Sunday, Jun 28, 2009
SURPRISE!! 40% Falls Seem Likely
UK Money Pot: If House Prices Drop Another 40% - Who’s at risk of Negative Equity?
Article based on BOE report + money week article
"The Bank of England report has another interesting graph showing Nominal House Prices and Real House Prices with the peak of 2007 as the 100% mark. A simple extrapolation of the Real House Prices suggests a correction being approximately 20% lower than the current point (from peak, or 25% from the current level) but as all past crashes have shown, the actual bottoming out occurs well below the target."
Posted by sybil13 @ 02:16 PM (2065 views) Add Comment
14 Comments
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1. Tim Miller said...
That's what I think, half way there, half way to go!
2. japanese uncle said...
Apart from the fact that IR is already creeping as we all know thanks to the market force, current UK government finance (ie need for borrowing as tax revenue plummets) means the BoE is likely to be forced to dramatically raise the base rate sooner rather than later. In that event, which will double or treble the number of repossessions, let alone negative equity cases, I would not be surprised at all to see further 55% drop accoss the country. In London further 70% drop is a sure thing. (One flat in Muswell Hill which I clearly remember was valued at 120K in 2000 is now still valued 375K as of this date. What a c==p!) Sorry for drawing a doomed picture, but true.
3. Hamish_mctavish said...
Yet more spam from Sybil..this article is so full of holes and fallacies it is ridiculous. Please try to post actual news items instead of meaningless opinions from obscure blogs.
4. sybil13 said...
Reference McTavish anyone interested please see :
http://www.housepricecrash.co.uk/forum/index.php?showtopic=118231&st=165
For explanation as to why McT has written this. However, if he wants me to post some facts try these:
Land Reg June 2009 showed 60% falls in sales with transaction levels not seen since the 70's and mortgage lending down 60% yoy
Both gross and net mortgage lending has collapsed to levels not seen since 2001
Gross mortgage lending is the lowest it has been since the current series began and is 58% lower than this time last year
Approvals 50% lower than what is considered needed for the market to stablise
" 'However, the capacity of banks to lend remains tight and so this has caused them to put up the cost of home loans', according to Ray Boulger, of mortgage broker John Charcol.
But Mr Boulger warned that any recovery of demand in the housing market could be stunted if the Bank rate rose, as predicted, in the coming months"
"A report by ratings agency Fitch has suggested that, owing to falling prices, 23% of borrowers in the UK could face negative equity by the time property values hit their trough.
However, if its peak-to-trough prediction of a 35% drop in house prices was correct, Fitch said that - by value - a third of all home loans would be in negative equity. "
Fitch said earlier this week:
"As the FT points out this morning, all these people stuck in their homes are creating a ‘glut of hidden property’, which in turn is likely to depress house prices further. Even a short term rise in prices, Fitch argues, is likely to make things worse in the longer term, by encouraging trapped sellers to put their homes in the market, which in turn will push prices down again. It sounds like a vicious circle with no way out, for the immediate future at least."
5. Dantheman said...
Absolutely correct, for years now, many many many of us have been saying that houses will need to fall 60% from peak to become affordable.
These kinds of falls will only takehouse prices back to 1999 levels.
The last time they were affordable.
Its blatantly obvious that houses must and will come back down to these levels.
[Ignore Mctavish's usual horsesh!t comments.]
6. sparky300 said...
@ sybil , that's certainly blown hamish out of the water , he he
7. nubbers said...
This article, and presumably others in the UK, use the same graph of Nationwide and/or Halifax figures going back to the mid fifties. Using this data, everyone seems to draw a trend line of real house prices that not unreasonably when using the data available, shows real inflation adjusted house prices rising from the 50's.
I don't believe that house prices do trend upwards in the very long term, and I would guess that most on this forum do not either. I can't find any data off hand for the UK before the 50s, but my understanding is that if you go back far enough (~100 years), you would find that house prices have not actually changed that much in real terms. The equivalent data for the US (Case-Shiller) bears this out, and would give you a flat trend line from 1890 to 2002, but a rising trend line from the 50's to 2007.
If you take the rising trend line from the 50s as valid, then a 40% drop from here is an overshoot of the trend on the way down. But if you go back further in history, and draw a flatter trend line, then a further 40% just takes you back to what the long term trend would suggest. What then if we overshoot that and get to a level more like 1920 - 1930 in the US data? JU's predictions suddenly look very realistic indeed.
I wonder if what we lack in the UK is readily available historic house data? The easily available data shows an upwards trend in house prices, but I would guess that the availability of longer term data would explode this myth.
8. gone-to-colombia said...
Seems like a heretic has entered the fold.
Good luck to Hamish, this site is no pleasure without the odd flat earther to offer a little resistance.
9. paranoia blue said...
Hmm! :)
http://www.youtube.com/watch?v=wppjYDj9JUc
10. This comment has been removed as it was found to be in breach of our Blog Policies.
11. techieman said...
paranoia blue - you really must get out more :-).
12. Camping said...
http://www.youtube.com/watch?v=3yKV22_Dz4g
at least neil young is not afraid to say it.....:(
13. it_is_going_with_a_bang said...
Yes but rather amusing !
14. Soothsayer said...
Sybil, Land Registry figures are a 3-4 month lagging indicator as they are completed transactions and not agreed deals in the month. Nationwide/Halifax are more current if not necessarily wholly reliable. There is definitely a bounce, but this won't show in the LR numbers for a couple of months or so. If this can happen on such thin volumes and shortage of mortgage, think what could happen when competition returns to the mortgage market. (Which it will). Maybe a few soft spots in between, but next year's spring bounce could be v. pronounced.