A lot of VI's state that UK must have a 'trigger' to precipitate a HPC

Hence their argument goes – low IR’s, low unemployment etc = no trigger to start HPC

I think the trigger will be as simple as this

Price Reductions change to Price Reality

This will take a few more months because of the time lag on the land registry figures (real house prices)

At the moment Vendors and House builders are offering reductions or ‘deals’

In my area you can get a house ‘worth’ 330K for 300K

“30K off – that’s a good deal, I think I’ll buy today”

It is stimulating some sales, but very soon this will reflect in the land registry figures will show the same house is ‘officially’ worth 300K

A lot of LR figures are still inflated from the momentum of 2004 and people in denial are still ‘reducing’ price based on EA valuation (not always the most accurate)

Very soon, the conversation will go something like this;

EA “Your house is no longer worth £330K”

Vendor “But others in my street sold for £330K, mines just as good”

EA “Check Nethouseprices – that was last April – the market has changed”

Vendor “So you’re saying I have to reduce my price by 30K to get a sale”

EA “No, I’m saying your house is NOW worth 300K – period”

Vendor – blank look – still in denial

EA “Now if you really want to sell in today’s market you will need to offer a deal, shall we say 30K off, I’m sure I can move your house at £270K

I'm currently doing some technical analysis reading. People behave in crowds, and the crowd always looks for a leader. That leader is... PRICE itself. Should be obvious really. When people see prices rising, they become bullish, buyers accept offer prices and this drives all prices up. When they see prices falling the bulls turn bearish, sellers accept bid prices which drives all prices down.

The whole "trigger" theory is a complete myth. Yes, you can have a trigger event, but by the same token you don't NEED a trigger event as PRICE ITSELF becomes the crowd leader. Just as you don't need a trigger to start a bull run, you don't need one to start a bear market - the price mechanism is the most powerful crowd leader there is.

Hey, that’s just what I was saying except your post is more succinct and to the point - damn!

Couldn't agree more. Sentiment is often underestimated as a factor in HP movements. It was a key factor in the boom, it will be a key factor in the bust.

I keep asking the bulls on here what the trigger was that caused house prices in parts of the North (Leeds for example) to triple (Land Registry actual figures for actual properties) between 2002 and 2004.

No-one has been able to offer an explanation yet.

Markets, all markets, are driven by sentiment.

Because prices in the trough were relativly cheap, people started to buy, peopl esaw things were rising so bought more, when people were priced out of places they could afford they bought in cheaper places, cheaper places started to become unaffordable to FTBs, BTLers tookover until BTL is nolonger sensible....

Thats why prices have tripled in some parts of north yorks and the rest of the country. the 2002 onwards rises IMO have been fuled by the rises in cheaper areas, where more expensive areas have stagnated until the cheaper areas were insanely silly prices.

Exactly! The real question should be what causes a change in sentiment? It seems clear to me sentiment has indeed changed, and it will gradually gather momentum.

Answer? When Price Reductions change to Price Reality

Quite right! It is the issue of sentiment that also makes the prospect of a gradual price correction less plausible. Many people suggest a 20-30% price reduction over the next 2 or 3 years. But this seems to ignore the effect of sentiment of people’s behaviour. If the majority of the market BELIEVE (i.e. sentiment) house prices are going to drop by 30% over the nest 2 years, then why on earth will they buy a depreciating asset? Surely the buyer will proceed to purchase it and only of he negotiates 20% off the seller’s price with immediate effect? Thus removing the protracted time lag.

The interesting thing this time round is the internet and ease of access to information.

During the last crash we all know the meda often ignored the months where prices fell and only reported positive data. So the masses where often ill-informed.

Although I expect the crash to last 4-6 years, I don't think anyone can predict what impact the internet will have this time round. I can't imagine finding any press releases inthe early 90's with people openly predicting 20-30% falls, yet its all over the net now (along with the bulls info of course).

Yes, it's ALL pure sentiment. If people think prices are going to fall, sentiment will turn from "you'll make money on property" to "you'll lose money on property". They stay away, which in itself brings the price down, and - bingo - you have a "sell" signal. All self-fulfilling.

In a rising market anyone who wants to move needs to do so quickly, because the longer they wait the more expensive the property will be. Anyway, why not start making a (paper) profit right away? This is also true for investors, who have piled into property, increasing demand and therefore prices.

