Going back to the end of the world as we know it - will it be? why?

Or is my lurid interpretation of that phrase just quite different from the way it was meant? I still think that if it's the end of the world as we know it houses per se won't be very useful.

Interesting point Hatster. The take from my arched window is that if the doom-mongers Hogarth meets Bosch in the Revelation Cafe apocalyptic landscape transpires, owning a few houses on mortgage will be the least of my troubles.
Not risk averse just sensible and things are never quite as good or as bad as they seem and besides, you may as well be hung for a sheep as a lamb or as one highly succesfull London developer said, 'If you owe the banks a million they have you by the b***s, if you owe them a hundred million, you have them by the b***s. Just a thought.

There is nothing to say there will be a crash, these whole topic has become like the issue of who killed JFK?
I do believe prices will go down but definitely no crash.

quote:

Hogarth meets Bosch in the Revelation Cafe

love it, and so pleased that someone else manages to imagine the same lurid details as me... though I'd have to include some zombies too

quote:

Originally posted by doogie:

quote:

Originally posted by FaTB:
I think most sensible people if they are honest realise that IR's should go up, to control inflation.

Unfortunately the BOE do not seem to be as independant as they should be and the last drop must have been a political decision.

The BOE as I understand it has one remit to control inflation, which is on the up, so they drop rates ???????????

Its worth noting that Mervyn King, voted against the rate drop.

I think this was a last desparate attempt to prop the economy up until Gordon is in No. 10.

But next year IR's will almost certainly have to go up.

I think I'm right in saying that four members of the MPC are nominated by the chancellor.

So no, they're not independent.

Exactly !

quote:

Originally posted by johnsmith:
There is nothing to say there will be a crash, these whole topic has become like the issue of who killed JFK?
I do believe prices will go down but definitely no crash.

But what do you define as a crash ?

As I have posted before, I dont think anybody is saying that we'll wake up one morning an find that house prices have dropped 30%, its not the stock market.

It much more likely to be a gradual slide of 0.5% - 1% a month for maybe the next 3 - 5 years, but it will be referred to as a crash after the event.

Similar to last time it dropped between 1989 - 1996, with a few blips along the way.

I just got my flat valued.

Agent 1 - I will market this property at £195k with a view to sell at 185-188k.

Agent 2 - Your property is worth £245k and will probably fetch £238k - £240k.

Strange world.

Given the current market I'd expect you to get about £170K then :-)

not read much of the posts as there's too many. But I've seen a few bargains on my visits

Time to make a purchase?

quote:

Originally posted by Fran Tick:

quote:

Originally posted by phugoid:
There is, of course, a subtle difference between a lack of increase and Crash with a capital ‘C’ ...

Well at least Gordon Brown has finally acknowledged there is a house price bubble! (BBC news this evening, in an interview ahead of his IMF speech).

No he said "there was a house price bubble in 2004"

But everything is ok now !!

Did anybody watch the BBC news “North West Tonight” yesterday?
OUR EA appeared on TV and left an extremely positive, confident message about house prices in Manchester. “There is no sign at all of prices slowing down here. There’ll be a steady rise in the future too…” It could have been true so far, at least in that area.
But I immediately remembered our last conversation with them (not exactly the same person on TV) when I contacted them, being worried about having virtually no viewings. They told me that “obviously, the market is very very difficult at the moment.” Which is true?

quote:

Originally posted by Nutkin:
“There is no sign at all of prices slowing down here. There’ll be a steady rise in the future too…” It could have been true so far, at least in that area.

Would a croupier tell you the next card was an ace? Would chef tell you he dropped the pastie onthe floor and put it back? Would a car salesman tell you the car your buying for £5k - he bought for £2,000?


NO NO NO


Point 1
"There is no sign at all of prices slowing down here"
I believe him - in Liverpool they continue to rise the asking price but guess what? They aint selling.
When the recession really hits you wont see shops increasing their prices - they drop them in so-called sales. I.E. Consumer confidence is so low, they have to drop their profit margins to get sales.


Point 2
"There will be a steady rise in the future too...."
Go figure! Its like saying the bread will go stale if you leave it out. There is no doubting that as SOME stage in the future houses will rise again. But when 1,3,5,10 years? Who knows.


Point 3
"Never trust an Estate Agent"
He is just a salesman.

The point being - some people would take them remarks as bullish and think the market is OK - the reality is "Its collapsing - admittedly quite slowly but watch it in the next 18 months!

