Sunday, Oct 14, 2007
Well, I do declare. This website gets big hearing.
Indie on Sunday: Will house prices fall off a cliff?
Highlights: Mr Davis's prediction for the UK is bleak: a fall of 30 to 40 per cent over the next four to six years. This combination, he believes, could lead to up to a million homes being repossessed. Be warned – the next few years are not going to be pretty.
Posted by financial planner @ 12:35 AM (2659 views) Add Comment
49 Comments
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1. su said...
"The most recent surveys could finally be proof of what homeowners have been dreading and first-time buyers praying for."
But still Jonathan Davis is called a doomsayer. He may be a doomsayer for homeowners, but first-time buyers may prefere terms such as "welcome prophet" or "hope-bringer".
2. taffee said...
Davis is right you know, and the facts are clearly here but only if you fish....the underlying trend is a nightmare....and this will come out in the national figures.
You cannot have a society where new families cannot buy a property, but 24 year olds can amass 30 buy-to-let flats.
Some flats have ALREADY fallen 40%....Some will fall 70-80% and still no-one will want them.
3. David Smith's Sub Prime. . . said...
I agree Taffee, the wriitng is on the wall for high prices...
But I really do hope that there is no bail out. I think in many ways this is one of the reasons why Crash Gordon is so unpopular. He should really have let Northern Rock go under for their financial (incompetence? dishonesty? how to describe it?) behaviour. The issue of account holders is a separate one and they should have been protected, up to a level, but the behaviour of Crash has a really unpleasant smack of attempting to buy the election (then planned) and into the bargain, 'rewarding' munters who max out their credit cards... purely and simply really...
4. new_order said...
"We are the BTLs. Nobody can stand in our way. Our high rise flats will blot out the sun"
Then we shall sell in the shade.
5. denzil said...
I particularly like this bit of spin from the Halifax's spinmeister.
"Martin Ellis, chief economist at the Halifax, says: "The UK economy is in a strong position. Sound market fundamentals, including high levels of employment and a shortage of properties available for sale, will continue to support house prices."
I love the I'm alright jack approach from Ellis. The "sound market fundamentals" have shafted future generations within the UK, created a generation of latch-key kids whose parents both have to work 50 hours a week to afford their boxy little Barrett legoland house. "Sound market fundamentals" for the likes of lenders and their mouthpieces such as Ellis.
On a related point regarding spin. Spin is endemic in every facet of the media within the UK. The rise of spin to its current level was led by Alistair Campbell for Labour who was a master of disguising the lack of direction possessed by the Labour party with spin. One only has to listen to any media program and it is not long before a representive of a company such as the Halifax will fail to answer the interviewers question and simply spin.
Labour are still doing it e.g.
Interviewer: Mr Brown, when do you intend to pull troops out of Iraq?
Brown: Sound market economics and ten years of economic stability ...... Britain, Britain Britain........
And in a related "ranty" kind of manner we now probably have the weakest cabinet in a generation. Whatever the question they have little more to offer than "ten years of economic stability". Even Ed "licks brown's" Balls managed to fit that line in when asked a question about primary schools.
I'll put a few quid on there being a leadership challenge within Labour before Brown ever gets the chance to to remove the crown of illegitimate PM and replace it with the crown worn by an elected PM.
6. Baudot said...
How wonderful to see this excellent website being mentioned in a national newpaper.
.
Mr Davis' observation about the damage that the BoE interest rate cut in Aug2005 is poignant. It made housing a one-way speculative bet for two more years boosting house prices by, lets guess, another 50%.
Now that house prices are again running out of steam what is to stop the BoE pulling the same stunt again ?.
7. taffee said...
75% of our economy is the service sector....we simply make very little....an economic miracle based on debt????
8. whiteknight said...
a run on a bank.
a total seizure of the credit markets
write downs of a "starter for ten" of $5billion by some banks
any halt in price rises whatever
and the Great Depression yet to come
... were also "out of kilter" with the views of other industry observers
9. planning4acrash said...
