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Housing Market 'still Has 10pc To Fall'

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http://www.telegraph.co.uk/finance/5370047...pc-to-fall.html

Housing market 'still has 10pc to fall'
Goldman Sachs has tempered expectations of an imminent recovery in the UK housing market by forecasting a further 10pc fall in prices.
By Graham Ruddick
Last Updated: 9:22PM BST 22 May 2009
In a comprehensive note on the housebuilding sector, the investment bank said it would be year before house prices found the bottom of the market in the second quarter of 2010.

Another 30%--at least. These experts have conisistently underestimated the power of mass unemplyment to lower house prices.

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Another 30%--at least. These experts have conisistently underestimated the power of mass unemplyment to lower house prices.

Lets not forget higher taxes, LTVs, and a non-existent securisation market. ;)

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I think it will be beyond 2010.

Unepmployment will continue to rise into 2010. That's pretty certain. Then we'll get a Conservative government in June that will announce large public spending cuts. They have no choice -- I think California is the model to watch. Wages will be under huge downward pressure at that point.

I expect yields in the bond market to be rising pretty sharply by then.

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I think it will be beyond 2010.

Unepmployment will continue to rise into 2010. That's pretty certain. Then we'll get a Conservative government in June that will announce large public spending cuts. They have no choice -- I think California is the model to watch. Wages will be under huge downward pressure at that point.

I expect yields in the bond market to be rising pretty sharply by then.

Another 40-50% drop to go - will get there around 2012/13, Japan style......

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30pc from summer 2007 to 2010.
when did they forcast that? hpc forcast by us was 2006,. and mile said it mid/late 2007, so were did they get that idea.

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Another 40-50% drop to go - will get there around 2012/13, Japan style......

Eric,

It was 40% on another post....now its 40-50%.......60% by tea time? Apart from two short words in big red letters, what convinces you that the price of the average house will drop to between £75500 and £90600. If we get to these levels, surely the whole banking / finance system in the UK will collapse and houe prices will be the least of our worries! :ph34r:

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Eric,

It was 40% on another post....now its 40-50%.......60% by tea time? Apart from two short words in big red letters, what convinces you that the price of the average house will drop to between £75500 and £90600. If we get to these levels, surely the whole banking / finance system in the UK will collapse and houe prices will be the least of our worries! :ph34r:

You've posted here for seven months, and you still have to ask that question?

Edited by linuxgeek

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You've posted here for seven months, and you still have to ask that question?

I want prices to fall, but not at the cost of total financial collapse, wiping out all savings, pensions and the very fabric of our society. THe system can probably cope with another 20% falls in a short period, but a further 50% off where we are today, ie the average house price falling from £151,000 to £75,000 in the next 2 years????? True I would be able to buy a nice house mortgage free, but consumer spending would vanish and my business would die. Falls of that scale in a short period of time would be incredibly destructive. Unemployment would go ballistic and we would descend into a viscious spiral of debt and misery. If houses get as low as £75,000 I doubt they will stop there!!!!

Call me naive for not wanting that if you wish.

With regard to Eric's post, we all know his stance on liar loans etc and I commend him for that, but he can make epic prognostications at times without explaining his reasoning / evidence. That is all I really want to see, so I can judge if I need to be buying the beans yet! ;)

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I want prices to fall, but not at the cost of total financial collapse, wiping out all savings, pensions and the very fabric of our society. THe system can probably cope with another 20% falls in a short period, but a further 50% off where we are today, ie the average house price falling from £151,000 to £75,000 in the next 2 years????? True I would be able to buy a nice house mortgage free, but consumer spending would vanish and my business would die. Falls of that scale in a short period of time would be incredibly destructive. Unemployment would go ballistic and we would descend into a viscious spiral of debt and misery. If houses get as low as £75,000 I doubt they will stop there!!!!

Call me naive for not wanting that if you wish.

With regard to Eric's post, we all know his stance on liar loans etc and I commend him for that, but he can make epic prognostications at times without explaining his reasoning / evidence. That is all I really want to see, so I can judge if I need to be buying the beans yet! ;)

It comes back to a very simple concept. What is the basis of price support at any given level?

1. Wages. The first answer is wages from which mortgage multiple can be derived. In the private sector, particularly amongst real wealth producers such as manufacturing and engineering you can find evidence of significant wage cuts, typically 5-10% but anything up to 30% or large scale redundancies.