You make you own mind up what to believe - Go to EA's and see how many houses they have on their books. Check how fast they are selling. ASk why if its such a booming market has building STOPPED on some projects. Why are the major builders offering to pay deposits, cashback, mortgage for year etc if there is DEMAND?

Kylie Minogue said it best "Im SPINNING around...."

One of the big local estate agents was offering free tea and a cake on staurday to everyone who came in! bribery or what! Unfortuntely a bit of cake wont help us afford our first home at the momnet, but we were very tempted by the cake lol!

quote:

Originally posted by 1sttimebuyerSal:
One of the big local estate agents was offering free tea and a cake on staurday to everyone who came in! bribery or what! Unfortuntely a bit of cake wont help us afford our first home at the momnet, but we were very tempted by the cake lol!

You couldnt take the cake! That was bought for the top salesman Estate Agent last week for getting the first sale this year!

Interesting debate.

Personally, I am about to purchase a house, costing nearly £600K in London. I believe house prices will fall, all the fundamentals are in place (IMO).

Having said that, its not possible in this instance to prophesize with complete accuracy. Therefore, most people will favour the side of probability. In this scenario, the probability of a house price drop is more likely than not.

BUT, this over simplifies the situation in my opinion. My personal feeling is although a macro event (house price drop), on a micro level each region, each road and indeed each property will behave differently. That is probably why the "average price" and activity is useful only as an indicator of sentiment. Sentiment, though is what drives markets. If you want to be on the right side of a market, you have to know what the largest force (the largest crowd in this instance) are going to do. I believe this is lower prices, but not substantial drops, not yet at least.

I made an offer on a previous property, at a price close to what it was purchased for in 2001, despite it having had relatively substantial refurbishment to it. This offer was refused, and instead the property was let out at what amounts to less than 3.9% return on the offer price, which was some £50K off their asking price. They had initially expected to sell for £100K over the bid price, but reduced that by £50K after many months of being on the market. This property was in a fantastic location, but had several issues, including parking, lack of practicality for families and security. This I believe made the property more attractive for someone like me, 26 and male with no dependants.

The property on which I have had an offer accepted, has less information available, other than what I know it sold for in 1995, and what other almost identical properties on the same road, within 5 doors away sold for. I have extrapolated using the sale price in 1995, and a notional annual inflation which is the long term average, and come up with my offer price. I have used the 2001, 2003 and 2004 prices of similar and identical properties as various level support prices, since those are what people were willing to pay in different scenarios, under varying interest rates and media speculation etc.

I still think there is a possibility of a 10% drop of price in the house I am buying, coupled with the stamp duty amounts to a value close to £90K. However, I don't anticipate having to sell, so will look to the longer term, and as it is I have had enough of living in my apartment, so will move despite the risks, which are just that, and in no terms guaranteed.

I am trying to lock myself in to a 3 or 5 year mortgage at 4.2% and 4.4% respectively, since I feel interest rates will have to look to the up again sometime soon. Reasons I cite are inflationary in main. If you look at our relationship with the US interest rates, in the last 20 years I cannot see one instance where our rates were below theirs. This would have obvious implications for the GBP, and with the Fed increasing its repo rate month on month, until what it feels is a neutral rate of 4.25%, we cannot go much lower than that, if at all.

All in all, my personal opinion is that everything is cyclical (I have thought about this, and I'd go as far as saying that literally EVERYTHING in life is cyclical) and as such we have missed out on a recession cycle, but will have to make up for it now. How bad it will be, and how badly certain types of property will be affected is what remains to be seen. I also think that contrary to many who think prices may stall slowly (although I do not disagree that as a possibility), I do not agree that can be the exclusive outcome. A hard drop can also happen, as buy to let amateurs could well feel the hurt, and once people feel pain, they no longer act ration and will bail, hoping to reduce their exit costs from what turned out to be a bad investment, and I'm sure there's lots of those about.

Stay away from the really crap properties, buy something with at least a decent size, and remember that its all about the location. Buy wisely and you might not get stung too badly, or at all. Bear in mind too, that if interest rates do rise, although property prices will be negatively affected, the "affordability" *may* not change that much.

quote:

Originally posted by cartiste:
Interesting debate.

Personally, I am about to purchase a house, costing nearly £600K in London. I believe house prices will fall, all the fundamentals are in place (IMO).