PROPERTYSNAKE UPDATE: 91,997 and counting :p
10. Tangara said...
"Sound market fundamentals"
sounds early 1929 to me...
11. sirgoogle said...
Planning4aC
Perhaps the webmaster could negicoiate with PROPERTYSNAKE to plot a graph of reductions and a running total on the top of this site.
12. planning4acrash said...
Perhaps, presumably they have a log of their figures. There's a link for the webmaster on the main page. Maybe you should mail them? I'm getting really excited now, I want to move to Bristol and there were a few reduced properties there a few weeks ago and now there are over a hundred for all the post codes I'm interested in. I'm gonna be frugal from now on and save up for a deposit for my dream place, 1-2yrs down the line, can't wait!!
13. Yoss said...
Wow GU51 where there's a very large newly built legoland estate that has £250K flats that give you a great view diretly onto the M3 + other timber framed overpriced executive housing. Has over 100 hits on propertysnake.
Also a guy I worked with was looking to buy a BTL there 2mnth ago (Which I advised him against) told me he backed out of the deal as the developer insisted on furnishing it and would not sell it without sofa's/washing machines etc.
Lucky escape if you ask me!
14. captain sensible said...
Su said "He may be a doomsayer for homeowners". Su, I know plenty of homeowners who are sick and tired of the current property bubble also, whether because they can't afford to trade up or because they are stuck with grown up children who should long ago have flown the nest. Outside of those who make their living from property, I suspect that the numbers who support the current property position are relatively low.
15. Ianbeale said...
FFS propertysnake listings will go up as the database is relatively new - you will have to wait a year at least to gain any meaningful figure from this - and taht assumes that they extract the reductions from a stable source...
16. sirgoogle said...
Planning4aC
done. I'll be very interested in the developing graph itf it can be produced.
17. sold 2 rent 1 said...
P4C,
"1-2yrs down the line"
4-6yrs is more realistic
18. David Smith's Sub Prime. . . said...
P4C:
Very likely soon...
Average salary in Bristol is about £18-20k (I live here and can tell you this from the job cente and evening post and agency details).
I suspect that those even now alleged to be £120-£140k, will be about 30% cheaper by April next year.
3.25 x 20 = £70k mortgage + deposit (say £20k?) = £90k. £120 / 130 (100) = £92,300. That's about it and on very conservative figures.
19. voiceofreason said...
Even David Smith (Economics Editor of the Sunday Times and Uber House Price Bull) has said
quote:
of Mervyn King ... "but these were not the words of a man itching to cut Bank rate."
endquote:
David also says that "The latest survey from Britain’s chartered surveyors suggests that weak housing activity and subdued prices will persist."
20. su said...
You do have a point, Capt Sensible, although most of my friends who are homeowners have bought in recent years so have high mortgages. A drop in house prices would mean their homes are worth less than their mortgages. They are not chuffed by falling property prices and most have gone into denial "It's just a blip. Prices are not really falling - just staying the same" etc.
I suppose most people see what they want to see - until they are forced to face the facts.
21. planning4acrash said...
S2R, not necessarily true. If the crash is like last time the falls are steepest in the first 1-2yrs. After that point price falls are reduced (because interest rates will eventually fall to soften the blow) and a fall of up to say 5% (12k on a 250k property) would be generally in line with what you would be loosing by throwing money away to rent, supposing that you buy a property in 25yrs, you accrue 10k ownership on average for each year. This is rubbish for BTL, but fine if you want a home to call your own. By that time you could probably predict where the market will bottom out and be in a position to get a property at a realistic price, which anticipates the future price bottom, at an auction of failed buy-to-letters, or from a seller who is desperate to get rid of their property and is willing to drastically cut their price, because the current house price is the average and some areas or some individual properties will bottom out way before the average. I bet there'll be some going at less than 3.5x salary in 2yrs time, those will be the ones to grab, but it will take a lot of determination and quick action to grab em. You should know where prices are going if you stick to this blog!
Anybody got any views on this? I'd be interested to hear them.
22. inbreda said...
I agree p4c.