In a falling market the opposite is true for most buyers: the longer they wait the cheaper the asset will be for FTBers, and the less differential those trading up will have to find. All the sensible contributors to this site seem to acknowledge that FTBers are in very short supply, and you would expect the combination of these two things to lead to stagnation in the market, which in fact we are now seeing.

The bulls seem to me to be largely at the stage where they still claim to be getting decent returns on their investment and are not fazed by the prospect of negative equity, but if falls go on long enough common sense would suggest that some at least will, in a reversal of the trend in a rising market, pile out as prices fall, increasing supply and therefore encouraging prices to fall further.

If I had had access to non VI information and a site like HPC had existed back in 1988

And IF I had sold my properties in 1988 rather than 1990-91 - It would have saved me a paper loss of approx 500K

(I stress IF because I was a lot younger and probably more stupid so I may have continued holding property regardless)

PS 500K was considered quite a lot of money back in 88'

Van

I disagree that it's ALL sentiment.

I do agree that is the most important factor, and that there is no need for an obvious "trigger" either from a bull run or decline.

HOWEVER, I think that the DEGREE/DURATION of any bull run or decline is down to a mixture of sentiment and "fundamentals". The bull run on property was sustained for so long because bullish sentiment was accompanied by and to a degree fed on favourable fundamentals (notably low IRs and unemployment).

Equally, we now have a sentiment-led decline, that will largely feed on itself as you suggest, but will also in my view be supported by less favourable fundamentals (higher IRs, dip in the wider economy). If those fundamentals deteriorate substantially then the decline will be more fierce.

As my dearmum always says...
"IF your aunt had balls she'd be you uncle!"

I do wonder what effect having more access to info will mean this time around , because if they tried to spin it last time by only reporting rises and it still crashed, what if people can be told "the truth".

I don't think anyone will see a trigger coming,


Its easy to look back afterwards and see it, but not when its happening or coming


The trigger could have already happened we just have ignored/discounted it


Kam

Good point

This time round it could even the result of 'triggers' - several events combined

The last HPC the trigger was the interest rate rises or at least that seemed the obvious trigger

The IR more or less doubled, however from memory most of the people that I knew that were repo'd were already in trouble way before the IR's hit 15%

The trigger for them was quite simple - they simply paid too much for a home

it started last year after the interest rate rises

theres your trigger its friggin obvious

I agree it seems obvious, only thing that I find strange is can can a poxy 1.25% IR rise F**k up 3 trillion worth of property

IR's are still low - surely people can't be that indebted that they can't a handle 1.25% rise - can they?

3.5% to 4.75% is an increase of 35.7% thats a bit of a jump

It may well be only 1.25% but that represents a 35.7% increase and as the majority of BTLers, FTBs and self certers thought rates would stay at 3.5% or even lower forever theres your answer.

I hear what you are saying, but I still struggle with the idea that these people really thought IR's would stay 3.5% forever

Surely they must have heard about Bin Laden and 9/11?

You don't need to be an economist to understand that the sudden lowering of IR after 9/11 was in response to an extraordinary event and was in effect a temporary measure

From memory it was reported that way in the media, even the Sun and the Mail carried stories to that effect

Sorry Crash but when I talk about the next rate increase here at work most people still think I'm nuts. They don't think there would ever another HPC because "the government or BOE will bail them out".

It's a bit the masses that hung around on the Titanic until it was too late - "it's never going down, you know".

There my good friends you have it imo.

LOL (tho not at the deaths onboard)

I think you hit the nail on the head there, Thoses in steerage (economy seats) where told everything will be fine, meanwhile all the upper class were bailed out into the lifeboats. leaving the poorest to drown.....


any relation too the housing market do you think


Kam

Could someone please tell me what VI stands for?? Many thanks.

Didn't know that one myself until joining this forum

VI = Vested Interest

In the context of this forum anybody with a vested interest in the property market

Lenders/property developers etc,

Too close to home unfortunately.

My parents divorced when I was young but I've done ok and have a good job with a very good wage. I spoke to my father last night (we only speak every few months) who bought his council house 5 years ago for £25k'ish. It's now worth £148K based on a recent valuation, I don't know if he's MEW'd or borrowed on the house but I know he's in debt and he was horrifed when I said he should start planning as IR's are due to go up soon and the housing market is looking unstable.

Of course people did not believe they were going to stay at 3.5% forever.

