Thursday, Jan 28, 2010
"House prices will soon fall again" by David Blanchflower
New Statesman: House prices will soon fall again
My mind turned to house prices in the UK after looking at the astonishing rate at which they have fallen in parts of Florida, where prices are down by two thirds.
I continue to puzzle over how house prices could possibly have increased in the UK last year. The peak-to-trough fall on the Halifax index was around 22%, before the supposed rise of 6% in 2009. Given the fragile state of the economy, prices really should still be falling. Or, at least, they would fall sharply if interest rates start rising any time soon.
There remains a glut of houses on the market. The availability of credit is also way down. Lower demand with higher supply tends to lower price. I still remain fairly pessimistic for the UK housing market . I fully expect a peak-to-trough fall of at least a third.
38 Comments
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1. mrflibble said...
He highlights the issue I'm having trouble getting my head around. In the US with prices down by 2/3 you can envisage a recovery from there. In the UK prices dropped by around 15% then recovered by around 5% which is barely a crash at all, especially given the fact the UK had one of the biggest bubbles in the world.
How can we have a recovery when we have not had a crash and what state would we be recovering to?
2. mark wadsworth said...
For "pessimistic" read "optimistic"? Or does he think prices will now go up again?
3. nickb said...
It seems to me the government is doing everything in its power to prop up the housing market before the election. Key to this seems to be is the use of quantitative easing to shore up bond prices, in effect keeping base interest rates low. They are not using quantitative easing to ease conditions in the real economy. After the election all bets are off!
4. tyrellcorporation said...
There has been no reducutions at all in Exeter as far as I can see. I recently looked at a 3 bed in a good area of the city. the house is on for £320k and the last one to sell on that street was in May 2008 for £275k. This picture has been repeated all over the city in every market segment. :(
5. Pundit said...
Yes this is a conundrum that will have many puzzled. The answer is simple; gullible purchasers believe the spin generated by the many vested interests (government, banks, developers, estate agents etc), which in turn creates a self-fulfilling prophecy. The forces behind the spin are powerful; the UK economy is now highly dependent upon continually rising house prices. Ever increasing house prices have become a means of surrogate wealth creation, temporarily filling the vacuum left by the demise of British manufacturing. A serviced based economy is not sustainable in the long term as the US and the UK are now discovering. Real wealth creation has moved to the Far East.
6. sneaker said...
The Italian tax amnesty is a major short-term support of the London market.
Money that is now miraculously "clean" under the amnesty is coming into Italy and then straight over to the UK to buy property.
This is however a one-off and it's not sufficient to support the entire UK market.
7. mrflibble said...
About a year ago I signed up to one of these BMV leads sites. Back then I was receiving about 3 emails a week with 3-4 leads in each. It died down as the year went on and over the last 4 months there has been about 2 emails in total. Interestingly over the last 2 weeks the rate has picked back up again to near what it was a year ago. Could be some seasonality in this but it would appear the number of desperate sellers is on the increase again.
8. jack c said...
@tyrellcorporation - so the asking prices are up in Exeter but are any of the properties then genuinely selling? In the example 3 bed semi that you use @ £320K the higher they push the price the lower the affordability - the market (IMO) is currently at a stalemate, but it will eventually crack.
9. iguana said...
We have just been looking at the results of the last 'Harman Healy' auction, sure enough the 'Haliwide' figures seem wrong.
10. matt_the_hat said...
Gentlemen I have succumbed, just bought an city center apartment, 110% mortgage. I have no intention of ever selling so I don't care about market fluctuations. Needs some renovation but mostly cosmetic. After 5+ years of searching I have finally (i hope) found somewhere. Sorry to all those who are still searching - it is worth the wait to get the right place for the right price. Unfortunately I may have to rent it out in my lifetime but being on the receiving end of many a BTLer I will do so in good spirt. The deck is stacked against us (the prudent), you have to play the game and let inflation take its course. A word of warning for all savers - how long do you intend boiling in the pan before you realize that you have just paid off someone else's mortgage! Saver beware!!!
11. Boo said...
Looked at a property in nice area of Solihull, West Midlands this week on for £544K. Did some research and the same property was purchased six months ago for £455K - nice profit if you can get it but it just goes to show that these vendors/agents are really pushing their luck!!
12. need-a-crash said...
@9. Matt_the_hat
I am paying off someone else's mortgage, which isn't a nice thought but I have to look at my own options before I consider what benefit I'm being to someone else. My rent allows me to live in a nice house and save money each month. I pay less than I would on an interest only mortgage on a lower quality house, were I to buy somewhere now. So as long as house prices fall I will be no worse off than my landlord and if prices fall alot I may be better off than my landlord.
13. Astra said...
@ matt the hat How did you managed to get 110 percent mortage in the current climate? I have spoken to mortage advisors and even 90 percent mortages are hard to find.
14. mrflibble said...
@ 9. matt_the_hat...
You having a laugh with us? How did you manage to obtain a 110% mortgage in this climate? I thought they were extinct now!
15. Elizabeth said...
"110% mortgage"
I presume that's against your estimate of the price in a couple of years time.
16. matt_the_hat said...
sorry I forgot to mention, fixed for 10 years at much less than 5% and sizable overpayments allowed per year!!
17. Tochinoki said...
Hahaha, you had me there.
18. jack c said...
matt_the_hat - I think you are pulling our plonk*** Matt as I cant find any such deal in the market place - please elighten us on the lender (direct or via a broker)
19. jvm said...
@11 Boo - that's nothing. We're in a rented 3-bed in Sevenoaks purchased in mid-05 for £425k, just been notified it's going on the maket at a guide price of £700-725k (2007 levels +). Place needs major refurb all over, just in a nice road near the station and has 0.4 acres. We're renting for the foreseeable (and Mrs JVM is starting to lose the plot re lack of home ownership after selling this time last year!)
