Friday, Mar 28, 2008
House prices still 47% highre than five years ago
Firstrung: UK house prices slow to lowest level since 1996 - Nationwide
House prices fell for the fifth consecutive month in March. The price of a typical house fell by 0.6% during the month, bringing the annual rate of house price growth down to 1.1% - its lowest rate since March 1996. A clear change in sentiment since the late summer has led to the sharp slowing in house price growth, even in the less volatile 3-month on 3-month series. Prices on this measure are now 1.5% lower than three months ago. The price of a typical house in the UK is now £179,110, only £2,027 more than this time last year. However, prices are still 11% higher than two years ago and 47% higher than five years ago - the equivalent of a price rise of more than £30 per day for the last five years.
Posted by converted lurker @ 10:47 AM (2101 views) Add Comment
34 Comments
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1. hpwatcher said...
House prices still 47% higher than five years ago
and it was money that hasn't been earned either, it's just been borrowed...and may never be paid back.
2. European-bear said...
I suspect in 5 years time it might be "House prices still 47% lower than five years ago"
3. Unfashionably Old Fashioned said...
Well, what a surprise. There was never insatiable demand for housing, only an insatiable demand to gamble and speculate. If banks had maintained sensible lending criteria the bubble couldn't have inflated as far. I've never understood "equity withdrawal". Surely this is simply pawning your house..... isn't it?
4. new user 2007 said...
it took 5 years to grow that much. i wonder how long it would take to fall by that much, given the last 3 years should be written off as speculative (speculators leave the market a lot faster than homeowners, despite VIs saying 2BTL are in it for the long term", so the falll will be as quick as the rise over the last 3 years?)
how much have house prices fallen per day since August?:)
5. converted lurker said...
I reckon the fall will take as long as the rise, 5 years in total?
6. uncle tom said...
..and how much can people honestly afford to borrow, in a sane market?
2.5 x first income + 1 x second income was once the rule, by which measure you can argue that prices are twice the sustainable level.
"...and may never be paid back."
Well, most probably will be - eventually.., but a quarter of all loaned money has been raised on short term money markets that are now in the deep freeze. The mortgage lenders are leapfrogging each other to avoid writing new loans so they can pay off these liabilities as they fall due.
I wonder how high the lending rates will go?
7. Peter Seller said...
Do remember that prices only need to fall by 32% to negate that 47% gain.
Now have a look at the BBC's graph here
http://news.bbc.co.uk/1/hi/business/7317303.stm
and extrapolate - looks like 18 months at the most conservative to me
8. uncle tom said...
"I reckon the fall will take as long as the rise, 5 years in total?"
Five years maybe to reach a settled sustainable level, but in the meantime we will see a market meltdown and some great buying opportunities.
The speculative element in the market can't handle price falls elegantly - it has a fundamental dependency on above inflation price rises, and the borrowing of funds in excess of that deposited by savers. The economy has also become dependant on equity withdrawal, and the government has no war chest to fall back on.
There is a growing prospect of an international run on government securities (in countries that are running large trade deficits) - that will make it very hard for those governments to borrow. The UK has never defaulted on it's government debt, but did so in all but name in 1932 when it forced the banks to accept the conversion of the War loan stock into an undated 3.5% issue - which has still not been paid off!
9. The Brizy said...
With the unclear economy in the main areas of the world a knock on effect could be damaging to all financies. The housing market will be the first to show with the builders and suppliers not far behind. I think that we are in unstable conditions building homes with many not being able to afford to buy, unless interest is lowered there will be a glut of property on the market and re-possions could lead to the big crash that many are expecting.
10. converted lurker said...
can't disagree with the excellent buying opportunities over the next few years comment,
11. harold said...
"excellent buying opportunities over the next few years"
Perhaps as early as summer 2009 - some people will be desperate, which may not show up in the ever-rosy official stats.
12. maddison said...
Remember that one thing that lead to the US depression in 1930s was everyone thinking they saw buying opportunities. Investors carried on buying stocks thinking they were a bargain when there was a very long and slow decline. Far more was lost in the years after the crash than actually during it. A short sharp correction is best.
13. uncle tom said...
maddison is correct - more money was lost after the Wall St crash from people calling the bottom too soon than was lost during the initial crash itself.
