Sunday, Nov 18, 2007
Listen to the experts
Mirror: So are house prices set to crash?
"LOUISA, 33, has made millions knowing when to buy and sell property. With Kirstie Allsopp she presents Inside Property on London Tonight on Mondays at 6pm. She says: I WILL stake my house on the fact there will not be a property crash like the one in the late 1990s. The economic situation is completely different. When I bought my first property then, interest rates were 11 per cent as opposed to 5.75 per cent today. There was high unemployment and we didn’t have the Financial Services Authority – a buffer between lenders and the Bank of England. They are acting as underwriters in the Northern Rock fiasco, making money there safer than ever. We didn’t have that sort of security in the 1990s." Ah ahha ahhah ahahha
Posted by confused76 @ 09:43 AM (2984 views) Add Comment
41 Comments
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1. Bloo Loo said...
Shes so dead- made millions since 1990- just think of all thos mortgages shes got to pay
2. paul said...
And the gaping goatse hole in this argument?
All of the property "experts" they've asked are property investors. The age old mistake of asking hairdressers if demand for haircuts will go up next year. Mirror readers must be daft. Oh hang on ...
3. Mjs9691 said...
I didn't realise there was a crash in the late 1990's! Some expert she is. Ha ha
4. techieman said...
Phew so they are all right (and David) and we are all wrong / Doomsayers etc. Shes right - there wont be a property crash like the one in the late 1990s it will be one a whole lot worse!!!
5. Superruss said...
RANT:
Yes. Beautifully balanced set of opinions mate.
To be fair, I'm surprised The Mirror actually managed to string enough words together to form what seemed to be "an article" on anything whatsoever.
But thank you for your damaging views. I've changed my opinion on the strength of your obvious article and im just off to the local estate agent to tell some guy I want to buy a house and make him fall off his chair.
MUHAHAHAHAH.
YOU FOOLS! It's over. Its all over. The start of it being over was a couple of months ago, and the end of it being over in this cycle wont be for years.
END RANT.
6. Si said...
The last property crash was not in the late 90s. Prices had bottomed by 95 & 96 and were edging upwards from 1997 onwards.
Also, these 'experts' have spent the most part of their adult lives in a property bull run, many know nothing other than rising prices.
7. Nickolarge said...
She's right about one thing.......... It's different this time!
8. little professor said...
Don't click on the link to Sarah beeny's dating website - it's mispelled and links to a porn site.
Anyway:
Sarah Beeny: "I think prices will level off or fall slightly. No-one knows by how much. It could be 2.5 per cent, it could be 6 per cent.
If you want to buy a home and it’s the right time in your life then this is as good a time as any."
Melissa Porter, co-founder of her own property company Porter and Smurfit and will present Britain’s Dream Homes:" I THINK the spate of interest rate rises and the credit crunch has caused a lot of nervousness in the market. The effect will be fewer people wanting to buy, so you can’t be so aggressive if you are selling. Supply may well outstrip demand, making it a buyer’s rather than a seller’s market. But I don’t believe there will be a crash because interest rates are still low, the economy is strong and employment is high. And the market will remain robust in areas where people are moving for work, such as London and the South-East"
Kristian Digby presents To Buy or Not To Buy: "I KNOW we keep reading there is going to be a crash… but I don’t think there will be. What we are experiencing is the slowing-down of an over-inflated market. The old adage – don’t wait to buy property, buy property and wait – still holds true. Forgotten areas such as Stratford in East London – where the Olympics will be – will do well, as will Birmingham and Manchester."
Rosie Millard: "I don’t see the market crashing although I do think, and there is evidence it is already happening in some places, that prices may fall slightly.My tips for where to buy are Slough or Windsor in Berkshire because of the new Terminal Five at Heathrow, or East London because of the Olympics."
Andrew Winter presents Channel 4’s Selling Houses: "I NEVER know what people mean when they talk about a property crash. The worst “crash” I have ever witnessed was around 25 per cent. If a crash is defined as a dramatic nationwide price drop of that size then the answer is NO, I don’t think there will be one."