20. matt_the_hat said...
sorry jc its a german bank and they give you 50% of the renovation costs in the mortgage, unfortunately don't think its available in treasure island (the UK) but we are best placed (to get shafted that is).
21. Astra said...
@ matt the hat is the mortage in euros or pounds? are you open to exchage rate flactuatuons? is it really possible to borrow in germany to buy in the UK, without a property or other security in Germany that the german bank can take should you default on your mortage?
22. smugdog said...
Well done Matt, a place to call your own. The goomists here feel that they have lost a foot soldier. Boo Hoo!!
23. jack c said...
@smugdog - "a place to call your own" - only when you have the deeds and the property is unencumbered. Based upon Matt's revelations he already has 10% negitive equity before he makes payment number 1
24. Veronica said...
I couldn't agree more with Pundit. February will bring an end to printing toytown money, no more bail-out from the IM.F. The only way to go is a huge hike in interest rates. I would go as far as to say the end of the housing market. If the establishment can keep talking up the pathetic figure that proves without doubt that we are now out of recession, keep repeating that "Emperers new clothes" mantra, at least until after May, then they can all buzz off with their fat bonuses and golden handshakes, leaving the next two generations to pay for this massive mess. I would like to vote for anyone who pledges to prosecute the theft of tax-payers bail-out money, that has been taken by these professional looters.
25. smugdog said...
You see Matt, not one person is pleased for you.
You may even get an offer from Mrs Jvm (above) who obviously thinks Mr Jvm has not called the best shots in the property stakes.
26. jack c said...
@smugdog - I'm just looking at it factually and objectively - if matt's happy and can maintain the repayments then all is well. One thing I do agree with on the mortgage side of the deal is "don't think its available in treasure island - the UK" (matt_the_hat Thursday, January 28, 2010 02:28PM)
27. techieman said...
smuggy...... play nice now or you will have to be put in the dog house. :-).
I do think its good of you to post though smug - you obviously stir it up, and give us some entertainment. Its maybe even a reflection on "us" that threads which include your comments get a fair few comments than the rest.
I would like to you to answer a question and that is what is your gearing? My impression is that you have done this for a while and think yourself pretty bullet proof. That may have some grounding in fact, you may have liquidated some stock and/or reduced gearing in the last few years.
Its one thing to sell the idea of perpetual incrementation of asset prices here, but what really interests me is does your wedge support that view..... I'm guessing that in previous years you were probably pretty exposed and have GB and Tony et al to thank for not coming unstuck then (and good luck to you for that - risk takers deserve to be rewarded), but now... Im guessing you really dont care that much because your exposure is limited.
Am i on the right track?
28. estrader said...
@18 "purchased in mid-05 for £425k, just been notified it's going on the maket at a guide price of £700-725k (2007 levels +)"
So, even before the GFC when property was booming, the average property increased in value by 8.5% from July 2004 to July 2007 (The peak) and they actually dipped in 2005. You expect me to believe that the property you are renting has incresed in value by 70% during the same time? Amazing, prices are being reduced around my area so I guess the term 'property' is just too generic a term nowadays.
Congratulations matt_the_hat, you bought with the right attitude at least.
29. techieman said...
Sorry.... "get a fair few comments than the rest." should of course say "get a fair few more comments than the rest".
30. smugdog said...
Techie, got to dash, we will speak on this again.
Just in case you thought I was being rude in not replying. Me! Rude!
31. matt_the_hat said...
smugdog thanks for the congrats....
I suppose all anyone on here wants is an affordable house (which you can't get in the UK).
21. jack c - yep I'm 10% NE - but like I said don't care about the market price anymore because the mortgage is £250 a month fixed for 10 years.
I really feel let down by the government with respect to housing and people need to keep blogging on this site and arguing the point that a fall in the house prices is better for all in the long run (everyone cannot be wealthier with higher asset prices, wealth is relative).
BTW if anyone else wants serious help (no investor crap) at buying a place in Germany ( a country that taxes out the speculators) please post your generic questions and I will try to answer.
32. matt_the_hat said...
Sorry meant to say - 21. jack c - yep I'm 10% NE - I don't care about the market price anymore because I intend to keep the property ad-infinitum.
33. alan_540 said...
matt the hat... well done, thank goodness you haven't bought in the UK! Anyone doing so right now has gotta be prepared to take a sizeable hit in the next 12 months.
34. rumble said...
"BTW if anyone else wants serious help (no investor crap) at buying a place in Germany ( a country that taxes out the speculators) please post your generic questions and I will try to answer."
For £250 a month... what's life like in Germany?
35. quiet guy said...
@matt_the_hat
Good luck with the new place. I'm curious about whether your adventures in Germany were driven by property prices in the UK to some extent or is it just that you had business over there ayway?
36. quiet guy said...
@Techieman
"Techie, got to dash, we will speak on this again."
ROFL
Surely a property professional could have given a basic answer of the form "XX%". Either:
a) Smugdog doesn't know and needs to do his sums (ROFL again.)
b) Smugdog needs to think a bit before concocting a fictitious answer.
37. wiltshire said...
I'm with you quiet guy @33. We get a whole lot of baiting out of smugdog but NEVER any real insight or any revealing experience.
Junior EA I reckon.
38. smugdog said...
You're right, I only come here for fun, I'm 49 and still at home with ma and pa.
I just tune in here, between porn channels.
There, now you know.
I could boast of property fortunes and deals galore, but hey, you would all see straight through that, as you have done.
If only I had the insight and experience of the successful high and mighty that regularly contribute to
the 'lounge' that is HPC.
Sorry for wasting your time. I will go quietly.