At the moment renting is not dead money as it is cheaper than paying an IO mortgage and maintenance. I believe the crash will be far more severe this time round for a number of reasons regularly discussed on this website, and as a result I think prices will fall VERY fast in the first 2 years before being stagnant (or more likely with a very long period of small falls) when it will still make sense to buy rather than rent.
Largely irrelevant - in two years time if you can't see any evidence of the price falls reducing, you hang on another year. Can't lose.
23. su said...
P4ac. At this point in time I'd tend to go along with you on this. I'm hoping to buy in just under a couple of years (end of school year), assuming the prices are low enough. I do think, like you, that the biggest falls will be early on. But I don't have any evidence for this - just my feminine intuition! :-)
24. planning4acrash said...
SU, the evidence is in the historic house price graphs on this very website, they show a clear pattern.
http://www.housepricecrash.co.uk/graphs-index.php
25. su said...
Thanks P4ac. However, my computer doesn't open up the graphs - just shows a red cross in the corner!
26. david20040_0 said...
But the kind of decline forecast by Mr Davis is what it would take to make a real difference, says Helen Adams at the website First- RungNow. "A price drop of at least 20 per cent would be needed before any critical mass could be gained. And remember that while cheaper property would make houses and flats more affordable to first-time buyers, landlord-investors would also enter the market. I don't think property prices would stay low for very long even if there was a significant price drop."
27. planning4acrash said...
You should also be able to see the graph on the homepage.
28. su said...
Oh, that graph! I did warn you I was a dumb blonde! Now if only I had been an engineer I would have been able to work that out! :-)
29. crash bandicoot said...
David,
A great many of the houses being sold will be distressed "landlord-investors". They are hardly likely to exit the market nursing a loss then jump straight back in with prices still falling. I have not yet seen the edition of "How to be a property developer" where they make money in a falling market.
As for 20% falls, these are already here with all of the folks selling to the buy-to-rent-back brigade. It's only a matter of time before these falls spread to the whole market.
30. david20040_0 said...
Good point though, if prices drop then more ppl who have been priced out will pile in sensing an opportunity to at last buy. I know I would if I could.
31. crash bandicoot said...
Priced out folks are not priced back in until prices fall to (at least) 3.5x their salary. This is the reason why everyone is thinking that this will be a big one. Remeber the US crash is happening in a market that had "only" risen to 4.5x average salary. Here in the UK we are at 8x or 9x depending upon which figures you believe.
32. david20040_0 said...
Yeah but the good ol'US of A has tonnes of available land. We haven't and we are experiencing massive amount of immigration. Land shortage and high immigration will not allow us to xrash as far as the USA.
33. crash bandicoot said...
Did you not see the "money programme" on Friday? We have acres of empty flats just waiting for realistic pricing.
Now I'm confused too is the land in the USA causing the crash or preventing it?
34. whiteknight said...
This is a market based on credit.
It is not as though there are a lot of people waiting to buy for cash just below the current prices.
The financial institutions getting mown over ie. credit crunch, will provide an indication of where the banks are happy to buy in again.
This is likely to be an overshoot on the downside of the normal types of salary multiples lent. The number of people who will be in good enough shape to take advantage of these lower than normal salary multiples will also be much reduced.
35. enuii said...
David, land is irrelevant, it is a red herring, houses in the U.S. are generally built on bigger plots and virtually all are timber frame constuction, whereas we in the UK are quite happy with a house that occupies a built on footprint of 20'x20'. Indeed one developer has a 4-bed detached with downstairs bog near me that is built on a 22' x 23' footprint cos the 2 extra beds are in the roof.
The real problem is income multiples are excessive and that the housing market has been ramped on the back of dual incomes and speculation. It would also be interesting to plot the proliferation of baby farms against the rise of house prices.
36. david20040_0 said...
I fully admit that the crash here has in the main been caused by cheap credit.
However dismissing land as irrelevant is dangerous. The UK is a small crowded island, and with 250k coming in each year more than leave prices will generally not crash as much here due to shortage of land.
Is it me but banks near me are still acting recklessly.
