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cashinmattress

The Bottom In Uk House Prices Is No Bottom At All

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The bottom in UK house prices is no bottom at all

After a 75pc drop in mortgage approvals, record low transaction volumes and a 22pc fall in average values from their 2007 peak, some indicators suggest a floor has been reached. But the signs aren't yet conclusive. Further lurches downward cannot be ruled out.

The evidence of stabilisation looks convincing. April saw an increase in buyer enquiries for the sixth month running, according to the Royal Institution of Chartered Surveyors. Mortgage approvals climbed to 43,200 in May, the fifth monthly rise in a row, according to the Bank of England. In November they stood at 27,500.

The main housing index, the Nationwide, rose 1.2pc during May. The rival Halifax index, due this week, is likely to show a much milder decline than April's 1.7pc fall.

But it would be a gamble to assume prices are now locked into an upward trajectory. In the last twenty years, house prices have regained positive momentum only when mortgage approvals have exceeded 75,000, according to Capital Economics.

Skittish changes of demand in very thin markets probably explain the erratic behaviour of the two main price indices. On a month-on-month basis, Nationwide's rose in March, fell in April, then climbed again in May. Halifax's rose in January, but has been falling ever since. Such yo-yoing is a feature of housing downturns. The same thing happened between February and August 1993. But prices did not stabilise until late-1995.

If both indices move upwards together for three consecutive months, then a sustained recovery would almost certainly be underway.

But two things need to happen. First, the macroeconomic environment must stabilise. That seems a long way off: unemployment is predicted to rise from its present 7pc to over 10pc. Second, first-time buyers need improved mortgage terms. Securing a loan over 75pc of the value of a property has become much harder, according to the Bank of England's Credit Conditions survey. That suggests a £37,000 downpayment on the average property.

House prices need to fall another 17pc to get back to their long-run average of 3.7 times average income. Sanford Bernstein predicts a similar fall, based on the relationship between forecast GDP and last year's house-price changes. At most, the current "floor" is likely to be a very bumpy plateau.

Just some common sense.

Edited by cashinmattress

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quoting long term averages re:income is pointless when most households could have two full time incomes and also we have lower interest rates than then - you can't expect prices to plummet whilst financing costs are low and people are still working..... (yeah, I know...)

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quoting long term averages re:income is pointless when most households could have two full time incomes

Is that phenomenon recent enough to make "different this time"? :blink:

and also we have lower interest rates than then - you can't expect prices to plummet whilst financing costs are low and people are still working..... (yeah, I know...)

Yet they already have :blink:

Edited by wealthy

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Is that phenomenon recent enough to make "different this time"? :blink:

Yet they already have :blink:

With restricted mortgage financing, higher unemployment , low transaction volumes etc etc personally I would have expected house prices to plumet BUT I really don't think they have yet... the stats say 20% but I suspect there are loads of areas where you'd struggle to find much more than 10% off family homes based on sold prices...... so is the hous price crash going to happen or not .. I really do wonder..... the hard data would suggest yes, but then again that very same data was saying the same thing in 2003/4/5/6...... personally I do think further declines are on the way but I wouldn't be surprised if the process is much much slower and doesn't go nearly as low as some people have vehemently insisted they would ( 40%/50% more)..... maybe they'll just keep drifting down until we get to about 30-35% in two or three years time.

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With restricted mortgage financing, higher unemployment , low transaction volumes etc etc personally I would have expected house prices to plumet BUT I really don't think they have yet... the stats say 20% but I suspect there are loads of areas where you'd struggle to find much more than 10% off family homes based on sold prices...... so is the hous price crash going to happen or not .. I really do wonder..... the hard data would suggest yes, but then again that very same data was saying the same thing in 2003/4/5/6...... personally I do think further declines are on the way but I wouldn't be surprised if the process is much much slower and doesn't go nearly as low as some people have vehemently insisted they would ( 40%/50% more)..... maybe they'll just keep drifting down until we get to about 30-35% in two or three years time.

I think it is going to take a long time for people to accept the new reality.

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drifting down another third from today's prices.......over 6 to 8 years......making a 45-50% drop from the August 2007 peak...so i'm aiming to buy Summer 2015-17

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Guest KingCharles1st

Just wait till the big land sell-offs start

THEN, and only then, will common sense return to the British Isles.

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With restricted mortgage financing, higher unemployment , low transaction volumes etc etc personally I would have expected house prices to plumet BUT I really don't think they have yet... the stats say 20% but I suspect there are loads of areas where you'd struggle to find much more than 10% off family homes based on sold prices...... so is the hous price crash going to happen or not .. I really do wonder..... the hard data would suggest yes, but then again that very same data was saying the same thing in 2003/4/5/6...... personally I do think further declines are on the way but I wouldn't be surprised if the process is much much slower and doesn't go nearly as low as some people have vehemently insisted they would ( 40%/50% more)..... maybe they'll just keep drifting down until we get to about 30-35% in two or three years time.

Worth reposting this chart, abh. This has been a sudden fall compared to the last crash. We could level off for a few months and still be ahead.

HPC0409.gif

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Any decline in national average wages will be equalled and probably bettered by the decline in house prices due to the simple fact of leverage and tighter lending conditions. The fear "What if one of us loses our job" and 4x joint salary multiples+self cert+BTL+125% LTV's and you get a much much nastier down turn then the previous one.

With lending so lax in the boom, the bust will be bigger. Some are brave enough to call bottom now, but what exactly does the UK have to offer the world? Cheap labour? Skilled work force? Trouble free banking? Low taxation? Easy access to raw materials?

