not true. Immigration accounts for about 45%, the rest is slight increase in birth rates and falling mortality rates.

[bobhope]

The population growth comes exclusively via immigration, which as I said before, is looking less likely due to:

1. Deteriorating economy / weakening pound
2. The poles, etc. will soon be allowed to work in the rest of the EU

The underlying demographics point to negative population growth.

[BrilloPad]

Who are starting to return home now that the pound is weakening.

I sold my BTLs a couple of years ago and will return to the UK market when there's value again.

My only possible reservation is the demographic shift - we're only 2-3 years away from the first baby boomer retirement wave.

Check out the government population statistics website - very interesting stats and charts on demographics.

Also on household incomes - the median income is approx 25k gross. Moreover, the 90th percentile income is something like 40-45k, so not massive. Which begs the question: why (not how) are house prices so high?

http://www.telegraph.co.uk/news/ukne...in-Europe.html

The population of England will increase by a third over the next 50 years as it becomes the most crowded major nation in Europe, official forecasts suggest.

===================================

Why are house prices so high? IMO it is not because of BTL mortgages - I did some stats on another thread and I reckon the BTL mortgages cover about 10% of house turnover.

But I know alot of peple with a few houses - bought with cash and using as a pension. Also, I have heard that one thirs of rented properties are done by companies with more than 100 houses.

Are these people currently investing in shares? Where will they invest next.

[bobhope]

The population is growing due to immigration.

Who are starting to return home now that the pound is weakening.

I sold my BTLs a couple of years ago and will return to the UK market when there's value again.

My only possible reservation is the demographic shift - we're only 2-3 years away from the first baby boomer retirement wave.

Check out the government population statistics website - very interesting stats and charts on demographics.

Also on household incomes - the median income is approx 25k gross. Moreover, the 90th percentile income is something like 40-45k, so not massive. Which begs the question: why (not how) are house prices so high?

[BrilloPad]

Not what I meant! Just meant that someone on an average wage would be looking for an average property. You would expect a one bed flat to go to someone on a below average wage surely as a one bed flat should be the cheapest you can get. Yes I am not taking regional variations of class or quality of area into account. But using an average wage and the lowest rung on the ladder was just suggesting that prices could (should ) go even lower than 30% down.

Bagpuss - a lot more of these in the pipeline. A bit more pain, a few more quid on the weekly shopping, a few more pence on petrol, coming off a 4.5% fixed rate onto a 7% mortgage. A lot of people have borrowed excessively and I do think a lot of people will go to the wall. When the banks start getting hit with people defaulting on cards and houses going under and due to houses being in -ve equity then surely this thing could spiral out of control. Is mad how many people (anecdotally) seem to have interest only mortgages. With prices this high it was the only way for some people to get a home of their own. I tried to convince a friend last year to rent rather than buy but she went for an interest only mortgage of £160k on a tiny two up - two down terrace and she is not even on £30k per year. I do fear for her and others like her.

Bogeyman - read a few of your fake doom threads, understand that you are cool with you BTLs and that a lot of this talk will not effect you even if we do go for a 20, 30, 40 or even 50% drop, but surely you can see that a storm is brewing? I think Turion and BB have a right to be wearing the "The End is Nigh" sandwich boards. Hopefully will not be as bad it could be but with the levels of debt people have the extra whammy of house price drops could push a lot of people over the edge.

Well the Bank of England agree with Bogeyman.

You talk as if there will be a revolution of some sort. The population is growing due to immigration. There are strict planning controls. People are using houses as a pension (though at the moment they are going into shares - for how long?).

Joe Average should feel hard done by. By while (s)he can read the sun, support football and watch big brother he will be happy. If s(he) decides to open their eyes then there might be trouble.

[BrilloPad]

One wonders how common this situation will become:

http://forums.moneysavingexpert.com/...7#post10711237

We have just calculated all of our debts and we are about 40k in debt to unsecured debts.

We have a mortgage to which we owe £169,000, we have had no secure debt on the property but we do have a charging order on it for £2,100.

The mortgage repayments are interest only at £1070 a month plus a further £105 for arrears of £2000.

We have had the house valued at £199,950 but we are not going to get that for it in todays situation and we have been offered £184,000 for a quick sale from one of those avoid repossesion companies.

What shall we do? we are thinking about selling to this company and going into private rented because we just can't see a way forward. We can't afford to pay the mortgage, it's just too high!!

If we went bankrupt, do we have enough equity in the property for the OR to sell it from under us?

Interesting reading the entire thread to see their earnings :-

I hate having debt hanging over me and I am looking for a second job to help with finances.

The situation is.........
I work 30 hours per week for approx £500 a month
Hubby - self employed builder/plasterer can earn in the region of £4k a month, WHEN he can find work

When he is out of work, we claim tax credits, we have 3 children all in full time education.

We have cut our grocery bill from £120.00 pw to £70
Elec and gas are metered
Arrears with water & council tax, we pay what we can when we can, but obviously we have to eat
Then there is the mortgage, the arrears, the debts

I'm not expecting to walk away with a huge profit from selling the house, just to make life a little easier and reduce our outgoings, we can't afford a mortgage of £1070 a month and the arrears, but if selling it is not the best option, then we will battle on, but loosing the house one way or another is probably our only option

I reckon they should sell to the quick deal company.