Wednesday, Jun 25, 2008
Crash NOT crunch
telegraph.co.uk: Now we know this is a real property crash
Now we know this is a real property crash
Edmund Conway, Economics Editor
Last Updated: 2:38am BST 25/06/2008
Even the gloomiest commentators have been taken by surprise by the relentless flow of bad news about the property market. Every week seems to bring another dismal statistic.
But if ever confirmation were needed that this is no longer a housing slowdown but a full-blooded crash, it has arrived with the British Bankers' Association mortgage approvals figures. When people stop borrowing, a fall in house prices will follow as surely as night follows day. Even the most level-headed economists predict falls of 20 per cent or more.
Posted by housebear @ 11:18 AM (1033 views) Add Comment
9 Comments
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1. Ah-so said...
Someone's going to be eating her hat...
2. need-a-crash said...
Great headline, made my day!
3. techieman said...
"the gloomiest commentators " Sorry arent these experts?
4. voiceofreason said...
"If and when unemployment increases this will all change, as those made redundant are forced to sell and move out. So far, this remains the dog that has not barked."
There's no "If" about it. Next stop is defo unemployment. As we have discussed before, it is a lagging or coincidental factor of slowdowns.
Forced sales by summer 2009. Then some good deals will appear.
5. growler said...
Interesting reference to the view that the market will crash faster this time than last time - which I completely agree with although he hasn't gone into detail why. I think the impact of the internet will 100% have influenced this. If we read what was printed in the press, reality would have been held off much more. Now we see the problems, markets, shares - instantly. With depressed property values and low growth, people with mortgages bought will be waiting for the magical recovery at least 10 years from when they bought the house. That's a long time to be losing money maintaining the house and managing tenants. I've worked out I'm "earning" 3.5% due to capital growth after renting and all costs now - that's before the next 20% fall in prices and inflation to come. Rather than Stuazz advise to buy, I'd be selling to take a smaller hit before taking a really big one.
6. techieman said...
Growler i agree with the premise that the internet has increased the flow of information and have been saying this for quite some time on here. The impact of instant knowledge is greater than most people thought. Having said that the reason isnt just the speed its that it allows an opposing point to be put foward which can be supported without resorting to the press, in addition the worldwide conditions from economies with commonality - eg debt bubbles can be analysed.
However at the end of the day the economic conditions prevail. From even just an academic viewpoint im interested to see where this takes us. A bumpy ride at best.
7. kool4caats said...
I think the fact that the market is falling faster now than in the 90s means that it will probably fall further, not recover quicker. This is all apparently without forced sales and unemployment - That will surely add fuel to the fire.
8. str 2007 said...
There must be an equation to calculate at which point interest payments cost less than rent, at this crossing point + 10% or so, renters will start to buy. This would hypothetically be the bottom of the market.
If however that point is 30% off from here, as renters purchase, BTL owners will be increasing left with empty properties. This in theory will push rents lower. They may then decide to sell, this would then push prices lower.
With prices 30% off BTL won't have any equity to release to purchase further properties. So I don't currently see support from them (unless banks decide 30% off is bottom and offer BTL with existing portfolios 100% loans).
Or banks could be already calling for equity top ups which force BTL sales and precipitate further falls.
What do you think will be the course of events ?
9. techieman said...
str - if banks acted as cartels then they would never push up LTVs. Because of competition thats what they did. The reverse is also true. For them to stop falls from the affordabilty point of view they should in concert restrict falls of LTV. They wont because they are in competition. This then becomes a vicious downward spiral - and is what we are seeing now, as they head for the exits, they must restrict their lending more than the next guy or else be over-exposed.
When will this end? Thats anyone's guess.
Mine is that the banks will in time find a level they are comfortable with - this will depend on each others loan book. I would be surprised if average LTVs in bands have not been examined in a very detailed (postcode probably) manner and that these are being marked to market going forward. The overriding concern for them is of course their own solvency. Now i dont know about tier 1 and tier 2 capital etc, but who that interacts with the solvency may cause me to modify what ive just said.