House Prices Won't Fall For Years

[DownsizingDiva]

So says Harvey Jones on Lovemoney.com:

http://www.lovemoney.com/news/the-property-ladder/house-prices-wont-fall-again-for-years-4180.aspx?source=1000417

This, and their other article sent to my email inbox today - "Sarah Beeney says house prices have bottomed" - has convinced me that this website is nothing more than a portal for property VIs, and one to which I no longer wish to subscribe.

Perhaps Harvey should have waited until he'd heard about the latest RM index...

[Dubai]

So says Harvey Jones on Lovemoney.com:

http://www.lovemoney.com/news/the-property-ladder/house-prices-wont-fall-again-for-years-4180.aspx?source=1000417

This, and their other article sent to my email inbox today - "Sarah Beeney says house prices have bottomed" - has convinced me that this website is nothing more than a portal for property VIs, and one to which I no longer wish to subscribe.

Perhaps Harvey should have waited until he'd heard about the latest RM index...

Add to the equation that he seems to be a knobber:

By scything base rates to a 316-year low, the Bank of England has spared us a house price collapse, saved tens of thousands of homeowners from repossession, and kept the high street alive, by pushing more cash into homeowners' pockets.

If you think the recession has been rotten, just imagine what it would have been like if rates were 6% or 7%, as they were in the 1991-92 recession. It doesn't bear thinking about.

There's too much to rip into there, so let's start with the "6 to 7%" rates. Tw@! I remember my mortgage rate went up to about 15% for a while! 6 to 7 % was the "average" deal back then. As to low rates saving people......it's just delaying the inevitable, as far as I can see...

[nohpc]

Add to the equation that he seems to be a knobber:

By scything base rates to a 316-year low, the Bank of England has spared us a house price collapse, saved tens of thousands of homeowners from repossession, and kept the high street alive, by pushing more cash into homeowners' pockets.

If you think the recession has been rotten, just imagine what it would have been like if rates were 6% or 7%, as they were in the 1991-92 recession. It doesn't bear thinking about.

There's too much to rip into there, so let's start with the "6 to 7%" rates. Tw@! I remember my mortgage rate went up to about 15% for a while! 6 to 7 % was the "average" deal back then. As to low rates saving people......it's just delaying the inevitable, as far as I can see...

The problem for the TORIES is that they can't raise rates to a "high" level ever again because they were the ones who did it last time and even though it's not their fault ( it's gordon's ) they would get voted straight out and that would be it for another generation.

Western governmnts have commited themselves to keeping rates low for a very long time. I am sure of this and am gearing my investments based on this. They will have to find some over way of containing inflation than raising the BOE base rate which is too politically sensitive. I believe this can be done as only very few people are on loans/mortgages tied to the base rate so lending rates can go up without the public seeing the base rate go up. That way the government can blame the hateful banks instead of themselves.

[Mikhail Liebenstein]

The problem for the TORIES is that they can't raise rates to a "high" level ever again because they were the ones who did it last time and even though it's not their fault ( it's gordon's ) they would get voted straight out and that would be it for another generation.

Western governmnts have commited themselves to keeping rates low for a very long time. I am sure of this and am gearing my investments based on this. They will have to find some over way of containing inflation than raising the BOE base rate which is too politically sensitive. I believe this can be done as only very few people are on loans/mortgages tied to the base rate so lending rates can go up without the public seeing the base rate go up. That way the government can blame the hateful banks instead of themselves.

I suspect we are also now going to see low rates for some time. For a while, I was expecting interest rates to soar in response to Government borrowing, but it does seem that Labour is now cutting back spending (Government Depts and Quangos are sacking people) and the Bond market has priced in even more drastic cuts for after the election. QE was definitely bad for the Pound, but they just about got away from a total collapse in Sterling as the markets realised it was only a temporary situation.

The trouble is now that we are in for a period of very low growth with gradual debt repayment with low interest rates. The panic has been averted at expense of weakening Sterling, if this hadn't happened we'd now be running annual deflation of -4%. Of course the wall of QE money and weak pound may mean we get the opposite problem in 12-18 months, so perhaps then interest rates might rise.

But like UK Debt Slave I am now very suspicious that the game is rigged to protect the vested interests. As I mentioned before, I have bought a house, partly in reaction to the view above, but also because of my wife. I'd have been more comfortable sitting on my STR fund in a deflating economy than I perhaps am now having bought an expensive house with a good size mortgage (or is that bad size) in a somewhat uncertain economy, but I feel now the 2 positions are broadly neutral in terms of risk.

Overall all my view is that the UK will be an economic laggard over the next 5 years, but given the rebounds in other countries I don't think we will now see the mega collapse that some had predicted. What I do think will happen is that the UK will start to look cheap over time, we have a relatively skilled workforce and so we will start to see foreign firms come in and start paying higher wages. If you are a US employer, your UK workforce has suddenly taken a 25% pay cut, though this is more helpful if what they produce is for export. So my guess is we will see at least moderate to high inflation in time, but with relatively static house prices for the next 5 years, they will therefore eventually become more affordable as they fall in real terms.