Having said that, its not possible in this instance to prophesize with complete accuracy. Therefore, most people will favour the side of probability. In this scenario, the probability of a house price drop is more likely than not.

BUT, this over simplifies the situation in my opinion. My personal feeling is although a macro event (house price drop), on a micro level each region, each road and indeed each property will behave differently. That is probably why the "average price" and activity is useful only as an indicator of sentiment. Sentiment, though is what drives markets. If you want to be on the right side of a market, you have to know what the largest force (the largest crowd in this instance) are going to do. I believe this is lower prices, but not substantial drops, not yet at least.

I made an offer on a previous property, at a price close to what it was purchased for in 2001, despite it having had relatively substantial refurbishment to it. This offer was refused, and instead the property was let out at what amounts to less than 3.9% return on the offer price, which was some £50K off their asking price. They had initially expected to sell for £100K over the bid price, but reduced that by £50K after many months of being on the market. This property was in a fantastic location, but had several issues, including parking, lack of practicality for families and security. This I believe made the property more attractive for someone like me, 26 and male with no dependants.

The property on which I have had an offer accepted, has less information available, other than what I know it sold for in 1995, and what other almost identical properties on the same road, within 5 doors away sold for. I have extrapolated using the sale price in 1995, and a notional annual inflation which is the long term average, and come up with my offer price. I have used the 2001, 2003 and 2004 prices of similar and identical properties as various level support prices, since those are what people were willing to pay in different scenarios, under varying interest rates and media speculation etc.

I still think there is a possibility of a 10% drop of price in the house I am buying, coupled with the stamp duty amounts to a value close to £90K. However, I don't anticipate having to sell, so will look to the longer term, and as it is I have had enough of living in my apartment, so will move despite the risks, which are just that, and in no terms guaranteed.

I am trying to lock myself in to a 3 or 5 year mortgage at 4.2% and 4.4% respectively, since I feel interest rates will have to look to the up again sometime soon. Reasons I cite are inflationary in main. If you look at our relationship with the US interest rates, in the last 20 years I cannot see one instance where our rates were below theirs. This would have obvious implications for the GBP, and with the Fed increasing its repo rate month on month, until what it feels is a neutral rate of 4.25%, we cannot go much lower than that, if at all.

All in all, my personal opinion is that everything is cyclical (I have thought about this, and I'd go as far as saying that literally EVERYTHING in life is cyclical) and as such we have missed out on a recession cycle, but will have to make up for it now. How bad it will be, and how badly certain types of property will be affected is what remains to be seen. I also think that contrary to many who think prices may stall slowly (although I do not disagree that as a possibility), I do not agree that can be the exclusive outcome. A hard drop can also happen, as buy to let amateurs could well feel the hurt, and once people feel pain, they no longer act ration and will bail, hoping to reduce their exit costs from what turned out to be a bad investment, and I'm sure there's lots of those about.

Stay away from the really crap properties, buy something with at least a decent size, and remember that its all about the location. Buy wisely and you might not get stung too badly, or at all. Bear in mind too, that if interest rates do rise, although property prices will be negatively affected, the "affordability" *may* not change that much.

One of the best posts in this thread imho. Good rational thinking and totally unbias.

I would like to pick you up on one point though. I think your last sentence is excellent advice but I am a bit sceptical about the affordability gap. I am not in the realms of £600K, thats monopoly money to me, but I can work with percentages.

In Liverpool the average wage is about £22K for men and £12K for women. Roughly £34K joint. On joint you generally get 3x which would be £102K. Cant get much for that believe me! Based on 3.5 x main + 1 x partner it would be £89K. But this buys you BAD houses in BAD areas.

Using simple calculations:
Lets assume a £5K deposit. And use your interest rates which are very favourable. I too believe that IR's will rise.

£102K - £5K deposit = £97K
At interest rate of 4.2% over 25 years this is £528.42 on repayment.
If interest rates went up it would be as follows
5% = £573.53 or +8.5% p.c.m.
6% = £632.33 or +19.6% p.c.m.
7% = £693.63 or +31.2% p.c.m.
8% = £757.23 or +43.2% p.c.m.
9% = £822.93 or +55.7% p.c.m.

I will finish here even though most calculators warn you of a 12% replayment. I don't forsee double figures but it IS possible. You have a good rate there at 4.2% but in 3 years time I think you may get 6 or 7% if you are lucky for your remortgage (so many people have just come off 3 or 5 year deals at 3.2% and are now faced with 6% or more for their repayments! That's a rise in their payments of 33.2%!).

