Thursday, May 28, 2009
If they are now admiting to 35% falls by the end of the year expect more ....
FT Adviser: Mutuals Braced for Drop in Property Prices
About 39 per cent of bosses polled predicted house prices would fall between 5 per cent and 10 per cent this year and a further 29 per cent forecast a drop of between 10 per cent and 15 per cent
I assume the other 32% did they predict the unprintable? I just love the fact that they are predicting only a futher 0.8% in 2010, Ho Ho Ho!
But good news by the end of the year Building Societies are expecting a £300000 property to be valued at £195000. What are sellers waiting for , to sell when the market has bottomed?
Posted by sybil13 @ 07:21 AM (764 views) Add Comment
7 Comments
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1. Old_traveller said...
Year 1 = 20% drops
Year 2 = 15% drops
Now go on follow the logic, Year 3?
Yes, you guessed it wrong: 0.8% !!!
Where on earth do they get their estimates from?
2. nubbers said...
Sybil13, a lot of people can't afford to sell or move if they are that far underwater. If you sell up, I believe that you can't transfer the negative equity when you move (I couldn't in the early 90's), so the negative equity amount then becomes an unsecured loan, which is more expensive.
To take your example, the extra interest (8.5% vs 3.5%) on the difference of £105000 would be about £5250 per year, or about half of what it would cost to rent the same property. I reckon this is why house prices don't fall that quick - you have to wait until people can afford to sell at the lower prices.
3. 51ck-6-51x said...
sybil13 said "What are sellers waiting for, to sell when the market has bottomed?"
- so true, but there are reasons, however much I'd like there not to be.
The fact that this asset class is both relatively illiquid and inhomogeneous coupled with the interest spread between a mortgage and an unsecured loan makes the price that much more inert, but if you do actually need to sell you do need to meet a buyer by value - forced sales lead the market lower ...drip drip drip.
4. mark wadsworth said...
@ nubbers, agreed, the interest on an unsecured loan is 20% but there's no interest on the bit you pay off (obviously).
But the marginal interest rate on nequity loans is also about twenty per cent, e.g.
100% mortgage 6% = £100,000 x 6% = £6,000 interest
110% mortgage 7% = £110,000 x 7% = £7,700 interest
Extra interest £1,700 divided by extra loan £10,000 = 17%, plus another grand or two for 'arrangement fee', unemployment insurance etc, total about 20%.
So somebody with a 110% mortgage is not necessarily worse off if he sells now and takes out an unsecured loan for £10,000, provided he can rent for £6,000 or less (and he probably can) and at least this way he's avoiding future capital losses on the property.
5. Neil B said...
" what are sellers waiting for , to sell when the market has bottomed?"
....They are in denial and believe that they can get 2007 prices for their properties.
6. nubbers said...
Mark, I was taking from own experience in the last crash. At the time, I had about 95% mortgage and a variable rate. Despite the fact that the value of my flat crashed dramatically, my loan stayed at a low rate appropriate for a mortgage against a property.
I guess the point is that the Halifax was probably just happy that I was keeping up with the payments, and they had no particular trigger to revalue the flat and make me pay a higher rate of interest.
That is what kept me trapped at the time - moving would result in a revaluation of the flat and there was no way that I would then be able to borrow the same amount at the level of a mortgage interest rate.
7. inbreda said...
Either way - the real carnage will not begin until interest rates rise. The longer the incompetent government try to keep IRs artificially low, the higher they will eventually have to go to compensate. The bond markets are starting to shake, and double digit interest rates could be but weeks away (at the earliest) if the bond markets collapse and the UK have to go cap in hand to the IMF. Then we could see further 40% falls in the perfect storm IMO