9. Sold My Soul To The Never Never Never said...
Louisa aged 33 talks a load of bull****! She talks about a property price crash in the late 1990's - it happened in the late1980's and judging from her age she was 15 at the last property crash - too young to get a mortgage! She probably bought in 1992 at the age of 18 when up to 30% had been wiped off valuations in London - I should know I'd lived there. I also don't remember unemployment being a problem in London in those days - as I've said before - the catalyst was Nigel Lawson and his dual Miras Tax Relief - the mad rush to get on the property ladder in August 1988. She most likely bought after Black Wednesday judging from her interest rate - just wait until the credit crunch takes shape. Anyway I don't believe the problem is the interest rate - it is the massive amount of debt taken on.- How on earth are you supposed to get rid of the debt at the same time as paying all that interest?
10. confused76 said...
New terminal 5 and new runway at Heathrow are good reasons to sell
11. confused76 said...
Olympics... what a glut of cheap flats after the games are over
12. confused76 said...
talking about porn, do not miss this article
http://business.timesonline.co.uk/tol/business/money/property_and_mortgages/article2883542.ece
13. Sp@cemonkey said...
Sarah Beeny " … I think lenders have been extremely irresponsible in recent years and it’s cruel to lend to someone who can barely pay the interest on their loan."
Both parties (lender and borrower) have been "irresponsible". It's not cruel at all, it's business.
Now they pay a price for their contribution to the deceit : job losses (in Banking) and repossessions. I have little sympathy for those who chose to live beyond their means, or others who saw 'investing in property' an easy route to riches.
At least Kristian Digby uttered some sense " It’s lunacy to borrow six times your salary and put your home and family at risk. If you have to borrow that much then you can’t really afford it. " I couldn't agree more. Trouble is, parasite developers and their mug BTL clients have skewed the market for normal folk.
14. Dancer7 said...
When it comes to crystal ball gazing all points of view are equal. A slowdown...already here! A crash...I would not take bets either way!
15. dohousescrashinthewoods said...
Pass the salt, will you? Kirsty's about to start eating that hat.
16. dohousescrashinthewoods said...
Come to think of it, we could bake a kirsty's-hat-shaped cake for our party at the Land-registry - then we can all have a piece of it.
17. Scunnered said...
Oh no! One of their experts is Rosie Millard.
"ROSIE, 39, is a canny buy-to-let investor with three properties in London and a Paris apartment, who writes on money and property matters. She says: THE trouble with Britain is we have a land shortage for housing, very strict planning regulations about where we can build and a lot of people who want to live here."
Grrrrrr....
18. Jj said...
So Louisa has made millions , well then why on earth is she still working on a TV show ? I think realistically she has a portfolio worth millions of which its value could soon be wiped out.
19. Bleakhouse said...
Fair do's now, she's putting her money where her mouth is. Poor girl, well, not yet, but she soon will be!
20. shipbuilder said...
Every single one of these idiots says the same thing - we've had ridiculous rises, property is unaffordable for the average person, but don't worry, rises will just slow to 2-3% per year. How exactly is that going to work if prices are unaffordable now?
If they at least tried to argue that there wasn't actually a bubble they might have some credibility.