As far as the UK is concerned, the best opportunities will arise when the mortgage lenders are virtually incapable of lending - a scenario that is likely to emerge as the decline accelerates - so saving hard is advisable!
I am pretty convinced that prices will (albeit briefly) dip extremely low - 70%, even 80% - below current levels is likely, and some the best pickings may arise from the fire sale of assets from bankrupt builders and developers - half built houses, part completed conversions, renovations etc.
Watch, be patient, be ready!
14. pecker said...
Its the perfect S*it-Storm...
15. growler said...
I think the HPC will be very sudden and fairly steep. The current falls we're seeing have March 07 rises as the start. When the annual figures start from June/July 07, we're going to see a real and steep falls for months and months in run up to Christmas 2008. Add in to this the full effect of the dried-up mortgage market and the severely increased repayments for those in houses but not able to switch and you will see big issues. Lowering interest rates will not prevent it as the cheaper money isn't feeding through to end-users but will be used to lick the mauled wounds of the lenders. By that time even the most naive of house buyer will be thinking "I'll wait" - regardless of any cheaper money (which I don't think will happen anyway). Who wants to borrow money on an asset that will depreciate? Noone, no matter what interest rate.
16. theboltonfury said...
maddison - you make a great deal of sense.
17. hpwatcher said...
I think the HPC will be very sudden and fairly steep.
Not sure about that; sounds too much like theatre. Besides there are too many forces against it i.e. greedy vendors and greedy estate agents. Something else will need to occur to accelerate the process before an overnight crash occurs.
18. mark wadsworth said...
Re what Uncle Tom says about equity withdrawal, may I take the liberty of linking to something I posted this morning?
http://markwadsworth.blogspot.com/2008/03/growth-what-growth.html
19. geed said...
UT..."I am pretty convinced that prices will (albeit briefly) dip extremely low - 70%, even 80% - below current levels is likely," Thats a big call.
I would agree if you were referring to unique opportunities and not the market in general.
20. geed said...
Oh and Scotland appears to still have its head in the sand. Althought the ROS figures (based on LR figures) appear to show a last 1/4 2007 decline, the press ignore such facts up here so you would never know if you didn't search and seek. No Scotland is special! NOT
http://www.upmystreet.com/property-prices/trends/l/Edinburgh.html
21. titaniccaptain said...
These really are dangerouse yet exiting times
22. also sold to rent said...
From my own dubious research I'd say that historically, anything under 4 times average wage is reasonable, anything under 3 times average wage is cheap. Currently we still almost 6 times, so there's 40-60% in the offing, in real terms of course. Looking at the last 'crash' that took about 6 years to drop about 40% I'd say it'll be likely the same this time. Prices might be reasonable within as little as 2 or 3 years. Assuming you still have a job.
23. Northern Bear said...
Does anyone know how house price falls are calculated? From my own experience here in York people are accepting a lot less than 0.6% under the asking price - indeed up to 22% less! To arrive at an average figure like 0.6% surely implies that some areas are still seeing robust house price growth?
24. Jj said...
I seriously believe when the CDS' kick in bank lending will be even more restrictive than now causing a meltdown in house prices. Expect prices to be resonable well before Dec 2009.
25. uncle tom said...
Geed,
It is a big call - but we're currently at the highest summit of a big dipper, with the biggest drop ahead.
The last price boom was cut short by soaring interest rates - it stalled and then slumped - it wasn't really a crash. This time we're facing the real McCoy
26. Fed Up said...
I think that the real peak of affordability was reached in the summer of 2001 and this is the very maximum that they will stabillise at. As with all market crashes there will be an overcorrection first with prices dipping to 1999 or 2000 levels (ie 1995 levels index linked). But I don't see the drop being that sudden. Remember not all those with fixed rate mortgages are coming off this year, there will be some coming off next year and the year after. The trough will be no earlier than 2011, possibly not even for a couple of years after that, but by 2011/12 most of the correction will have taken place.
27. Greenbay said...
sorry to spoil your party folks but prices are not going anywhere, certainly not down by more than 10%, we will see double digit growth again next year. The sooner you all wake up the better....
there is way way to much support and demand out there.
wakey wakey!...
28. inbreda said...
