Uk House Prices Will Plummet: Look At This Scary Chart

[carrera]

House prices have plummetted in a sense. Although the actual asking prices and acceptance prices might not have fallen much, the greatly lower interest rates mean that as well as lower monthly mortgage payments, the total repaid over the mortgage lifetime would be much lower (assuming rates stay low, which they probably won't) But 18 months of very low rates could mean thousands off the total mortgage you end up paying during its lifetime.

But aren`t banks actively evaluating their books and asking those on SVR's in substantial negative equity to either move to a different product or new lender ?

I know of two people who have been asked to put up a capital contribution or been re-evaluated as they "no longer fit their lenders criteria" and have been asked to move mortgage ... neither can and face either 7% rates or repossession.

[bobthe~]

It's just that during the last UK crash, the only blip in the downward curve I can detect is closer to the bottom than the top. Anyone buying at that point would have not lost much if they'd had to sell anytime before that price returned.

As the economic situation is very different this time around (low interest rates, low inflation and global recession) the Japanese market may be more representative of what will happen than the historical UK one.

I don't know what will happen, that's why I'm on here and not betting on property futures. I'd just like to see some more solid evidence to back up the "classic bubble market" graph that people seem to think has to apply this time when it clearly didn't very well last time in the UK.

Hi Andy.

One thing to remember about the last HPC was that it was regional. The regional effects in London at the start of the crash were smoothed out by the other areas that didn't fall till later, or didn't fall at all. There was no crash last time in Northern Ireland or Scotland. I haven't had the time to look at other areas, but have previously posted a graph showing London last time, based on the NWide regional figures. These showed 2 disinct "pauses" before resuming a downward trend until the end of the crash.

Similarly the price falls in some northern parts that occurred later were masked by improvements in London.

This time it is fair to say that all regions of the country have fallen pretty much the same (until the last few months, where richer areas seem to have seen an influx of buyers causing a support and maybe an uptick, it is difficult to know which as I am not an EA and so don't see the agreed prices).

So it has come as no surprise to me that a 20% drop in prices has seen support, because that is what happened in London last time.

I don't currently have a lot of time to do the regional plots for other areas, but I think it would be interesting to see if they all had these support levels before falling further or if they dropped all in one go.

Regards

Bob

[Bloo Loo]

Hi Andy.

One thing to remember about the last HPC was that it was regional. The regional effects in London at the start of the crash were smoothed out by the other areas that didn't fall till later, or didn't fall at all. There was no crash last time in Northern Ireland or Scotland. I haven't had the time to look at other areas, but have previously posted a graph showing London last time, based on the NWide regional figures. These showed 2 disinct "pauses" before resuming a downward trend until the end of the crash.

Similarly the price falls in some northern parts that occurred later were masked by improvements in London.

This time it is fair to say that all regions of the country have fallen pretty much the same (until the last few months, where richer areas seem to have seen an influx of buyers causing a support and maybe an uptick, it is difficult to know which as I am not an EA and so don't see the agreed prices).

So it has come as no surprise to me that a 20% drop in prices has seen support, because that is what happened in London last time.

I don't currently have a lot of time to do the regional plots for other areas, but I think it would be interesting to see if they all had these support levels before falling further or if they dropped all in one go.

Regards

Bob

As far as I recall, this is exactly right, and before Bulls argue that there also wont be regional crashed this time either, like Aberdeen or Maidstone for example, they need to remember that the areas that didnt crash didnt boom either.

[Andy D]

All interessting stuff, although nothing really new in there that hasn't been seen before.

I am deeply suspicious of these "re-hash" articles... for instance it would have been more intelligent for instance to look at the value of houses vs stocks and then discuss whether the stock market is undervalued or house overvalued.... personally I believe the stock market is more undervalued than the housing ,market is overvalued...... his predictions are that house prices have a lotlot further to fall... his silver chart indicating perhaps another 90%... he will know in the housing market these things take time..... but if stocks rebound by another 15 %, suddenly all the predictions look askew.