21. Faustus. . . . said...
In a nutshell and taken as a "snapshot" of the current situation this article is probably as a good a précis as you'll likely find. Under the current conditions the housing market is likely to stagnate (Nationwide) or possibly fall slightly (Capitol Economics) over the next 12-18 months. However what NOBODY really knows is whether the economic situation is likely to get worse before it gets better, if it does then case greater falls are possible maybe even attaining the dubious status of a "crash" whatever that actually means when pertaining to the property market. Remember that nominal falls greater than 4-5% in one year are highly improbable, in the past large falls in house prices have typically been in "real" terms (ie. taking inflation into account) and not "nominal" (solely the face value) during times of high inflation and nobody is currently expecting even CPI inflation to reach 8+% as occurred in the dark 70's era of stagflation and consequently large (>6%) "real" yearly falls are probably not to be expected. Therefore this would require a prolonged period of stagnation (up to 10 years for 20+ falls in "real" value for inflation in the MPC target of 2%), which I cannot see occurring since it is likely the current credit crunch will largely be over in 18 months (remembering that truly worst case scenarios very rarely occur, ie. there will be no complete dollar collapse since that is in nobodys interest, not the Chinese and not the oil states - a fix or more accurately "fudge" will somehow be constructed in a classic "realpolitik" sense). If at that point the UK economy is underperforming then the MPC will slash interest rates right down which will give buy-to-letters and brave (or possibly foolish) first-time buyers another opportunity to reinflate the property market. The point is that the next 18 months are tough then the MPC will likely slash interest rates down by 0.5-0.75% anyway even if inflation above the RPI target 2% since it can justify this by tailoring its "predictions" as to where inflation is going a la what Brown's been doing with public borrowing as according his so-called "Golden Rule" for the last several years and such action will likely limit any putative falls in the housing market which everyone knows is the "true" underpinning of the UK economy. Remember all politicians are cynicism personified; "realpolitik" wins out on principle every time and the one notable recent occasion it didn't with Mervyn King's principled stand to avoid bailing out the banks in the early stages of the credit crunch to avoid "moral hazard" he almost immediately got sand-bagged by the Chancellor and his puppet-master, the PM (Mr. King is a banker, Mr. "Marionette" Darling and Mr. Brown are politicians and there's the rub). It is a depressing situation in many ways since houses are quite clearly overpriced for a large percentage of the population (including myself) but the stakes have become so high that the Government will quite clearly do anything, including compromising the so-called independence of the MPC, to avoid large nominal falls since that would be instant electorial suicide. So be wary of expecting too much from the ongoing credit crunch since as with so much of life it may deliver less than you hoped, although on the other hand you can perhaps console yourself with the old adage: 'be careful what you wish for... it may happen' since in this case an "economic collapse" would almost certainly put alot of the people who read this site out of a job and try saving for a deposit or paying a mortgage under those circumstances.
I have been a reader of the Eocnomist for several years now and it is interesting to note how the claws of its bearish tone regarding the elevated price of property have been dulled over the years having reached a crescendo in 2005. I suspect that it like myself has reached a pessimistic conclusion that no matter what the short term outlook over the medium to long term UK property ownership is gradually transferring from being accessible to the general population to being solely accessible to an "elite" comprising either monied property investors (BTL'ers) or those whose parents can assist in climbing onto the ladder (ie. the children of property investors!). A big deal is currently being made in Moneyweek and some other publications that some BTL'ers are clearly naive fools who will end up going bust and their property repossessed, all true no doubt but more likely than not that property will likely then be subsequently acquired "on the cheap" at auction by 'vulture investors', ie. other BTL'ers with better business models and more money, and if it isn't it is likely because it is in one of those soulless city centre apartment developments than no sane individual (renter or FTB'er) would want to live. That this transfer of housing wealth, from poor to rich / young to old, has occurred under the stewardship of a so-called "Labour" government is a national scandal and perhaps in the long-term will exceed all the other scandals this tawdry Government has perpetrated over the past decade. It is clear at this stage that the solutions proposed by the Brown Government will prove to be a farce since the proposed 3 million new homes by 2020 will be nowhere near sufficient taking in account the current levels of immigration and will likely never come to pass in any case due to draconian planning regulations and plain old fashioned NIMBY-ism. Furthermore Labour will not have the political courage to eliminate the tax-breaks afforded to BTL'ers (since that might precipitate a "sell-off"), nor strengthen the rights of tenants (currently if you ask your Landlord/lady to repair your rented property your rent can arbitarily be increased or you can even be evicted without any recourse to appeal) in a fashion that would emulate the German model where a majority of the population are content to rent since their tenancy rights are so potent. It is a desperate situation and sadly it is only likely to get worse with perhaps a minor 'blip' (perhaps at most a 3-5% "real" fall) in the next 12-18 months and to which I can only say through gritted teeth, "thank you Mr. Blair and Mr. Brown".
22. shipbuilder said...
Never ever listen to anyone who is a self-confessed 'expert' but with no qualifications to back it up. How are these people allowed to get away with offering what is essentially financial advice?
I was listening to an accounting firm's chief economist in Northern Ireland the other day on the radio - he made all the usual cooing noises about a soft landing etc. but backed it up with some astounding logic - after saying that NI house prices had risen by about 150% in the last few years, in the very next sentence when asked about first time buyers, he argued that with HPI slowing to 1-2% and wages catching up, prices would be affordable again in 'a couple of years'.