"13. hpwatcher said...
I think the HPC will be very sudden and fairly steep.
Not sure about that; sounds too much like theatre. Besides there are too many forces against it i.e. greedy vendors and greedy estate agents"
I agree that it will be "more" sudden and steep this time round. My thinking is that while Hpwatcher is right that prices will not fall because of greedy vendors and estate agents, the factors that will push prices down will be forced sellers and investment buyers (BTL). For a long time now we on this site have been saying to those BTL with large paper profits that they are exactly that - paper profits. They are not actual profits until (or IF) they actually sell the property. The same is now true in reverse - someone who bought a house as a home will not realise the loss until they sell, which they won't do if it incurs a loss (in fact if selling won't pay off the outstanding debt, they won't be able to do). This is not true for BTLers, who will be watching the value of their investment slip slowly over time such that they will panic and cut prices themselves, causing the slip to move quickly. Also the uk economy has been completely built on house price inflation - with that gone (as it already has) the economy will crumble and the number of forced sellers will increase massively. Moreover, many distressed sales will be by the banks selling repo'd property. Given the financial sh1t the banks are in, they are likely to sell ANy asset at pretty much ANY price.
These (negative feedback loop factors) are the reasons that I think that things will definitely be "different this time"
29. Mikelivingstone said...
Remember that a 47% rise is wiped out by a 32% fall.
For those challenged by simple maths (surely not any HPCers though) an example
If a house cost £100k five years ago, to get a 47% rise (today's price) you mulitply £100k by 1.47 which gives £147k.
Now what percentage of £147k is £100k? Well the answer is (100 divided by 147) x 100% = 68%.
As the percentage difference between today's full price and the old price is 100% - 68% = 32% you need a 32% fall to get back to £100k.
So don't necessarily expect the percentage drops be so dramatic on the way down as they were on the way up, but rather expect some big nominal falls in value. Remember if house prices have tripled over 10 years then a 3% rise in 1998 prices is equivalent to a 1% fall in today's prices.
30. growler said...
@ inbreda. That was me in post 11.
I think it will fall off the top of the dipper. I haven't worked out how to post a picture here, but indulge my explanation.
Imagine a normal distribution curve divided up into months along the bottom. June 07 is the peak. Jan 06 left, Jan 09 far right. If you draw a ruler from Sep 06 to Sep 07, the line will show a stong upwards trend. Draw the line Jan 07 to Jan 08 it still up, but not as much. Draw it March 07 to March 08 and it's almost flat. Now imagine that line June 07 to June 08. Off the cliff. And it'll do that for quite some time as UNCLE TOM said. The monthly stats have all been negative, so a year of monthly negatives will very soon make the 12 month curve look like a ski jump in the Olympics.
31. Seenitallbefore said...
You cant buck the market!
An average house at the end of 2007(£220,000) took a first time buyer £11,000 deposit then 5 times one salary of £30,000 and 3 times another salary of £20000. just beyond reach of most first timers
A House in the forseable future say end of 2009 will cost £150,000 (32% fall) but the buyers are going to need 20% deposit £30,000 and will get 3 times 1 salary and 1 times the next. Just beyond reach.
It's pretty obvious that houses will always be slightly out of reach regardless of price - otherwise everyone will own one.
I remember when my first flat cost £18,000 (2 bed Beckenham now worth £230,000) I was paying 13% interest and had to get 15% deposit
I could not have done it on my own even then we struggled.
32. Crash 2008 said...
Looks like we are now going to be fed figures based on the last 2 years rather than 1 year as 1 year is about to go negative.
33. Btl Rules said...
wake up losers
34. new user 2007 said...
Greenbay...
I hope one day your comments actually match reality (and I don't just mean your argument against comments from people here, even just the numbers in the story that we are talking about:)
BTL...
The reason the country is in such a mess is because of the well-reasoned and rational thought processes of you, Greenbay et al...your analysis above sums up why we haD a Pyramid/ Ponzi scheme to begin with:)
Perhaps you should do the maths on what would happen to a BTL investor with 20% equity who faces even just 10% fall in house prices.
I hope you have kept aside enough money for the tax man now he is on the look out and capital and now many BTL will have to go onto SVRs with rents that do not rise in line:)