Housing will continue to fall, but half the problem for those looking for when might be a good period to buy is that the world seems full of these seemingly well argued but in truth rather simplistic pieces from quasi journo's.

The other thing that troubles me with this sort of article is it ignores what's factors that change the behaviour of what's being used as a metric - stock market level, value of gold etc.

For example how much has the factors affecting stock market value changed in the last ten years - it hasn't really gone anywhere in despite an "economic boom" and I wonder how much things like the changes in pension rules e.g. removal of dividend tax credit, move to holding more gilts etc. have affected this

Andy

[andykn]

That graph is just illustrative, it is just intended to show that there is usually a short bounce in the middle of a bursting bubble. Anyone, bull or bear, who tries to overlay that onto a specific market in terms of the timing of any of the phases is barking up the wrong tree.

Fair enough, it just seems that some people take it too literally and see it almost as proof that the falls to date are only just the beginning.

As economic conditions this time round are different, they may be, but that chart would be a better model based on historical UK house prices if the "bull trap" was lower down.

[watcher]

Haha.

That's not too different from what Fred Harrison says!

Property Crash Cycle - Introduction to Fred Harrison's 18 Years

Is there a property crash every 18 years? Fred Harrison thinks so. In his book: Boom Bust, House Prices, Banking and the Depression of 2010, Harrison describes a cycle of 18 years. If he is right, we are headed towards a Depression by 2010, and it will be many years before those who bought at the peak will be back to even. This is the introduction to the cycle. Other videos look into historical prices in more detail.

Thanks for the video DrBubb. Very informative.

[abharrisson]

If you are referring to Dominic, Id like to point out that he puts his own money at risk on his views,

and has done rather well by doing that,

Most journos have no money, and no risk appetite. You can decide who you would rather listen to.

Doesn't matter to me whether he puts his money where his mouth is or not.... I stick by my judgement that his articel is a rehash, and fairly poor quasi-journalism... the reason I despise articles like this ( and it may be I just got the author on a bad day) is that they try and look all professional with charts for this and that and ratios etc etc..... in fact scratch the surface and many of these charts are fairly useless and could be argued strongly any which way. the problem is some people who genuinely don't know any better, looking for some help stumble upon these things and actually action them, making sometime life changing decisions off the back of a quasi-journo's scribblings.

[jborg]

House prices have plummetted in a sense. Although the actual asking prices and acceptance prices might not have fallen much, the greatly lower interest rates mean that as well as lower monthly mortgage payments, the total repaid over the mortgage lifetime would be much lower (assuming rates stay low, which they probably won't) But 18 months of very low rates could mean thousands off the total mortgage you end up paying during its lifetime.

Also i wonder whether the fact that interest rates are already low so early into the cycle, compared to high interest rates in previous crashes, explains the early sucker rally, whereas in previous cycles the rally was further down the curve.

[bobthe~]

Also i wonder whether the fact that interest rates are already low so early into the cycle, compared to high interest rates in previous crashes, explains the early sucker rally, whereas in previous cycles the rally was further down the curve.

Well, going back to London and the South East last time (yes, I know I am going on about it again), the support came a lot later in time, but after the same percentage drop, around 20%. Inflation is different this time, and so wage inflation is also different, but the efforts to keep hard working families in their homes with lower IRs and kindly repo policies may well have reduced supply, thus making the bounce more pronounced than last time.

It will be interesting to see what unfolds in the next few months.

[Moo]

For example how much has the factors affecting stock market value changed in the last ten years - it hasn't really gone anywhere in despite an "economic boom" and I wonder how much things like the changes in pension rules e.g. removal of dividend tax credit, move to holding more gilts etc. have affected this

I know it's a bit of an obvious one to pick on given the nature of the site, but based on my usual highly dubious small sample of personal anecdotes, I'd say the property boom has had an awful lot to do with that, especially buy to let mortgages (as opposed to outright purchases).

The way I see it is pretty much...