Is it just me that gets worried when a chief economist of an accounting firm seems unable to do basic maths? - he's meant to be one of the real experts.
23. Neilrich said...
Check the age of all these so called experts!!! Four of the six experts are under the age of 38 and have no experience of a bear market...what do they know? They all have a vested interest and like so many property experts don't appreciate the bigger picture...it's the economy stupid!!!!! I'd love to hear their opinions on such things a the UK trade deficit, the budget deficit etc.
24. Jimster said...
before the last crash there wasnt hours and hours of tv programmes dedicated to buying, reovating and selling houses, there wasnt the constant pressure to own your own home and not rent because its dead money,
I think the culture of having material goods has pressurised people into large debts which, due to repayments will eventually if not already reduce consumer spending leading to unemployment and even less consumer spending and a recession. My basic grasp of economics was that everything happens in cycles, and the cycle is just about to fal of a big cliff and crash if it doesnt i will personally eat Kirsty whole with a side of Sarah beenys knowing look
25. vfr said...
you know when you're getting (long in the tooth) when the policeman start looking younger.
experts! when was the last severe economic turndown started (1989) . upturn started 1995 = not difficult to make money.
sarah beeney 34 (15) ha TV VI hahahah
Melissa porter 34 (15) ha TV VI hahahah
Kristian Digby 28 (what shall I say dad? 11)- ha ha - comes from a family of property developers sorry I meant hahahahahah aha
Rosie Millard -nuff said
Andrew Winter 42 - a trained estate agent no less - so what are you doing in Australia... HE knows!
Louisa Fletcher 33 (14) haha
Of course they have to please thier audience..........
26. denzil said...
The fact that economic conditions at present and in the near future look relatively benign is the reason I don't believe a crash will be deep and prolonged. 10% nationally over the next 14 months.
It's going to take more of a trigger to cause a deep crash greater than 30% which is what most HPC'ers believe in. There is just too much demand for rental property and not enough pressure for forced sales. BTW before people on here jump down my throat for not following the status quo and being a non-believer I would not be upset to see a crash but sadly I can't see much more than -10% nationally by close 08 followed by little falls and rises for at least half a dozen years.
27. enuii said...
Economic conditions are currently propped up by borrowed money and government spending, how long are the effects of this going to last?
28. Quiet Guy said...
@denzil
You are not the only one who does not believe in a rapid crash. I expect a prolonged slide of about 5% to 10% per annum for the next decade starting late 2008 and eventually knocking off about 40% to 50% of average house value. Unfortunately, this slide will be accompanied by a lot of economic pain as we learn to live within our means again.
I don't understand why you think it will all be over in 14 months. We will still be seeing people come of fixed rate mortgages by then. The simple fact is that we are up to our neck in debt and have a choice - repayment or hyperinflation.
29. Terry said...
I have always believed in the cyclical nature of house prices, and over the past five years or so found it disturbing that that the gains in house prices was fuelling a consumer boom, that fed back to create even more upward pressure on house prices. In my opinion this could not continue indefinitely and must lead to a crash.
Having just Fred Harrison’s 2010 Depression book, I found it interesting that someone had researched this in some depth and could explain in economic (and common sense) terms exactly why this would cause a crash.
One of the main conclusions of Harrison's arguments was that rising house price was the cause of the boom effect on the economy, rather than the common view of it being the other way around (and the grounds why these so called experts think that a crash will not occur).
I believe he has got it right and think it is very likely that the severe reduction in people's disposable income will lead to the economy taking a severe downturn, which will then be trigger for the crash. No doubt we shall soon see.
30. Marvin said...
@ denzil you may well be right, but on current form 10% by end of 08 is colossal. I have noticed a slight change of sentiment recently, it feels as if we are in a Mexican stand off. In that loads of properties (around me in West Cornwall) are coming on the market, possibly sensing its peak. But current owners seem to believe that the intrisic value is copper bottomed, I reckon that when the first to blink - sell, everyone else will chase the market down. I would far rather take a 10% hit and get rid, than have the uncertainty (+mortgage repayments) and 10%+ at some time in the future. I wouldn't (won't) go anywhere near property next year. False optimism today will have become despair by then.