I know that your wages should go up each year but in a recession (which may happen) there are a lot of rises put on hold. I have had this before, so it does happen.

Dont use the interest only arguement and say you can afford it. You should be able to buy your own home!

The point I am making is as follows. The amount of debt we are borrowing , even at the proper system on affordability of 3 x joint, does not allow much room for rises in inflation or interest rates.
If I use 7%(lending rate not BOE rate) as the approximate interest rate in 3 years that would mean my mortgage would go up 31.2%. At the same time based on an optimistic inflation rate of 2%/3%/4% that would mean my wages on Nett pay would jump from £2096 joint to £2290. This means a mortgage repayment UP £165.21 pcm but my inflationary rise is only £194.00 p.c.m. I am £31 in credit!
What about the increases in Gas, Electric, TV, Car/House Insurance, Petrol, Food, Clothing etc. Think I should cover it with £31? I think not.

If the economy continues as it is and we end up in recession and interest rates rise, inflation rises etc anyone with large debt in the SHORT TERM is well and truly buggered!

Buying a house now in the short term is as risky as it has ever been. The Houseprices should have enough slack to allow for inflatory prices in relation to wages - as it stands the gap is huge. Drop (asking prices) by 40%! This level of house inflation is NOT sustainable. There is a bubble and it's gonna blow big time. Not because I want it to, because it's got out of control.

What seems to have happened as the IRs came down post 1992 is that the improved affordability has been converted directly into higher prices. And then the rising prices, initially with good foundation, have developed into a bubble that ran up and peaked in mid-2004 (or 2005 depending on whose figures you believe).

The problem is that unwinding this will be quite painful whatever happens – if IRs go back up then the debt service costs will grow and hurt those people that are already overstretched, and if they stay low, then inflation (and earnings growth) will not erode the debt, so that the repayments will remain a high fraction of earnings for a long time. Both of these effects will make trading up in 2009 or 2010, when the prices are likely to be at their lowest, especially difficult for anyone that is currently overstretched.

quote:

Originally posted by phugoid:
What seems to have happened as the IRs came down post 1992 is that the improved affordability has been converted directly into higher prices. And then the rising prices, initially with good foundation, have developed into a bubble that ran up and peaked in mid-2004 (or 2005 depending on whose figures you believe).

The problem is that unwinding this will be quite painful whatever happens – if IRs go back up then the debt service costs will grow and hurt those people that are already overstretched, and if they stay low, then inflation (and earnings growth) will not erode the debt, so that the repayments will remain a high fraction of earnings for a long time. Both of these effects will make trading up in 2009 or 2010, when the prices are likely to be at their lowest, especially difficult for anyone that is currently overstretched.

Another sensible post. It seems to me that we are facing very worrying times - i.e. next 5 years or so. The problem is - what can we do about it as a country?

The way i see it - we have to raise interest rates to combat inflation. The prosperity of the country has to be the government priority. This does not help new borrowers or recent borrowers but I have to stress that when taking out a mortgage you are advised to work your budget out with a high interest rate in mind.

If there was a house price correction you are in negative equity. Most people can still ride this if they stay in Employment but if they come out of employment there are problems.
Lets say you bought a house for £200,000 between (2002-2005)and it was "price-corrected" to say £150,000. If that persons then loses their job and cannot pay for the house there may be a situation of the bank repossesing that house and not covering their borrowings. The bank could then propose "you still owe is the full amount but we are only charging interest on £150,000 of it?"

Mad idea I know, but it would be in the interest of the banks to allow the person to continue paying for the house rather than repossession as they could actually lose out.

I just think that whilst the bubble was getting air - the banks lent money recklessly on the premise of continuing rises. If they get their fingers burnt - more fool them.

Unless, for starters the EA's were forced to go by a price structure - an independent valuation and they cannot deviate up or down that price more than the rate of inflation in that period.

There is a solution to this I just cant find it.

Anyone else got any ideas?


