Van

Fair scenario that would probably be most desireable to bring prices back to sustainable levels without causing economic damage, but all you're demonstrating is that negative equity can be avoided under a GSD where HPI is somewhere between zero and the rate of general inflation - which is true for any rate of inflation, high or low. IMO the salient point is that the real value of the house has fallen and therefore represents a bad investment, regardless if equity has risen, stayed the same, or gone negative.

I heard on another forum that Phil was recently involved in a spot of gazundering because he thought the market had weakened, and when the vendor refused, the sale fell through. I bet THAT won't make LLL or any of Kirsty's on-the-record interviews.

This is brilliant. Nobody said Greenspan or Buffett were irresponsible when they said the stockmarket was overvalued...

I haven't seen the interview, but you guys must have hit pretty close to the mark to get her all riled up like that, eh?!?

With very few exceptions, anybody who has just woken up to the fact that the market has now peaked has missed their best chance to sell, and it will much much harder now than just a few months ago. It has only been, I think, 2 months since we can say that the market truely peaked - then came Merv King's warnings hot on the heals of consecutive rate rises in May/June, which really hit buyers' sentiment hard. Anybody who was waiting for the peak should have put their house onto the market no later than February 2004, IMHO. Sales agreed in Feb/March/April are only just completing now. If you've ever tried to sell a house, chances are that it did not go smoothly (does anybody know of a house sale that went through smoothly without a hitch?), and was closer to a logistical nightmare which teetered on the brink of collapse on more than one ocassion. Chains are breaking down everywhere. A lot of FTBs have pulled out. Transactions are dropping like a lead balloon. Anybody who puts their house on the market now, I think, stands a very good chance that it will still be on the market in November/December. There are lot of very nice properties that would have sold 6 months ago if the vendors had just been slightly less greedy and been prepared to cut their asking prices by 5-10%, instead of "flying a kite" and waiting for the market to catch up. Now they've blown it.. the market has turned and they're having to chase the prices down. I think that over the winter houses will be very difficult to sell, and that will feed into negative sentiment and eventually manifest itself into outright fear as new properties flood the market and undercut current prices. No buyer in their right mind will want to touch real estate with a very long barge pole. All it needs is the perception that vendors are in competition to undercut each other, and it'll snowball into a barmy real estate boot sale.

The only way that it makes sense to own when renting is less than interest rates is if there are capital gains to be made while prices are still rising. These paper profits then still have to be realised through selling. The selling will precipitate the price falls... like a chicken and egg scenario.

What's most amusing is that during the last slump, at the beginning of each year Halinofacts/Nationlied et al would say "we believe prices have bottomed out and that this year will see the market recover strongly - it's a good time to buy." and then go on to be proved totally wrong for 5-6 years running. History repeats itself, of course, so I look forward to their army of experts all predicting a GSD at the beginning of 2005 when the market is obviously crashing, and then for 4-5 years' incorrect prediction that the market will recover that year.

Agree. Stagnation preceeds a fall. Market prices have spiralled so high that property is no longer a good investment. Property is/was hot because it has been perceived as a way of making money when other investments have been performing badly. When the market stagnates, there is no more money to be made. I've always maintained that money does not stay where it is not earning; we are now at that point now. Sooner rather than later, that money will be withdrawn and put to some other use. FTBs are down to 9% in London. BTLs have just about woken up and smelt the coffee now that mortgage rates are rising. Nothing is shifting, but vendors are still reluctant to cut their asking prices. We are at stagnation, and there is only one way the market can now go.

Amateur landlords have got to be amongst the dumbest creatures on the planet. Do they not realise that if rental yields are below interest rates, they are subsidising their own tennants to live there??? Think for a second about how ludicrous that statement is, but it is true. This is because, short of sticking all the cash under the matress, they will earn more on the capital simply by leaving it in a bank account. No landlord hassles, no risk of capital depreciation. Every investment is relative to every other investment, and if property is underperforming cash, then eventually the market will correct itself...usually violently and painfully. Never underestimate the stupidity of the herd. Once the penny drops, there will be blood on the streets as everyone bails out.

Excellent! Meeja coverage for HPC! I sudden feel a great sense of pride as a contributor to the collective wisdom that we have pooled here over the last few months. It's a shame that Spackman will wheel out the usual bull defensive of high employment, low interest rates, affordability, strong economy etc "which all point to a GSD rather than crash".

Nice illustration BT, but I think symantics is quite important here. It's 64% more expensive to buy, but only "39% cheaper to rent". 50% is a half, so 64% implies that it costs less than half as much to rent, which is untrue. Same point that a percentage fall undoes a larger percentage rise. Ludicrously low yields...

On the old forum, there was the point made about Nationwide's crazy lending criteria. They will only lend x3.5 a single income, but over x4 joint salary. Other lenders will only lend a smaller joint-income multiple because it is expected that the joint income is not a sustainable future earning prediction when a family is started, and also that there is a risk of separation and subsequent selling of house. Nationwide's reasoning can only be that with two incomes, if one partner loses their job, the other's income will be able to support them in the short term. However, surely it is simple logic that there is twice the risk of a dual-income household losing half its cashflow than of a single-income household losing all its cashflow. a joint-income household can no more support at x8 salary mortgage (if one partner loses their job) than can another single income household support an infinity-multiple mortgage (if single-income household earner loses their job). In both scenarios the unemployed person will have to find a new job. It is simply twice as likely to happen to the joint-income household. Other "arguments" that couples are seen as more stable and employable I find spurious, bordering on the insulting.

Great post, gilf. A wholeheartedly agree that a bout of redundancy (or in your case SSP) easily can and does change peoples' attititude to risk and debt. These are precarious times. We have wage deflation, the ratio of McJobs:Real Jobs is increasing, all the old manufacturing industry are in decline and haemorraging jobs, and in the services sector therer is a real threat from outsourcing in a way we have not seen before. Employers will not think twice about making you redundant, and almost all households are just a couple of paypackets away from the poverty line. I'm actually quite looking forward to renting, too. How many of us STRs are moving closer to our jobs and saving a wedge on travel costs (not to mention intangible time savings)? I look forward to having a 30-45 minute door to door commute in every day, which is as it gets for Londoners.

Immaculate logic from BP & Red Baron, as usual. Basically we are at or very near the top. The most vulnerable areas and properties are already stagnating and sliding as buyers refuse to match asking prices and vendors refuse to acknowledge that prices are falling; most of the regions are not far behind, and there is really only the dross that is still appreciating as the mug BTLs mop it up. When averaged out, the inertia in the market means that it is probably still moving up overall, but the lead areas have been falling since Merv's warning, and everything else will follow. May & June IR hikes are only *now* beginning to bite.