Life don't talk to me about life
31. techieman said...
Faustus. . . . its a well argued point you make (well actually number of points) but essentially you are basing your premise on past performance. All past performance has been based on corrections to a Major upward trend. This was true of the late 80s/ early 90s correction - it wasnt a crash - and also of 2005. The fact is you can't break the economic cycle, throughout this upmove there has been false dawns but the continual relaxation of credit and re-flation has caused house prices to spike. At SOME point in time this must be deflated and the debt destroyed. Whether that is now and how it will be achieved are the only points worth considering. IF its not now then things will only be worse eventually. I think you are right this destruction wouldnt be in a vaccum and would be associated with very austere times, but that doesnt detract from the argument. As regards electoral suicide thats a bit naive i mean if that were the case we would, for example never have been forced out of the EU. By that i mean the government cannot - in the long run - thwart market forces. I do take the point that out of the two - reflate or recession / depression there is only one choice for Governments to make BUT they CANNOT do this adinfinitum, the view of most people on this site is the time when the music stops is upon us, and we are either at the begining of or about to enter the K-Winter..
Its not really a question of wishing for that - its just the reality of the situation. Clearly you have a different view - which you have put. This is fine and of course - speaking for myself - I am not dogmatic enough to say that you are wrong and I am right. Its good to see someone take another side and support their argument with a coherent view, Thanks.
32. the northerner living in oz said...
.
Is there a clear definition of crash in percentage terms ?
.
33. New User 2007 said...
Some interesting ponts have been made by Faustus, and they are certainly a possibility, although increasingly I think an optimistic one. Here are some views on those points. I hope they prove of help.
A prolonged period of stagnation is the fear and a very real scenario. Inflation helped to reduce the real value of debt in the past. If high inflation is gone then debt remains difficult to cut. We are already at the same level of debt payments i.e. 6% on £300,000 is the same as 15% on £100,000 (1990) but the optimists assume that we are not going to go through any turbulence ever again (volatile inflation, inflation, unemployment) so everyone with this debt will be able to repay without problems. So if we have low inflation forever, we are in trouble for the long run in terms of debt payments taking much of the take home pay of everyone who has entered the housing market since 2004 and far into the future. The credit problem and here have just started according to virtually every bank in the Western world. Not to mention that people here on cheap fixed rate deals will still be coming off them until the end of next year. This to me means we will have problems well into end 2009.
A prolonged period of stagnation is the fear and a very real scenario. Inflation helped to reduce the real value of debt in the past. If high inflation is gone then debt remains difficult to cut. We are already at the same level of debt payments i.e. 6% on £300,000 is the same as 15% on £100,000 (1990) but the optimists assume that we are not going to go through any turbulence ever again (volatile inflation, inflation, unemployment) so everyone with this debt will be able to repay without problems. So if we have low inflation forever, we are in trouble for the long run in terms of debt payments taking much of the take home pay of everyone who has entered the housing market since 2004 and far into the future. The credit problem and here have just started according to virtually every bank in the Western world. Not to mention that people here on cheap fixed rate deals will still be coming off them until the end of next year. This to me means we will have problems well into end 2009.
Worst case scenarios occur all the time. In fact, whenever asset prices have gone too far in one direction they have undershot on the other side. Turning this argument on its head…best case scenarios (as defined by vested interests) would also “very rarely occur” but they seem to have done so. China is beginning to cut its US dollar holdings and if the dollar comes under pressure there will be imported inflation and the need for higher US rates, which sets the world rate ultimately. The US is becoming less important to Asia for trade (The EU is now a bigger market, so to them the Euro is becoming more important.)
The US presidential elections are taking place very soon, and their president has huge amounts of power and their central bank has less independence BUT look at that housing market. Markets can only be stretched so far by distorting forces. We have never had this level or ratio of debt. It is also higher than any other OECD economy, so not sure where new sources of housing demand and economic activity will come from.
Not sure what the new business model will be. If there is even just zero capital growth and rent is lower than interest payments (I think the effective mortgage will remain at least 5.5%% for at least 3 years because of my inflation view) then you are losing money. Even cross-subsidising i.e. using equity and rent in one property to cover new purchases makes no sense unless the person is quite dim.