The vested interests can always rig the game. At the end of the day, why is an apple worth 50p or £10. A lot depends on how much money is out there, and money can always be produced at will.

[JustYield]

But like UK Debt Slave I am now very suspicious that the game is rigged to protect the vested interests. As I mentioned before, I have bought a house, partly in reaction to the view above, but also because of my wife. I'd have been more comfortable sitting on my STR fund in a deflating economy than I perhaps am now having bought an expensive house with a good size mortgage (or is that bad size) in a somewhat uncertain economy, but I feel now the 2 positions are broadly neutral in terms of risk.

I don't think the positions are broadly neutral in terms of risk (in the UK at least). On the one hand you may have undervalued the option value of your STR cash pile and on the other you have voluntarily become a sitting duck for any increased tax squeeze with considerable exposure to rising IRs to boot. I'm not criticising your decision btw, just comparing the risks in my view.

[Guest KingCharles1st]

Thing is- surely all the genuine manufacturing and technology sectors are shrinking, leading to less and less people who can afford the larger properties- esp. at current prices.

I have a feeling that it's not going to be the price of the house that does for you, but the cost of running it, and the fact that once you have it- it may well deflate in market value, so it's value in real terms could now be going the other way as rapidly as it was rising in 2002-5.

[housespider]

Well, my own experience contradicts this statement.

I live in the Southeast and my search area is 20 mile radius of Reading (husbands place of work). I have noticed that price reductions have been coming in thick and fast this month. The reductions are bigger and more frequent than at any time this year and yet, this has not been reported or commented on anywhere in the media. Even with the price reductions, some of them as much as £50k since coming on the market, houses are still over-priced which is why we are still searching. I honestly don't feel that our expectations are that un-realistic. We have placed offers on 5 properties since July and out of those, 4 of them are still on the market (at the same prices as they were). Which we take as confirmation that we are not alone in deeming these properties as overpriced. We want to buy a home but we refuse to pay more for a home than we think it is worth.

[DownsizingDiva]

Well, my own experience contradicts this statement.

I live in the Southeast and my search area is 20 mile radius of Reading (husbands place of work). I have noticed that price reductions have been coming in thick and fast this month. The reductions are bigger and more frequent than at any time this year and yet, this has not been reported or commented on anywhere in the media. Even with the price reductions, some of them as much as £50k since coming on the market, houses are still over-priced which is why we are still searching. I honestly don't feel that our expectations are that un-realistic. We have placed offers on 5 properties since July and out of those, 4 of them are still on the market (at the same prices as they were). Which we take as confirmation that we are not alone in deeming these properties as overpriced. We want to buy a home but we refuse to pay more for a home than we think it is worth.

That's my experience too, Housespider. Loads of price reductions this month in the Southampton area. I am also not prepared to pay a quarter of a million pounds for a very ordinary 3 bed semi (sounds/looks a lot more when you type it out in full!) so I shall keep renting, despite the disadvantages that brings. If UK house prices rise, I shall eventually move to somewhere else in Europe. If they go down significantly (i.e. more than 15%), I shall buy. The more people who are unprepared to pay current prices, the sooner they will have to come down.

[The Masked Tulip]

Well, my own experience contradicts this statement.

I live in the Southeast and my search area is 20 mile radius of Reading (husbands place of work). I have noticed that price reductions have been coming in thick and fast this month. The reductions are bigger and more frequent than at any time this year and yet, this has not been reported or commented on anywhere in the media. Even with the price reductions, some of them as much as £50k since coming on the market, houses are still over-priced which is why we are still searching. I honestly don't feel that our expectations are that un-realistic. We have placed offers on 5 properties since July and out of those, 4 of them are still on the market (at the same prices as they were). Which we take as confirmation that we are not alone in deeming these properties as overpriced. We want to buy a home but we refuse to pay more for a home than we think it is worth.

It is the opposite in Public Sector dominated Swansea - asking prices going up and sometimes going up by ludicrous percentages of the previous asking prices.

Having said that, I think what you are saying about the South East is fascinating because so much work in that part of the country is private sector - and from what I can see and hear the private sector is still culling jobs and making cut-backs with few, if any, big firms looking to hire.

[Danny Deflation]

Western governmnts have commited themselves to keeping rates low for a very long time.

That's the crux of the problem as far as I'm concerned.

Interest rates in all the developed countries are at historical low levels.

When we see other countries slowly raising their rates, particularly the US, then that will be a sign that we rates in the UK will increase. I think we're looking at this scenario in about five years' time.

Personally, I'd raise interest rates to 30% (with immediate effect) in order to sort out the wheat from the chaff.

[Game_Over]

Interest rates on fixed term bonds have been going up and will continue to do so IMO.

Yorkshire BS were offering 5% fixed for 5 years a few weeks ago, but I didn't go for this because I expect to get over 5% for a 1 year fix next year.

I only keep going on about this because people who are not using these fixed term bonds must be losing shed loads of money.

And if you haven't got enough cash to be able to tie it up for 12 months then you haven't got savings in reality.