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House Price Crash Forum

Second Time Around

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  1. I was lurking on the site in 2005 - my recollection is that some posters then were basing their predictions on Fred Harrison's work based on the 18 year property cycle - so there were some predictions made at that time of a "top" being reached in 2007 or 2008. In that sense I think HPC foresaw and predicted correctly that the housepricemania could not continue indefinitely. However, I am in complete agreement with you that many posters, including me, failed to factor in the resolve and commitment of government to prevent the banks failing. However, that doesn't mean that the market won't win in the end - Mrs STA and I are happy to play a long game - the situation re house prices may look very different four years from now.
  2. Completely agree. Mrs STA and I have been saving for a bigger home in retirement. We have seen price falls in the North West (which is where we intend to retire to) of 15-20% from peak in some areas - so losses to the savings pot via inflation are minor by comparison. As far as the OP is concerned I believe that house prices will eventually go down about 60-70% from peak prices in real terms. Although warned by wiser posters on this forum about the determination of governments to avoid deflation I had to retract my earlier belief in seeing nominal falls at this level three years ago when the impact of QE became obvious. However, the QE policy is all that stands between current and future pricing of houses albeit prices will be in a depreciated currency.
  3. She has been appearing on TV (the Beeb particularly) for quite a long time. I recall her appearing on a Newsnight "Special" looking at the then overheated housing market in May 2007. She was of the view at that time (four months from the run on Northern Rock) that the fundamentals of the housing market were sound. It seems she has now been invited back to espouse her view of the world again without the caveat that her track record is not a flawless one.
  4. One of the things that was different with this crash was that the provinces didn't experience price drops in the fallout of a London/SE bust as happened in previous crashes. This time it was the provinces that saw the falls in activity and impacted on the average price falls nationally - I experienced that in the West Midlands in particular. London average prices have held up due to the foreign buyers for quality estate there. Properties in the North West (which is where Mrs STA ultimately wish to retire) actually rose for about a year after 2007 before falling back - which they continue to do. It's that unevenness of experience that makes generalising about price falls across the UK difficult and reconciling the national statistics from Haliwide and the Land Registry with personal experience in any area/region. However, nominal falls are actually happening now and realism is beginning to return. It's worth looking at properties recently listed on Rightmove (ignoring the chancers re-advertising unsold over-priced rubbish)and comparing with the unsold properties hanging around from a year or more ago - they are generally better value. Look at the following properties currently for sale: My link My link My link All have been reduced by 20% or more in real terms since intially being advertised and only one seems to have sold after a protracted period and price reductions (it might still re-appear). Yet in the madness of the boom in 2005-7 all of these would have been snapped up quickly at close to their asking price given their "potential" I am sure. I would argue that the appetite (and opportunity) for buying/investing in property is dwindling in the population at large. We also need to take account of reluctant renters forced to let out because they can't sell at the price they want - waiting for a restoration of prices which might never happen. Their actions might be serving to obscure the overall picture and really just delay the inevitable falls in price once reality dawns.
  5. I agree with you mfp123. Von Mises and the Austrian School provide a valuable insight and analysis here. The mal-investment taking place during the time of easy credit is identified and destroyed in the aftermath ie the "creative destruction" (as Schumpeter called it) of a recession/depression. Government intervention to prevent recession and depression has the effect of "locking in" the mal-investment and as you note prevents market signals from working properly. The beneficiaries are firstly those acquiring assets cheaply from the imprudent and reckless, and secondly those who were prudent and cautious in running their businesses - for many hpcers who have acted prudently their expectation is to benefit when over-priced assets such as housing has its price restored to long run equilibrium levels. I accept that the government policies such as ZIRP and QE have been interventions designed to prevent falling asset values, but these policies have been followed out of dire necessity. Policy makers and the politicians are well aware of the long term benefits of removing market distortions and some of those potential beneficiaries will no doubt be bending the same politicians' ears (or contributing to Party funds?) and bringing pressure to bear (no pun intended!) to change direction. Replying to the OP I can't see a quick nominal crash back to equilibrium if by "quick" you mean in a short period of 6-12 months. Past corrections have taken place over 3-4 year periods although often with a sharp fall in the initial years followed by a similar period of stagnating prices. It is sometimes forgotten that we actually saw a 13% fall (which back in the old days on hpc was regarded as a "crash"- level fall) in prices during the year from Oct 2007 before the government actions to prop up asset values and save the banks began. Given the pre-occupation with being re-elected I accept that the government is not going to want to be seen to precipitate a crash and to let those benefiting from the current policies feel abandoned in any policy shift. Its only option is to wait for a convenient, possibly externally driven event, such as the break up of the Euro, behind which it can hide from immediate blame in order to change its approach and focus on the groups excluded or held back by current policies. However, even if such an event took place (and it remains a biggish "if") the likely expectation is that falls in prices would take several years to "crash" - probably nominal falls of c8-12% per year for 3-5 years rather than being accounted for by a single large nominal fall in one year.