2. Credit Multiples - forget whether or not somebody is actually eligible for a mortgage. 3.5x single salary mortgages developed over time because they enabled the banks to extract the maximum value from the mortgage holder whilst leaving both sides with a safety net. It's my belief that we will go back to 3.5x salary for one reason - shareholders.

(In reality 3.5x average wage plus a 10% deposit is the price support for a 2 bed flat or starter home. So, around the 90k mark rather than the 220,000 being advertised around here).

3. Shareholders - aren't going to be happy about their holdings being diluted any more than they have done through rights issues. They will want a period of stability and they will demand a return to levels of performance that protect them.

4. Exisiting equity. Sales are going through at the moment but by and large only within the group that already owns property and has an equity base to work from or investors who are seeking what they think will be capital protection.

5. The requirement for a depost. In order to maintain house prices at 150k for a two bed flat, a first time buyer will require a mortgage between 15,000 anywhere up to 35,000 and that is largely unattainable apart from HPCers of course.

House price deflation needs to be controlled to prevent outright panic, but it is inevitable and going to be very real.

Consumer spending will be based on savings and not credit (think about the effects of Obama's credit card bill on aggressive lenders like MBNA and Capital One etc and their willingness and ability to lend).

Whilst exisiting debt is paid down consumer spending will decline. It's going to be a very painful 3-4 years (I suggest this based ona typical unsecured loan of 5000 over 36 months plus credit cards at an average outstanding balance of £2,000). People out there have 20,000+ of unsecured debt so they are out of the consumer game for a long time.

For the time being it is a question of debt and how long it will take to pay down the debt to a sustainable level.

Edited by linuxgeek

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It comes back to a very simple concept. What is the basis of price support at any given level?

1. Wages. The first answer is wages from which mortgage multiple can be derived. In the private sector, particularly amongst real wealth producers such as manufacturing and engineering you can find evidence of significant wage cuts, typically 5-10% but anything up to 30% or large scale redundancies.

All true and will continue for a while. If we get 50% HPC from here, this can only speed up. THe added costs to the state and loss of tax revenue will lead to swinging cuts within the private sector too, hastening all aspects of the demise of consumer spending

2. Credit Multiples - forget whether or not somebody is actually eligible for a mortgage. 3.5x single salary mortgages developed over time because they enabled the banks to extract the maximum value from the mortgage holder whilst leaving both sides with a safety net. It's my belief that we will go back to 3.5x salary for one reason - shareholders.

The FSA were close to announcing caps a couple of months ago, and pulled back after lobbying / govt intervention when it was pointed out that a cap would hasten HPC

(In reality 3.5x average wage plus a 10% deposit is the price support for a 2 bed flat or starter home. So, around the 90k mark rather than the 220,000 being advertised around here).

I come from Southampton. I know how mad it has been! In 1995 you could get a 3 bed semi for £60k!

3. Shareholders - aren't going to be happy about their holdings being diluted any more than they have done through rights issues. They will want a period of stability and they will demand a return to levels of performance that protect them.

50% off current prices and all our financial institutions will be nationalised. Shareholders will have nothing.

4. Exisiting equity. Sales are going through at the moment but by and large only within the group that already owns property and has an equity base to work from or investors who are seeking what they think will be capital protection.

Agreed. Its a shame to watch them destroy their capital chasing yield. 2.5% in the bank is better than -50% in property!

5. The requirement for a depost. In order to maintain house prices at 150k for a two bed flat, a first time buyer will require a mortgage between 15,000 anywhere up to 35,000 and that is largely unattainable apart from HPCers of course.

How did we get into this mess?

House price deflation needs to be controlled to prevent outright panic, but it is inevitable and going to be very real.

Agreed, hence my question to Eric's post. We need to be careful what we wish for!

Consumer spending will be based on savings and not credit (think about the effects of Obama's credit card bill on aggressive lenders like MBNA and Capital One etc and their willingness and ability to lend).

The switch to a saving generation from a debt ridden generation will crucify consumer spending, with a huge impact on consumer businesses.

Whilst exisiting debt is paid down consumer spending will decline. It's going to be a very painful 3-4 years (I suggest this based ona typical unsecured loan of 5000 over 36 months plus credit cards at an average outstanding balance of £2,000). People out there have 20,000+ of unsecured debt so they are out of the consumer game for a long time.

For the time being it is a question of debt and how long it will take to pay down the debt to a sustainable level.

