Thursday, Apr 17, 2008
Good stuff. Figures seem to stack up.
The Times: One UK home in 10 'to fall into negative equity'
Morgan Stanley's analysts said: "Our base case is for a 15 per cent fall in nominal prices over two years... our bear case looks for a 25 per cent decline over two years.
Posted by mark wadsworth @ 04:05 PM (1558 views) Add Comment
23 Comments
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3. inbreda said...
Sorry - meant to post the above with the article about 4000 job losses. Would've been funnier there.
4. uncle tom said...
No-one seems to know how many people will go into negative equity for any given drop in prices - in the last few days we've had quotes from Experian, Vince Cable and now Morgan Stanley that are miles apart.
Does no-one keep a proper record?
5. sold 2 rent 1 said...
inbreda LOL
6. plato said...
inbreda
Love it, brilliant and the punch line is pretty accurate too.
1 in 10 : That's more like it. Much more realistic but we're all still guessing.
7. jack c said...
@ UT (3) Does no-one keep a proper record? - No - because property valuations were probably overinflated at outset or simply AVM's and because of the ring of corruption (in some instances) between developers/solicitors/valuers etc.. even the reported selling prices at the Land Registry have been incorrect - so (IMO) it will be very difficult to produce an accurate prediction of how many people will be plunged into negative equity if house prices fall by say 20%.
8. whiteknight said...
judging by what some people are reporting we are already past the base case.
Of course its sparse and volatile data.
9. deepak said...
You can see Morgan Stanley say within 2 years: "IT IS WORSE THAT EXPECTED".
Never heard a different punch line ever.
10. titaniccaptain said...
The 1 in 10 calculation.............that cant include houses that are owned outright
11. titaniccaptain said...
Anybody know what percentage of homes in u.k. are owned outright??????
12. mark wadsworth said...
TC, there are 20 million-odd privately owned homes and about ten million households with mortgages. So half must be owned outright.
As to guessing the trade off between house price falls and 'nequity', all you have to do is count backwards. House prices have been growing at 10% compound for the last twelve years (1.1 to the power of 12 = 3). There have been about half-a-million first time buyer each year on average (who for sake of argument take out 100% loans). (Check - 60 million people, average life expectancy 60, therefore 1 million people reach home-buying-age each year, most of them couples of joint-purchasers).
Therefore, for each 10% that prices fall, half a million homes go into 'nequity' - quite simply, if they fall 10%, then every FTB who bought in last 12 months is in nequity.
If prices fall 19% (1 x 0.9 x 0.9) then two-times half a million = one million in nequity.
If prices fall by 40% (my current best guess), then that's the last four-and-a-half years' worth of FTB's in the doo-doo = Two-and-a-quarter million.
My magic fag packet is pretty reliable. In any event, just as reliable as Mr M Stanley's (whoever the heck he is).
13. renting2 said...
You owe me a keyboard inbreda!! (Post @1) Mine's now full of the Chateau Plonk I was gulping and it doesn't work properly anymore!!
14. titaniccaptain said...
@mark wadsworth
Are houses owned outright measured as having negative equity even if the value is less than when the house was bought? its just im not sure how it is measured by these statistics......if you see where I am coming from if that they are not then wouldnt the figure be 1 in 5 houses in negative equity........sorry if I seem a bit dim on this lol
15. Jimmy_joe said...
@ Mark Wadsworth
If a property goes up 10% and then down 10% the value will be 99% of the original, so it's more like 550,000 in negeq for every 10% fall in your example.
16. titaniccaptain said...
"Negative equity is a term used to refer to when the value of an asset used to secure a loan is less than the outstanding balance on the loan. A person holding negative equity is said to be upside down."
http://en.wikipedia.org/wiki/Negative_equity ...........................
Am I wrong????
17. titaniccaptain said...
Unless of course the figures are just for homes with loans then Titanic Captain goes and sits in the dunces corner
18. p. doff said...
Off you go titanic!
19. titaniccaptain said...
Sulk!
20. layers said...
Baby's gone to bed eh Captain? ;-)
21. uncle tom said...
Mark,
Your magic fag packet forgets that there is £50bn p.a. of equity withdrawal (at present) - try working out where that is going (and coming from), it's a lot of money..!
22. Mark Wadsworth said...
Uncle T. My magic fag packer ignored the fact that the average FTB had a ten per cent deposit and as a quid pro quo ignores MEW. It's quicker to net off such small figures and ignore them than to laboriously add them on and then knock them off again.
23. titaniccaptain said...
Layers
Getting 4 hours a night if im lucky lol