  6. Your post is referring to the American situation, but in my view the dynamics of the property market have now changed - both in America and UK. The only way for prices to go is down in real terms over the next few years. If you follow the classic property cycle (read Fred Harrison) it is 9 years to the bottom after a peak - so 2016 is the likely time to see prices reconciled in terms of median income ratios and rental yields vs house prices. However government intervention with low interest rates and QE has thrown a bit of mud into the pond so this might have the effect of extending the cycle - I don't know. Politicians will be reluctant to take the blame for crashing the housing market in spite of their knowing the benefits to the economy in terms of cutting personal and business costs. They are, on the other hand, also aware of the importance of currently high land values to bank balance sheets. If the UK government has the intention to wait for a "convenient crisis" (such as the fallout from the break up of the Euro) to allow it to crash the property market (an idea mooted by some hpcers on other threads) this might enable the quick adjustment to take place without government taking the blame. Currently there seems to be little appetite from FTBers to buy at current levels and only limited activity from BTL "investors" and once prices fall it is likely, at least in the early stages, that "savvy" potential buyers will hold off buying in the expectation of further falls in price. If that mentality takes hold the government might feel reluctant to take any measures to prop up house prices for fear of alienating potential FTBers (and their parents) and preventing economic revival. Therefore an inverse of a boom in terms of spiralling-downward prices is a feasible option on that scenario. As a believer that the long-term equilibrium of the market will be restored I expect a real fall in prices from peak of about 60-70%. This is actually happening in the US.
  7. A much happier ending than disappearing in the flat above the burning carpet store in Croydon.............?
  8. I agree with you Mr Pin. I don't see the top end performing particularly well in the North West and Midlands - a lot of properties are still on Rightmove from 2009. This year some of the new properties in the c£1m area seem to be more competitively priced. I can only put the enthusiasm to pay so much at the top end down to old habits dying hard amongst those who still believe that you can't lose with bricks and mortar and are ignorant of the fragility of the present market. You have play the long game here - along with other countries which have "guaranteed" their banks, the UK has the potential fallout from a Greek default to absorb and once that is over in a year or two attention from international investors to its level of debt and likelihood of paying it back. It will hit earnings and effective demand for property will fall. QE and low interest rates will just exacerbate this.
  9. I think this is on the right lines and deep down I hope that you are right BUT the strategic thinking is, as you say, to play for time in the hope that the banks can take a hit without the disaster a 2007 default would have wrought on the UK system and wider economy. However, it might be premature to think we are much better off than four years ago and we might still have another round of QE just to cushion the banks again: see quote below from BoE website: "At its meeting in February 2010, the Committee voted to maintain the stock of asset purchases at £200 billion but the Committee will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them." My link Mrs STA and I are still happy to play the long game - we appreciate many on this site can't. The scenario you describe is likely to be delayed until 2013-14 (probably until after a snap general election?)if we have another round of QE, but by then we will be ready to buy (with cash) a retirement home at the bottom of this downturn in 2015-16. However, let us not forget that the price crash is already here, but in slow motion. By 2016 average UK house prices will have fallen to]30-40% of the 2007 peak prices in real terms.
  10. Another thread has picked up on the movement of investors' funds to the US and UK as a consequence of the turmoil in the Euro zone. As you say this downgrade might force the US to raise interests ie not wishing to lose out to the UK if it appears to be a lower risk. I can't see the UK avoiding much greater scrutiny over the next couple of months - attention has been diverted from its even more dubious position owing to the US and PIIGS being in the media spotlight - this might prove to be a turning point for UK interest rates. I can't see the UK able to compete for investors' funds with the US by continuing its current policies indefinitely - something will have to change.
  11. Similar feeling to the OP - that there's a bigger picture we as yet cannot get sight of. But a few of us - not yet the wider population - can't help but get drawn in. Perhaps for the many we could re-issue this poster with a new title "Daddy. What did you do during the Great de-Leveraging?"
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