And Petrol has hit 96.9p Seriously how can CPI go down now.
37. crash bandicoot said...
What type of land are we short of? As I mentioned previously there is plently of land occupied by empty new-build flats. There also seems to be plently of land occupied by houses with inflated prices that are not selling. The lack of supply is not a physical dearth of properties, it is an unwillingness in the vendors to accept a realistic (read affordable) price.
38. dohousescrashinthewoods said...
I think you're wrong, David. Immigration is the "Cupid's fart" the Daily TeleMailGraph crowd like to have regular quivering racist feeding frenzies over. Also, given the swathes of Buy-to-Sit empty properties all over the place, shortage is a red herring too.
We are going to have it very hard indeed. When average prices have fallen 20%, you yourself will be saying here, "no one will buy into bricks and mortar, it's dead money". Mark my words.
I remember people in the 80s saying "they told me you can't go wrong with property and now look". When the sheeple get bitten, they will be twice shy. Sure, the pseudo-intelligent set (those who did the dinner-party lambasting) will buy in with great fanfare - and two years later will be denying their losses.
My bet is we in the UK will get absolutely routed in the next few years and sink into a "repayment slump" where no one can afford to prop up the economy because the majority will be toiling under mountains of debt. My current play is holding just enough gold to buy two plane tickets out of here in the event of major national breakdown.
39. little professor said...
HPC.co.uk also got a mention in the Daily Express today,although I can't find the article on the online edition. Again we were referred to as "doom-mongers".
40. voiceofreason said...
David 2090210, when I drive on surfing trips from Southampton to North Devon, Approx 10 of the 150 or so miles are through built up areas.
In no way are we an overcrowded island running out of space.
In fact only 10% of the UK land is built on.
Build on another 10% and we still have 80% of green and pleasant left. And that would double the land bank.
41. planning4acrash said...
David, research from the Royal Town Planning Institute proved that house builders have more than enough land WITH planning permission to meet projected demand but are holding back because they prefer to retain land banks and do not wish to flood the market.
42. enuii said...
Second most popular post on BBC HYS on the subject:-
'Not so long ago houses were affordable on ONE basic income (a mortgage of 3 times the average salary). Now a basic 3-bed detached in middle England costs about £270k. A 90% mortgage equates to FOUR times COMBINED salary of TWO people on £30k EACH. Now husband and wife BOTH have to work for the SAME living standard their parents had.
This has been a carefully engineered scam by the banks and government - the ONLY beneficiaries in this. More interest and more tax! Of course prices must fall!'
43. crash bandicoot said...
Back to the article,
Is Mr Boulger actually able to tell us exactly which areas are going to "rise by10%"? Or is he so used to spouting ramping nonsense that he does it without realising these days?
44. sold 2 rent 1 said...
P4C,
"4-6yrs is more realistic timeframe for HPC"
Read Morgan Kelly's HPC study of HPCs
http://www.ucd.ie/economics/staff/mkelly/papers/housing.pdf
Good quotes
"During the last British housing crash, for example„ while selling prices nationally fell on average by 10 per cent, they fell in East Anglia by 40 per cent."
"Looking at nearly 40 booms and busts in OECD economies since 1970, we find that the size of the initial boom is a strong predictor of the size and duration of the subsequent bust."
"It can be seen that, in contrast to stock or currency markets, falls are prolonged, usually lasting 5 to 7 years, with the Netherlands, Switzerland, and Japan all experiencing more than a decade of falls"
"Were this relationship to hold for Ireland, it would predict a fall in real house prices of around 40 to 60 per cent, over a period of 8 or 9 years."
In summary, the 1992 UK HPC was pretty small by comparison (national average selling prices down only 10%). Only 18 of the 40 HPCs studied made it over the 20% crash limit and into Morgan's "top list". If we were to have a 25-40% HPC in the UK this time then it will last 4-6 years.
Just as generals prepare to fight the last war. Do not prepare to fight the last HPC.
Your 1-2 years HPC is based on what you want to happen rather than stastical evidence
45. planning4acrash said...