Without rebalancing of our economy or massive debasement of our currency,we can not compete.

Try explaining the concept of a $35,000 student loan to a chindian graduate with the same skill set as a UK one, and a basic cost of buying your own modest abode at $91,500 + Council tax and bills and you'd get a very confused look.

Sure it makes some sense with negative interest rates, but don't count on that party lasting to much longer, inventories built up in the boom are nose diving, once they have been sacrificed to feed the god of cash flow, unemployment will take off again.

Edited by Yoss

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I think it is going to take a long time for people to accept the new reality.

More accurately, it's going to take a long time for people to need to accept the new reality. Talk to sellers - most are aware of the wider situation, but (not - for the majority - being forced sellers) don't need to rush.

They want the onward chain to stabilise - why should they take a bigger hit selling their current house than the vendor of the their next house?

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Not the same story or the same writer, minds get made up on individual pieces or are you someone that believes everything in a paper?

So when challenged about the source, it becomes a writer/author thing? :lol:

Thanks for the laugh....

It is getting quite amusing that any recovery story [regardless of its author] is not even discussed but automatically dismissed here.

I am afraid it is nothing to do with its author, more of the widespread mentality here.

Simple.

Edited by Valerius

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The idea that low interest rates are a good thing when buying a house is a fallacy IMO.

The generation that did best and who are 'sitting pretty' now are the generation that bought houses when interest rates were 12-15%

When interest rates were that high, prices were held down and inflation meant that wages rose rapidly and the debt was also rapidly eroded.

If you take a mortgage out when rates are 15% your payments are only going to fall.

If you take out a mortgage at base rate of 0.5% + 3%, if base rates rise to 3,9 or 12 percent your payments could double, treble or quadruple.

And low interest rates will mean that you paid too much for the property in the first place.

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Worth reposting this chart, abh. This has been a sudden fall compared to the last crash. We could level off for a few months and still be ahead.

"Ahead"?  :)

Thanks, I hadn't seen that before, the chart on HPC doesn't show the "dead cat bounce" from last time so well.

Maybe time to SASOG?

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"Ahead"?  :)

Thanks, I hadn't seen that before, the chart on HPC doesn't show the "dead cat bounce" from last time so well.

Maybe time to SASOG?

I suspect you know exactly what I meant.

Just in case though, next time I'll explain it V-E-R-Y S-L-O-W-L-Y.

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The idea that low interest rates are a good thing when buying a house is a fallacy IMO.

The generation that did best and who are 'sitting pretty' now are the generation that bought houses when interest rates were 12-15%

When interest rates were that high, prices were held down and inflation meant that wages rose rapidly and the debt was also rapidly eroded.

If you take a mortgage out when rates are 15% your payments are only going to fall.

If you take out a mortgage at base rate of 0.5% + 3%, if base rates rise to 3,9 or 12 percent your payments could double, treble or quadruple.

And low interest rates will mean that you paid too much for the property in the first place.

yes, the view seems to be that house prices can be higher as interest rates are lower. but this is wrong.

you pay the same either way. in a high interest rate enviroment you might pay more of your income upfront but over time your mortgage gets inflated away. in a low interest rate enviroment the monthly payments are still material at the end of the term.

all the affordability stuff about 5x mortgages being ok while interest rates are low is rubbish - those that took out mortgages at 1/3 income when interest rates were high quickly found that they reduced as they got 15% pay rises each year etc.

thats why interest only mortgages are especially a problem.

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The idea that low interest rates are a good thing when buying a house is a fallacy IMO.

The generation that did best and who are 'sitting pretty' now are the generation that bought houses when interest rates were 12-15%

When interest rates were that high, prices were held down and inflation meant that wages rose rapidly and the debt was also rapidly eroded.

If you take a mortgage out when rates are 15% your payments are only going to fall.

If you take out a mortgage at base rate of 0.5% + 3%, if base rates rise to 3,9 or 12 percent your payments could double, treble or quadruple.

And low interest rates will mean that you paid too much for the property in the first place.

Nail on head!

Affordability always rules the day and that part in our massively devalued currency has yet to bite the masses in the **** (inventories are flat lining). Even with a big fudge in the RPI/CPI rates through lower rate of VAT!

Soon that lil fudge will have to be reversed and then the effective negative interest rate policy will take hold of the bond market....where the bond market leads, interest rates follow!

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So when challenged about the source, it becomes a writer/author thing? :lol:

Thanks for the laugh....

It is getting quite amusing that any recovery story [regardless of its author] is not even discussed but automatically dismissed here.

I am afraid it is nothing to do with its author, more of the widespread mentality here.

Val,

If you think all articles in a newspaper are written by the same person, or have the same bias, then you are as deluded as the same minority of other posters on here who share the same view.

Sad really :unsure:

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Nail on head!

Affordability always rules the day and that part in our massively devalued currency has yet to bite the masses in the **** (inventories are flat lining). Even with a big fudge in the RPI/CPI rates through lower rate of VAT!

Soon that lil fudge will have to be reversed and then the effective negative interest rate policy will take hold of the bond market....where the bond market leads, interest rates follow!

I don't think the VAT change made that much of a difference to CPI/RPI. After all, about 10% of the index will be non VATable foods, another chunk petrol/diesel that weren't affected, another chunk rents/energy and mortgage (for RPI).

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Val,

If you think all articles in a newspaper are written by the same person, or have the same bias, then you are as deluded as the same minority of other posters on here who share the same view.

Sad really :unsure:

That's not how I read what he said.

It's all about citing the Telegraph as an authoritative source (regardless of author) one minute and then dismissing it the next.

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