The Unemployment Figures Mean Carnage For The Property Market

[The Masked Tulip]

http://www.moneyweek.com/news-and-charts/e...ices-93308.aspx

The threat to house prices

But the real damage of a further job loss surge is likely to be a flood of home loan defaults. Stansfield reckons the number of residential property borrowers who fall behind with their payments could climb even higher than the 350,000 level reached in the 1990s recession.

He's expecting that 375,000 families will run into arrears. That's unless the dole queues lengthen even more than he thinks, in which case up to 400,000 could hit trouble.

This will lead to a spurt in forced selling, and also repossessions. At the same time, the pay squeeze will make life tougher for borrowers if loan rates start rising again – and fixed rates are already up to a ten-month high.

Why housing bulls are wrong

Right now, most commentators appear to have turned bullish on British house prices. And my inbox is full of messages from estate agents citing lack of supply, i.e. not many sellers around.

But that could be about to change. A vicious downward house price value spiral could now start to develop as more borrowers are forced to unload their properties at fire sale prices.

Just look at the chart below:

...and hence the above link for the full article...

I am begining to think that people will be unemployed, have loads of debt and still Brown will allow them to stay in their fantasy-priced houses no matter what.

"I don't have two beans to rub together but my house is worth half a mill!"

[blankster]

I used to think this but I'm not so sure now. Low interest rates mean that nothing like as many people are finding their mortgage costs crippling to the extent they are forced to sell. Added to that the public seem to be thinking that prices have stopped falling drastically and that now might be the time to buy before prices rise again.

I now see unemployment as a 'tree-shake' of surplus workers from the economy. Life is going to very hard for a lot of them but those who remain in employment could be part of the recovery, simply leaving the unemployed behind. A housing market has never needed everybody to be able to participate in order to be booming, any more than the diamond market or the luxury powerboat market.

[Imminent_plunge]

I used to think this but I'm not so sure now. Low interest rates mean that nothing like as many people are finding their mortgage costs crippling to the extent they are forced to sell. Added to that the public seem to be thinking that prices have stopped falling drastically and that now might be the time to buy before prices rise again.

I now see unemployment as a 'tree-shake' of surplus workers from the economy. Life is going to very hard for a lot of them but those who remain in employment could be part of the recovery, simply leaving the unemployed behind. A housing market has never needed everybody to be able to participate in order to be booming, any more than the diamond market or the luxury powerboat market.

You're comparing a housing market with a luxury market, when everyone in the UK needs food and shelter. Yes, there is and will be a tree-shake of surplus workers who will become unemployed, but unlike selling yachts or diamonds, the need for a roof over their heads is still there.

[drrayjo]

Is it different this time?

[Willy Weasel]

I don't think massive deafults or increases in unemployment are required for house prices to fall further (although they will undoubtedly be a contributory factor).

At the moment we have a market where the aggregate asking price of all the houses currently on the market massively exceeds the total amount of money available for house purchase.

The result is that the market is not clearing ie a large number of properties on the market are not selling. We've all seen this from our own browsing of Rightmove. The best properties in each area or at least the ones that are most competitively prices (mostly the ones arising from the three Ds) are selling. The rest are not.

The supply of money for house purchase is therefore concentrated in a very small segment of the market. This is why prices of houses actually selling have stabilised - that money is chasing a tiny number of properties.

But where is that money coming from? Mostly, former STR'ers who are stepping back into the market; first time buyers using the bank of mum and dad for a deposit; or the 'cash-rich' investors who are calling the bottom.

There will come a point in the near future however when those buyers have all bought a house (let's face it, they make up a tiny proportion of the population).

At that point there will still be the same or an increasing number of people who have to sell (because of the three Ds) but will be relying on selling to someone who has a house to sell themselves. It is at that point that house prices will once again fall (and the fall could be very dramatic over a short space of time) as those vendors simply have to accept a price that those buyers are able to pay (bearing in mind the available deposit of those buyers is likely to be considerably smaller because of the fact that they are relying on equity in the house they are selling as a deposit).

Just a bit more patience is required.

The crash continues...

[futurepaul]

You're comparing a housing market with a luxury market, when everyone in the UK needs food and shelter. Yes, there is and will be a tree-shake of surplus workers who will become unemployed, but unlike selling yachts or diamonds, [i]the need for a roof over their heads is still there.[/i]

AKA Demand

I want to see prices comedown but interest rates are too stupidly low to force a market correction. After all people evicted 'cos they can't pay their £350 pound a month (depending on when they bought) mortgage will have to rent at £650.