When the MPC lowered the rate to 3.5% in June or July 2003, the word on the block was that rates were on the way down to Euro level 2%.
In some cases this was pushed by the VIs and prices then went up to ridiculous levels. You can fool a vast majority of the great British Public all of the time until the ship sinks

When IRs started to rise would be buyers realised that prices would stop rising; infact they might well start to fall. Therefore they stopped rushing into the market. Now they are waiting for it to "really" fall. That is why the market is falling; there are very few buyers. That is the real impact that rising IRs has had on the market. As you say, they have o nly gone up by 1.25% so at the moment it is not indebtedness that is causing the slowdown.............

Quite agree. It's buyers saying, "We're not playing any more". But just imagine if prices fell enough to hurt MEWers, and what effect that would have on domestic consumption. Factor in rising unemployment and that's when there will be real falls.

Just imagined it - and the senario would be bad news for UK economy

Last HPC, MEW'ing wasn't very significant

It was generally the 'steerage class' that got burnt

Wonder how many Upper Class might go down with the ship this time thanks to excessive MEW'ing?

Debt is the trigger.

And has often been quoted of Mervyn King-

House Prices are a matter of opinion. Debt is Real!

When you sit back and think about this it is so sublime a realisation.

Some people are going to be hung, drawn and quartered.

Poor sods have fallen for house prices Hook Line and Sinker.

God help them. The greedy ones, however, need a rude awakening.

This stage is set. Let's get on with it with due patience.

The trigger is that people are indebted up to the eyeballs now and Labour have been constantly squeezing people for more tax in a low wage inflation environment. Nearly 1 public sector worker for every 4 in the private sector now, an extra 1 million since Labour came into office all paid for by increase in taxes. The increase in taxes works the same way as the increase in IRs. Debt burdon is at a maximum level that with the perception that property prices are set to fall will trigger the crash. Private sector unemployment is very likely to increase now

A chief economist recently told a meeting at the World Economic Forum that the US was headed for a property bubble.

The cause, he said, was people's use of their houses as "massive ATM machines".

Chortle!

At least Tony has capped Council Tax rises to less than 5% this year

My council taxes have risen annually a lot more than 5% over the last 5 years

Then suddenly they are capped

Call me a cynic, but I can't help thinking its got something to do with a forthcoming general election

Especially when you've got a mortgage of 5,6,7 or 8 times your income.

Average house prices to earnings in the USA are only 3.5 compared to over 6 here so unlikely. However there are regions, i.e. California that are much higher and are in a property bubble so property bubbles in the US are localised unlike the UK where all regions are in a property bubble.

EAs, Chartered Surveyors, conveyancers, journos with BTLs, BTLers, double glazers, mortgage advisers (sic!), financial advisers (sic twice!!), retailers, leisure companies, pubs, restaurants, travel companies, airlines...ANYONE RELATED TO THE CONSUMER! MY GOD, WE'RE DOOMED. DOOMED, I TELL YE! That'll be all Fraser!

Makes you think - eh!

actually FP - it would have been far quicker to list those that DON'T have a VI

Don't forget that they build houses in the US... unlike here
Supply and Demand.

Well this could be the trigger for both barrels.

INTEREST RATE CONCERNS

Britons are increasingly concerned about the prospect of interest rate rises, according to the latest research.

A survey by Bradford and Bingley found that 69% had concerns about rate hikes, while 32% of mortgage holders would be worried if their monthly payments went up by £50.


Around 22% would be concerned if rates rose by up to 0.5% and a further one in five would be concerned if they climbed by 1%.

Only 30% said they were unconcerned about rises, compared to October 2003 when rates stood at 3.5% and 51% of people had no worries.

Taking a typical £120,000 mortgage from October 2003 when base rate stood at 3.5%, borrowers on a variable rate will have seen their monthly payments rise by an extra £85.

If the Bank of England were to announce a further rise of a 0.25% from the current 4.75% on Thursday, these borrowers will have seen their repayments rise by over £100 per month.

That represents a a 17% hike since October 2003.

"Many homeowners are clearly reeling from five rises in base rate since November 2003," said B&B's Duncan Pownall.

"They are becoming increasingly concerned about the prospect of further hikes.

Many borrowers, particularly those on variable rates, are understandably anxious about further hikes in interest rates.

£50 per month - where's the big deal - don't tell me all the people that got plasma's, 4X4's and went to the Maldives are suddenly worried about £50

This defies logic

PS At least some of these people won't be going to Maldives this year - call me selfish, but I've been going there for 20 years - Last year the island we went to was full of Chav's AND I'm not joking!

It doesn't say what % would be ****-a-hoop about interest rises.They can't have asked any HPCers.