What if economic growth was to fall below trend for a couple of years and employment growth decelerated? Immigration could ease or even reverse (why wait around in a place where the cost of living is high i.e. the UK, when you could travel back to Eastern Europe with what pounds have been saved here?)…many of the economic migrants are in the South east. The only X factor here is whether the current rush of immigrants is permanent or economic (I think it is the latter). The Britons who have gone abroad, on the other hand, are less likely to come home as they have greater purchasing power overseas than here, and have largely left permanently. The rental market could suffer in a scenario I consider very possible (and so therefore buy to let investors (BLT). If there are some 1mn buy-to-let mortgages and hundreds of thousands of properties empty on top of this, the so-called housing supply shortage facing those who actually want to live in them disappears significantly. There are 26m properties....one for every 2.4 people. I assume some couples still live together, kids still need parents and most immigrants live 4 to a house i.e. there is no shortage even now. The argument that it is about location would only work if prices had not risen everywhere.
34. New User 2007 said...
In addition...
In terms of unemployment, I assume that we will in no way be affected by the US downturn (even though we so clearly benefited from its upturn). We have been creating low paid jobs for people who cannot afford to buy anyway. Repossessions are occurring despite low unemployment…it was just a year ago when I read so many times that repossessions require a rise in unemployment…repossessions are up with no sign (yet) of higher unemployment.
Support from too many people in the country relative to land/housing?... Japan had lower unemployment and interest rates AND twice the population density and lots of people being added to its population in the late 1980s to the mid-1990s... that did not stop prices falling by a lot from 1990-2005.
35. New User 2007 said...
General comment about extremes not possible and that such a thought is scare mongering/unlikely. The last time house prices in the US fell ACROSS the country was the depression. It is happening again there now.
36. Stevie Dee said...
I have recently moved to Nottingham here my first landlord who incidently lied everytime he moved his lips, told me about his great fortue i terms of property portfolio. I told him and his BTL buddies that may possibly be a major downturn, they all laughed at me. Telling me how loaded they were. I said to this landlord, he reminds me of Warren Buffet ( well i was taking the p@ss really) and he really apprciated the compliment, he explained that he was buying property with a view to a 20% correction, sop the question is what happens when the correction is 30%?
It's 1929 all over again, but the "junk bonds" will be replaced by "junk property" stock, when the market finally clears, don't be surprised if BTL is outlawed by a future government, remember this legislation for BTL was only made possible since 1997.
My feelings, don't care what others think, but something will have to be done in future years after the major correction to make sure that this sorry episode is not repeated again.
37. the northerner living in oz said...
The U.S
I watched documentary on the sub prime mortgage crisis in the U.S
A few weeks ago it is frightening rate of foreclosures level of criminal behaviour
Of the mortgage brokers.
One the Quotes
“ we are in the first quarter of four part game “
So it probably get progressively worse in the U.S for the next
18 months or so.
The U.K
There is the potential for house prices to be a 50% lower in five years time
Changes in Capital gains tax,
** THIS IS THE MOST BLATANT HAND OUT OF MONEY TO THE IDEL RICH BTL PARASITES I HAVE EVER SEEN **
Changes in Inheritance Tax.
Immigration lower Interest rates (***lower value pound***)
May reduce this downside risk to about 20% in five years time.
200,000 down to 160,000.
The owners of buy to let will have to use cash reserves to ride out the housing recession
They will not be able to increase rents they are already as high as the market will stand.
So any overseas investor whom lives in say Japan will be able to purchase
A house in the U.K for 50% of today’s prices.
This will prevent further falls in prices.
38. Richard said...
Most BTL'ers dont have cash reserves - they plow their money into the next property.
A note to those who think the crash wont happen because of the relatively low interest rates and the fact that the unemployment rate is so low. These are two more myths - just like the lack of supply arguement - that just dont stack up.
Interest rates do not need to be as high as last time (11%) due to the how the economy now works, we use debt (credit) to feed the economy, the lowest level of which is the retail sector and therefore will be the first thing to slowdown. The credit crunch is a welcome relief - reducing the amount we can borrow thus preventing a bigger recession in the future (although this one will be pretty bad thanks to the "prop up the housing mentality" of the Labour government. We only have access to so much credit and our economy has used it all up. Banks are LOWERING our credit card limits as we speak. AFTER Christmas tills will be empty as people finally have to face reality. Only one country has more personal debt than the UK (Ireland) and they will suffer the same fate.