DONT SHOOT ME DOWN ON THIS - This is a forum, I want to know whether you think its a good idea - not whether it is feasible or not. I believe everything is feasable! I want your suggestions too

Simulcra,

I agree with you completely, what I meant by my last statement with regards to "affordability" was in terms of monthly payments. What I envisage would be that if IR increased and that increase caused a drop in prices, then buyers at any new support price level will be faced with the prospect of increased monthly payments due to the increased cost of debt. As an example, a property costing £100K today, with say an interest rate of 5%, will mean debt servicing of £5K per annum (assuming interest only with no repayment, hence not taking into account overall annum interest due to debt reduction, although this is minor in the first years anyway). If that property were to tank pricewise 20% it would be worth £80K, and if this resultant price drop was due to interest rates driving up to 7%, the debt servicing cost actually increases to £5.6K per annum. I am not making any reference to those who may buy now and get buggered later, that is not the issue I am trying to address here, just a simple "snapshot" in each time of what each buyer of the property will be faced with "affordability" wise - that is, what it will cost him each month.

And this was the crux of the point I was trying to make (basically the same as what phugoid said in his post ). In terms of monthly payments, scenario 2 is worse off. Thereby I would conclude that interest rate increases alone driving down prices is not really going to improve the situation of the market, we need lower prices and low(ish) interest rates to make that happen. I agree with you that the most sensible situation is that house prices should drop significantly(ish, not as much as 40%, because the support price in rental yields is still there in many places at 10 to 20% under current price levels). The state of our economy is such that many factors will contribute to house prices, and those are outside the realm of both BOE and interest rates. Gordon Brown will be eager to find much needed tax ££££ somewhere, and this can only hurt the likes of you and me. Oil is at high levels, with little sign of cooling off, even the speculators will start to believe the hype about high prices being here to stay, thus provoking a self fulfilling prophecy. Unemployment may also cause some serious upsets along the way.

BUT, if BOE decides to try to balance house prices and feels that it could result in significant damage to the economy, they may keep rates low enough for long enough to stop any major snowballing. The natural direction for prices is down, but if rates stay low (which is a big but, since inflationary pressures are real and looming) eventually affordability will return in the form of slowly depreciating property, over a longer term, with a softer, flatter downward price curve.

Myself, I will be interest only, mainly because I am able to make my money earn better for me. I intend to pay off the mortgage before the end of the 5 years, but will continue to have it on mortgage if rates are still low enough to suit me at the time (inflation erodes debt anyway). I will of course have made a loss on the value if it does depreciate (and not recover) in that time frame. From a personal point of view I like the house, like the part of London it is in, properties are not often for sale there and its big enough for my future needs (ok so I wouldn't mind a £2mio house, but when I get to the stage where I can afford that much, I'll be more than happy to trade up, since the seller will probably have lost more making it more affordable to me ha ha ha). So I am prepared to take the risk. The worst that will happen is I will have to live in it for a while

I also think you are spot on with regards to many lenders preferring you to keep the house and instead working out a deal, it may be in the way of an interest rate cut, where possible although to my mind it is doubtful they would link it to perceived current value, since that is not static and undefined until the event passes (i.e. actually selling the property). Or it could be in the way of a longer term debt, even splitting current debt into future debt to be paid off longer term. Obviously some of them are waking up and reducing the ratio in which their stake is in your property, those may not mind taking a repossesion, although having said that in times of heavily falling prices, who would be the buyers of these properties, even at "discounted" prices? They may well have more drops to follow? Sometimes though, it is better to let the bank take the loss with you, if it gets that extreme, and start over. I would think the mental anguish alone would probably not be worth it.

I have a couple of properties that are let, and in them combined I have over 76% equity. I aim for 8% yield, although they currently acheive only 6.5%, which is great for today's rates. I could gear them more, and achieve a better return, but that will reverse on me if rates rise significantly. I think one day, we may return to that magical 8% yield, professional investors will return and it will be a business again: being a landlord has recently become a speculators game, and joe public are dangerous as speculators. It nearly always ends in tears.

Simulcra, on your point about estate agents and price control, I don't think you can really try to control a market in this way, God bless free market forces, and despite the problems they bring with them, they are nearly always more efficient than beauracratic control. In the end the market decides, what something is worth is what a buyer is willing to pay for it, all it takes is for the next man to offer a higher price than you to change the value of something.

In conclusion, anyone who thinks prices can't or won't go down is in denial, it has already started. What the pissing match should be about is how far, and for how long, will they drop... I'm buying for personal reasons (hate living in central london), if I weren't I'd wait. I've taken losses on cars of nearly £25K per annum on depreciation alone, for several years, so I'm no stranger to losing money

Sorry for the long post, but this discussion is interesting and close to home for me (no pun intended) for obvious reasons.