I am starting to think this is a two class recession the rich (no leverage) and the young (highly leveraged). I fit in the middle ground no debt but not interested in getting into debt

[piece of paper]

While Moneyweek echoes the prevailing sentiment on this site, I do sometimes wonder whether it has a VI. I don't know what it is.

p-o-p

[porca misèria]

This'll be precisely why we're Zimbabwifying.

The event that'll turn it round and give us a dose of cold turkey will be a new government.

[puppee]

I used to think this but I'm not so sure now. Low interest rates mean that nothing like as many people are finding their mortgage costs crippling to the extent they are forced to sell. Added to that the public seem to be thinking that prices have stopped falling drastically and that now might be the time to buy before prices rise again.

I now see unemployment as a 'tree-shake' of surplus workers from the economy. Life is going to very hard for a lot of them but those who remain in employment could be part of the recovery, simply leaving the unemployed behind. A housing market has never needed everybody to be able to participate in order to be booming, any more than the diamond market or the luxury powerboat market.

you think you will leave the unemployed behind i don't think so as when people get desperate they will do desperate things, like you wake up for work and your car is gone, you then get home from work and your house has been cleared out, muggings etc etc, if its about survival you would be surprised what people are prepared to do

[Caveat Mortgagor]

Its very simple.

There is an election next year. Gordon has a plan that revolves around the masses believing everything they see on the TV (hence the engagement of Sugar, Phillips etc in Govt roles). Fortunately he has some Gordon friendly allies at the Beeb.

Gordon thinks he can spunk 100's of billions up the wall and call himself the world saviour. The Beeb will certainly big him up.

The spunking of billions started some time ago. Gordon seems to have chosen policies that will delay or temporarily prop up the failings in our economy rather than prevent these problems from occurring or relieve them permanently.

The money will run out. The initiatives will fail. It will be paid for after Gordon has left the building. For a very long time.

The W shaped recession is an illusion. It is a long recession but there will be a blip in the middle resulting from a massive cash spunking exercise initiated by a one eyed scottish loon. It seems like a recovery. But its not, its a con trick. A bloody expensive one.

The second part of the 'W' will be the most savage. This will be when the penny drops for the big dancing celebrity brother in the jungle generation.

But of course, by then the banks will be sitting pretty having hoovered up the cash deposits of the impatient STR's and well meaning but misguided parents who dont want to see their kids miss out on 'cheap' properties.

This will also be when interest rates start to get really savage and the tax man will decide he needs a bit more of what you earn every month.

Wait for the second part of the 'W' for the carnage in the prop market. The middle of the 'W' is merely a smoke and mirrors con trick.

[Selling up]

AKA Demand

No.

The need for a roof over ones head is most certainly not the same as the economic demand for housing.

Why?

1. Because the need for a roof over ones head can be met in a multitude of ways other than by purchase of a house.

2. Because economic demand means the desire and ability to purchase an item. Doesn't matter how much it's "needed", if the credit to support current prices is not forthcoming, there is little demand at current prices.

[disgruntledinmaidenhead]

While Moneyweek echoes the prevailing sentiment on this site, I do sometimes wonder whether it has a VI. I don't know what it is.

Clarification if you would - becasue i'm not sure.

I read 'VI' as spin or an angle on something.

But to be honest i have no idea of what it really means or is meant to mean, or indeed where it comes from .. it does seem to have a negative feeling when used though, is that always the case ?

[billsballs]

Can i just add an anecdotal to the point.

A mate of mine has a pretty decent tracker. He's paying £200 per month on a £500,000 loan. Astonishing really.

This resets in November and he's being offered £2,080 per month instead. He's in negative equity and therefore treated as a high risk borrower unsuprisingly.

The cost of borrowing is completely divorced from the base rate. The best fixes and trackers are slowly reaching the end of their terms.

Anyone who bought betwen 2005 and 2008 has less equity in their house when it comes up for mortgage revaluation. The best deals are for those with 40% plus equity.

It's not just the unemployed that are going to find the cost of their house unaffordable.

[disgruntledinmaidenhead]

While Moneyweek echoes the prevailing sentiment on this site, I do sometimes wonder whether it has a VI. I don't know what it is.

Clarification if you would - becasue i'm not sure.

I read 'VI' as spin or an angle on something.

But to be honest i have no idea of what it really means or is meant to mean, or indeed where it comes from .. it does seem to have a negative feeling when used though, is that always the case ?

[Neverland]

Can i just add an anecdotal to the point.

A mate of mine has a pretty decent tracker. He's paying £200 per month on a £500,000 loan. Astonishing really.

This resets in November and he's being offered £2,080 per month instead. He's in negative equity and therefore treated as a high risk borrower unsuprisingly.

The cost of borrowing is completely divorced from the base rate. The best fixes and trackers are slowly reaching the end of their terms.