It is a terrifying mess that we find ourselves in. I want to buy a nice house for £75K, but if prices drop to that level, the impact of NE, deflation / hyperinflation, unemployment, bond market failure etc is too high a price to pay. A slow managed decline is the least painful way out that I can see. THe govt may well be aiming for it but they can't say it, and they probably will lose control of the process anyway.

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my question is why would a collapse in house prices cause such consequences at a time when noone is selling houses?

the only answer I can think of is that people are relying on releasing equity so they can spend, and a falling market ggives no equity to release. Does our economy rely that much on people selling houses for profit?

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my question is why would a collapse in house prices cause such consequences at a time when noone is selling houses?

the only answer I can think of is that people are relying on releasing equity so they can spend, and a falling market ggives no equity to release. Does our economy rely that much on people selling houses for profit?

No the mortgage debts are assets on the banks balance sheets. A crash decimates the value of those assets, leading to further liquidity problems and bank bailouts and nationalisations. The banks stop lending and the economy is further paralysed by the banking crisis and more businesses fold as consumers refuse to spend. Rising unemployment leads to lower tax revenues and higher benefit costs. Govt borrowing increases until no one will lend any more money to the UK. Either the IMF gets called in to bail us out and insists on massive public spending cuts or interest rates go through the roof to tempt others to buy our debt. With the massive level of consumer debt in the system currently in oversized mortgages and unsecured lending, the raised IRs cause havoc like in 79-82 and 89-91. Further repossessions, unemployment, social unrest, decimation of public services etc.

That is not difinitive I have missed out or am unaware of many other factors, but it gives a flavour of what might be in our near future. Its a good thing Britains Got Talent is on tonight or there might be riots! ;)

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With historically low interest rates we are in a very wierd place at the moment. Prices hav fallen from the top of the bubble despite rates at historic lows. This is unprecedented in recent history. THose who feel their jobs are secure and are on tracker mortgages are probably feeling very rich at the moment. THe low IRs mean they have plenty of spare cash, and they are supporting consumer spending. On the other side of the coin, the recently unemployed are finding jobs almost impossible to come across, and falling house prices, looming negative equity etc must be incredibly soul destroying whilst watching others prosper.

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Eric,

It was 40% on another post....now its 40-50%.......60% by tea time? Apart from two short words in big red letters, what convinces you that the price of the average house will drop to between £75500 and £90600. If we get to these levels, surely the whole banking / finance system in the UK will collapse and houe prices will be the least of our worries! :ph34r:

He doesn't have anything to back it up that is the point! All he does is post things in BIG RED LETTERS

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Another 40-50% drop to go - will get there around 2012/13, Japan style......

Eric,you're wrong!.... another 40-50% drop will take till 2016-17........... :lol:

Edited by Michael

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He doesn't have anything to back it up that is the point! All he does is post things in BIG RED LETTERS

You on the other hand back up all of your posts with evidence and reasoned argument!!!!!

NOT!

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Welcome back RB. The place isn't the same without you!

Are GS predicting this, or telling us this is what will happen (given their power and influence)?

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With regard to Eric's post, we all know his stance on liar loans etc and I commend him for that, but he can make epic prognostications at times without explaining his reasoning / evidence. That is all I really want to see, so I can judge if I need to be buying the beans yet! ;)

Nope. 3 x 15 = 45. £15k is the wage MANY people earn - if not less. Therefore - lowliest properties worth £45k. Simple really.

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I want prices to fall, but not at the cost of total financial collapse, wiping out all savings, pensions and the very fabric of our society. THe system can probably cope with another 20% falls in a short period, but a further 50% off where we are today, ie the average house price falling from £151,000 to £75,000 in the next 2 years????? True I would be able to buy a nice house mortgage free, but consumer spending would vanish and my business would die. Falls of that scale in a short period of time would be incredibly destructive. Unemployment would go ballistic and we would descend into a viscious spiral of debt and misery. If houses get as low as £75,000 I doubt they will stop there!!!!

....................////

Just because you don't "WANT" this to happen -- doesn't mean it's NOT going to happen. :rolleyes::P

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Nope. 3 x 15 = 45. £15k is the wage MANY people earn - if not less. Therefore - lowliest properties worth £45k. Simple really.

I think people will be bunkered up and eating beans instead of buying houses for £45k :P

Next asset bubble will be weaponry like guns to keep the thieves at bay.

Total society collapse imminent :ph34r:

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