The minimum purchase size for stock market investment isn't all that big. Consequently, if you had, say, £10k kicking about in the 80s, that's probably where it would end up, as there weren't a huge number of readily available alternatives for Ye Average Bod. The widespread availability of BTL mortgages had the effect of massively reducing the minimum amount of cash Ye Average Bod needed to directly invest in property, and so opened up another possible place to put money, and an extremely 'simple' one to comprehend ("big investments for little fingers").

What's more, I feel the whole herd mentality thing came into play regarding stocks since the last boom. We had the dotcom farce, which sapped an awful lot of confidence in stocks as something even remotely safe, and I'm very much of the belief that it only takes a couple of the blokes in lounge bar to take a thrashing on some sort of investment to spread the word around that maybe it's something worth avoiding. The fact that going in after dotcom and coming out again (FTSE tracker) at the point where things were very obviously going tits up in '07 would have seen a bloody good return doesn't enter into it, as it just wasn't widely percieved as safe at the time.

Something I'll be interested to see is what flavour of investment will be the next to step up to the plate as Ye Average Bod's get-rich-quick-but-still-give-the-impression-of-being-good-long-term scheme. Something power-related springs to mind, but until there's a bit more money sloshing around the public's wallets (a few years away yet) we won't really know.

[eric pebble]

Something I'll be interested to see is what flavour of investment will be the next to step up to the plate as Ye Average Bod's get-rich-quick-but-still-give-the-impression-of-being-good-long-term scheme. Something power-related springs to mind, but until there's a bit more money sloshing around the public's wallets (a few years away yet) we won't really know.

Could be electric cars.....

[andykn]

Hi Andy.

One thing to remember about the last HPC was that it was regional. The regional effects in London at the start of the crash were smoothed out by the other areas that didn't fall till later, or didn't fall at all. There was no crash last time in Northern Ireland or Scotland. I haven't had the time to look at other areas, but have previously posted a graph showing London last time, based on the NWide regional figures. These showed 2 disinct "pauses" before resuming a downward trend until the end of the crash.

Similarly the price falls in some northern parts that occurred later were masked by improvements in London.

This time it is fair to say that all regions of the country have fallen pretty much the same (until the last few months, where richer areas seem to have seen an influx of buyers causing a support and maybe an uptick, it is difficult to know which as I am not an EA and so don't see the agreed prices).

So it has come as no surprise to me that a 20% drop in prices has seen support, because that is what happened in London last time.

I don't currently have a lot of time to do the regional plots for other areas, but I think it would be interesting to see if they all had these support levels before falling further or if they dropped all in one go.

Regards

Bob

Thanks. That's an analysis that makes a lot of sense to me. I might have time to knock up some regional charts from last time in a couple of weeks.

Personally I don't think the recent price "rises" are terribly significant statistically - volumes too low.

To my mind the big question is will prices drop by the same percentage as last time or to the same level relative to earnings? And is there a long term trend for the South east to rise at the expense of everywhere else?

And that's two questions, doh!

[Executive Sadman]

Had a good look on ourproperty today and am ASTONISHED by 1995-1998 prices. As i understand, volumes were healthy back then and by the looks of it practically all homes sold for what now seems so very cheap. Not like the current situation we are in where prices are falling, but volumes are diabolical as most sellers are in denial. It seems in the last trough, everyone accepted theyre loss and just got on with things. Wonder how long it will take this time.

Also noticed many prices DOUBLED between 1996-2001. It was unsustainable even in those early days.

[Montauk]

Thanks OP, lovely Bear Food.

I'm keeping a list of those who are buying in now and chuckling as they try and justify thier mistake on this forum. What surprises me is that they still visit and post, proving that they have fallen into the Bull Trap, hook line and sinker. They have obviousley learnt nothing from this site and believe they are being clever.

Time will tell

Yes, I'm one of those. I have a unique strategy: buy high and sell low.

[Kazuya]

Also noticed many prices DOUBLED between 1996-2001. It was unsustainable even in those early days.

Yeah, we reached the 1989 peak in 2002, 6 years after the trough!

[tiggerthetiger]

Yes, I'm one of those. I have a unique strategy: buy high and sell low.