House prices in the UK fell from 110k to about 70k between '89 and '95. That's a fall of about 47% in nominal terms (far more in real terms), the article must be referring to how prices fell by an average of 10%/yr (most of that fall in the first two yrs).
However, point taken, the slow and huge rise of this bubble exceeds the last one and, If you are right, I could rent for longer and save up enough to buy outright with cash and no need for a mortgage in about 7yrs time! That would require a different attitude to renting, making sure that the place is like a home, investing in a lick of paint, putting holes in walls for pictures, etc. But I would say that my suggestion that the biggest falls occur at the beginning has to be close to true given that government will lower interest rates when they can to soften the fall, and because as prices fall, credit conditions will begin to ease. BTW, I suggested a 5+yr crash, but the majority of falls at the beginning, with a few further years of 5% ish falls until prices bottom out.
46. sold 2 rent 1 said...
P4C,
Did you read the study?
I presume you took your figures of "110k to about 70k" from HPC home page graph. (a 36% drop, 110 *.36 = 40)
These are real house prices when inflation was high.
The 10% drop was in UK national average selling prices from peak to trough (not 10% a year as you say).
The 1992 HPC was small by comparison.
IRs rocketed which caused the 1-2 year heavy crash
This time IRs will not rocket.
It will be a 1990s Japanese style slump.
Prepare for a different UK and world.
47. planning4acrash said...
No, I didn't read the study, it is long and I've printed it to read on the tube tomorrow morn!
I'm not totally sure that things will be totally different. IR's are just as high relative to the quantity of borrowing, spending on mortgages as a percentage of takehome pay is almost identical to the last crash and I think that inflationary pressures mean that IR's cannot go down enough to generate a Japanese style deflation.
You should read "chaos" by James Gleick, which explores chaos theory in relation to many things, including economic cycles. In Chaos theory, cycles go round and round but each cycle is slightly different to the last, but the fundamental pattern remains, with variables spinning around attractors (in this case, house prices dancing to the tune of fundamentals like wage multiples and cost of mortgages as a proportion of takehome pay, along with the cost of borrowing) This, being a complex system with a number of variables has the potential to follow a pattern that inverts on itself, one time its high borrowing levels, low interest rates, the next time its high interest rates low levels of borrowing. It is likely that the crash after this one will be the latter and that the system will be inverted if long term inflationary pressures remain on the upside. This looks likely and interest rates will probably be above the long term average for much of the next 18yr boom and bust cycle given that global growth is hitting physical limits in terms of agriculture, minerals and oil.
I reckon a bout of stagflation is more likely in the short term, high interest rates, high inflation, house price crash (similar to last time) and low growth for a few years.
But I'll give the article a read and see if it changes my mind!
48. Sold My Soul To The Never Never Never said...
Does it sign the death knell for Property Porn and will the likes of Kirstie and Phil be removed from our screens? Oops sorry - No - it looks like they've got a programme on this Wednesday.
Mind you we seem to be moving into a different era and already have had a couple of programmes on last week with Panorama and the Money Programme that may help to change sentiment and this week on BBC2 at 8pm Thursday 18th October they are running a 3 part series called The Truth about Property looking at the state of the Housing Market. They'll be looking at some of the lengths first time buyers will go to just to get on the ladder. May be one worth setting the video for.
49. Colin said...
A major fall in property values will certainly benefit my 3 early twenties offspring.
I spoke to a local estate agent manager who told me that he had negotiated £500,000 of property price reductions in September alone. He went on to say that we are still in that transitional period wherby people are very unwilling to accept the reality that their old semi-detached is simply not worth £250,000 ! Also he mentioned the absence of 1st time buyers- good for them I say, stay out of buying property until what you borrow can once again be over a 25 year term and allow you the possibility of starting a family before fertility problems begin in your late thirties!
Alan Greenspan predicts a period of high inflation in the coming years-presumably this will mean higher interest rates- if we are to avoid a social disaster for young people in the coming ten years then we really must learn to rejoice at falling property values.
The end result of falling values is that we ALL borrow less from the bankers- this has to be healthy and desirable.