1000s of people each day realise that their fixed rate mortgages have reached the end of fixed period and that they cannot remortage since they can no longer meet the payments since subprime type mortgages are no longer available.
Retail slowdown = job losses and the beginning of the recession. Although Labour will reduce interest rates to further prolong the misery.
I often hear "There wont be a housing crash cos theres no recession" ... WRONG Recession always FOLLOWS a housing price crash.
This will not be a quick correction ........ but a slow unwinding of overleveraged individuals hitting a brick wall. NOBODY wants to buy into a falling market - not even international investors and we are several years from the bottom.
April will be interesting - since that is when the CGT rate falls and when 1000s of BTL investors will put their portfolio's up for sale (but who will buy! - nobody) ...... from there onward it will be carnage.
WAKE UP.
39. denzil said...
Quiet guy said:
>>I don't understand why you think it will all be over in 14 months. We will still be seeing people come of fixed rate mortgages by then.
People are coming of fixed rates all the time so it's a bit of an urban hpc myth that a big day will come when all fixed rate mortgages come up for renewal.
I don't believe it will all be over in 14 months entirely. HPC is gaining ground so sentiment will reverse and manifest itself as pretty rapid falls. I believe some place will see 15%+ but ultimately this is not 1990's again and there "at present" is not enough reason to cause a long-term crash. In the same way that factors influence HPI factors must also influence HPC and there are not enough of the latter to prolong a crash. Why I see small falls and rises is that there will be no factors to cause HPI or HPC so we will be stuck in a limbo land. In real terms prices will probably fall as I see HPC at the start of 09 being around 0% whereas inflation will be reportedly around 3% so in real terms prices will be falling albeit slowly.
Thats my thinking in a nutshell.
40. New User 2007 said...
The payments shock will be the result of a sudden increase in payments for those on fixed mortgages (on the variable mortgages there is no shock). Fixed rate mortgages (for re-mortgaging and new mortgages, using figures from the Council of Mortgage Lenders) went from 42,000 (or 20% of mortgages) taken out in September 2003 to 145,000 (or 75% of mortgages) taken out in September 2005. The popularity of fixed rate mortgages jumped in 2005 and has stayed at this level (of popularity) since.
The bulk of these have been two year fixed and so the shock will be at least a 20% increase in payments (for the best credit risks and assuming they get a 6% deal) to 35% for many others starting from around now. Many those of classified as sub-prime (and this could be anything from 10% to 20% of mortgages taken out since 2005, depending on who you ask) will end up paying even more, as they cannot re-mortgage i.e. they will end up on the standard variable rate with the existing lender at best.
To reiterate, given the renewal period i.e. on a two year fixed rate, these mortgages are now coming up on a rate of at least the aforementioned 6% from just under 5% in September 2005. The point is that, given the fixed rate deals all have remained at this level since, and interest rates were low during 2005 and 2006, all the people coming for renewal from September 2007 to September 2008 will have that payments shock to one degree or another. That is 1.7mn mortgages, a significant part of the housing market.
The US is facing even bigger payment shocks, with more people, over an even longer period than us. Our financial markets and the City rely on the US and so we are going to suffer in general. Moreover, falling profits, the need to rebuild capital bases, the loss of competitors (not just Northern Rock), means that lenders can and will have to raise their own mortgage rates.
The US has lower interest rates, lower unemployment and stronger GDP growth than we do, yet look at their housing market. Japan had an even harder time from 1990 to 2005, yet it had interest rates, lower unemployment, higher population growth and much less land than we do. Unemployment and the economy deteriorated after the UK crash started last time, and not before.
41. New User 2007 said...
p.s. I agree that there is certainly no gaurantee that house prices will fall significantly, if at all, over the next year. But I think that when the downturn does come (and every credit cyle turns) it will be driven by a the direction of how much credit is available, rather than the multitude of economic and population factors that many seem to think makes the housing market indestructible (something that is in no way backed up by any facts). On top of that, no asset price adjustment ever returned to just zero..markets over and under shoot.