Anyone who bought betwen 2005 and 2008 has less equity in their house when it comes up for mortgage revaluation. The best deals are for those with 40% plus equity.

It's not just the unemployed that are going to find the cost of their house unaffordable.

You should really put that on the anecdotals section - v interesting

[Timm]

The W shaped recession is an illusion. It is a long recession but there will be a blip in the middle resulting from a massive cash spunking exercise initiated by a one eyed scottish loon. It seems like a recovery. But its not, its a con trick. A bloody expensive one.

I agree. I'm calling a triple dip, maybe more.

For all the reasons you state, but also because every time things start to pick up, energy prices will leap, and down we will go again.

[D.C.]

I agree. I'm calling a triple dip, maybe more.

For all the reasons you state, but also because every time things start to pick up, energy prices will leap, and down we will go again.

Perhaps it is better to just draw a cliff with a lot of jagged rocks at the bottom, point at it and say 'that is your future'.

[Goat]

Can i just add an anecdotal to the point.

A mate of mine has a pretty decent tracker. He's paying £200 per month on a £500,000 loan. Astonishing really.

This resets in November and he's being offered £2,080 per month instead. He's in negative equity and therefore treated as a high risk borrower unsuprisingly.

The cost of borrowing is completely divorced from the base rate. The best fixes and trackers are slowly reaching the end of their terms.

Anyone who bought betwen 2005 and 2008 has less equity in their house when it comes up for mortgage revaluation. The best deals are for those with 40% plus equity.

It's not just the unemployed that are going to find the cost of their house unaffordable.

I think it's the trackers that have helped with the spring bounce. People who have seen their incomes fall and would normally need to move can hold out as long as they're paying tiny amounts but as soon as these expire they'll have to act.

[billsballs]

You should really put that on the anecdotals section - v interesting

There's more. My Landlord bought the property i share with him for £650,000 in July 2007 - great timing!

He was on a 2 year fix. It's been revalued for remortgage at £450,000.

This is south London and not one of the nice parts. It seems the prime locations are holding up. The tertiary locations shredded. Why? Because the only people in the market (generally cash rich bankers) are rich and only want to live in nice areas. There is no other market as people won't settle for living in a dudd area and everyone else can't get the fundig.

[Executive Sadman]

Meh, Furhrer Brown and dark sith Mandelsohn will just Initiate a new improved 5 year plan. NINJA loans for all. Theyre doing the right thing because its the right thing to do.

[Agentimmo]

Can i just add an anecdotal to the point.

A mate of mine has a pretty decent tracker. He's paying £200 per month on a £500,000 loan. Astonishing really.

This resets in November and he's being offered £2,080 per month instead. He's in negative equity and therefore treated as a high risk borrower unsuprisingly.

The cost of borrowing is completely divorced from the base rate. The best fixes and trackers are slowly reaching the end of their terms.

Anyone who bought betwen 2005 and 2008 has less equity in their house when it comes up for mortgage revaluation. The best deals are for those with 40% plus equity.

It's not just the unemployed that are going to find the cost of their house unaffordable.

Assume he's had the tracker for 12 months. That means he should have been saving £2K per month.

ie. £24K for the year.

That will keep him up with his new payments for another 12 months.

So he has until nearly 2011 to get his finances sorted. Good luck to your mate.

Err, what do you mean "he didn't save the 2K per month but blew it all on a new car and plasma tv....."

[Guest pioneer31]

No.

The need for a roof over ones head is most certainly not the same as the economic demand for housing.

Why?

1. Because the need for a roof over ones head can be met in a multitude of ways other than by purchase of a house.

2. Because economic demand means the desire and ability to purchase an item. Doesn't matter how much it's "needed", if the credit to support current prices is not forthcoming, there is little demand at current prices.

You just given the actual definition of demand.

Pity the thicky VI's don't know it

[billsballs]

Meh, Furhrer Brown and dark sith Mandelsohn will just Initiate a new improved 5 year plan. NINJA loans for all. Theyre doing the right thing because its the right thing to do.

To be fair to him he's saving the lot and rents out his 2 spare rooms. Fine for now but when he starts a family far from ideal.

He reckons every .25% rise in interest rate will cost him £110 per month. Great start from a low base eh.

[Laura]

Can i just add an anecdotal to the point.

A mate of mine has a pretty decent tracker. He's paying £200 per month on a £500,000 loan. Astonishing really.

This resets in November and he's being offered £2,080 per month instead.

He has of course been saving like mad --- hasn't he ??

[Jim B.]

£200 to £2080! Blimey.

Some people do say the low interest rates are avoiding a further crash, but it's clear from this anecdote that this is a ticking time bomb for many people, as the fixes run out and they switch to a much higher rate.