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What House Price Crash?

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What house price crash?

In London prices are at or higher than they were in 2007. I was patiently waiting for the house price crash, and in 2008 and 2009 I thought my patience would be rewarded. But it didn't turn out that way. Prices in the London areas I was interested in moderated slightly, however the stock of housing available declined significantly meaning there were few good buying options. Now that prices seem to have returned to 2007 levels theres a big increase in stock, and transaction do appear to be happening at those prices.

Meanwhile mortgage interest rates for FTB's barely changed as dramatic reductions in base rates were just offset by rises in product margins. Deposit requirements also shot up to 25%, reducing the ability to fund purchases.

So overall prices didn't actually move that much, the cost of funds for new entrants got worse, and the great opportunity to get in at a decent price failed to appear. Contrast this with the "irresponsible" people who bought over-priced homes they could barely afford with low deposits on interest-only tracker mortgages, they've been sitting pretty paying Base + 50bps. They're in a great scenario paying deeply subsidised mortgage rates and will benefit from getting the value of their huge mortgages steadily corroded via inflation. Meanwhile those of us with savings earning 2% interest will be slowly bled as 5%+ inflation from negative real interest rates and money printing eats away at the value of those deposits. You've got to ask yourself who the loser here is (i.e. seems to be me)?

Successive governments seem intent on keeping the system of inflated property prices. Because retail housing is not "mark-to-market" in the same way that all other financial sector bets are, people will continue to pay the interest as long as they can when values fall because the only other option is a painful bankruptcy. If people had to collateralise their loans to maintain a maximum LTV thresholds then you would see large volumes of stock dumped on the market and prices coming down to clear at more realistic levels. As mark-to-market doesn't happen then only large income reductions will cause good volumes of stock to be dumped. As most borrowers are salaried, then this has to be either unemployment driven or induced by a payment-shock from rapidly rising rates.

I only see two crash scenarios:

- run away inflation and currency collapse forces the BoE to rapidly increase rates

- spike in prolonged unemployment

Personally I see the former as more likely than the later. Yes the new government is going to start to cull the zero-productivity government jobs of the labour era, and this may hit regional areas with no real non-government jobs hard, but for London its unlikely to have as material an impact.

So run away inflation is the best bet for a crash. I suspect the reality will be protracted inflation at medium rates, eroding real house prices back to a more sensible level, but without drastic nominal falls. So that would suggest investing in inflation proof assets and waiting for the next 10 years. Unfortunately we don't have infinite life-spans, and for better or worse most people want to own their own place, so I don't see large proportions of the market taking the long-term view on this. This too will help support or further increase prices.

Despite all reasonable sense, there is no house price crash!

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What house price crash?

In London prices are at or higher than they were in 2007. I was patiently waiting for the house price crash, and in 2008 and 2009 I thought my patience would be rewarded. But it didn't turn out that way. Prices in the London areas I was interested in moderated slightly, however the stock of housing available declined significantly meaning there were few good buying options. Now that prices seem to have returned to 2007 levels theres a big increase in stock, and transaction do appear to be happening at those prices.

Meanwhile mortgage interest rates for FTB's barely changed as dramatic reductions in base rates were just offset by rises in product margins. Deposit requirements also shot up to 25%, reducing the ability to fund purchases.

So overall prices didn't actually move that much, the cost of funds for new entrants got worse, and the great opportunity to get in at a decent price failed to appear. Contrast this with the "irresponsible" people who bought over-priced homes they could barely afford with low deposits on interest-only tracker mortgages, they've been sitting pretty paying Base + 50bps. They're in a great scenario paying deeply subsidised mortgage rates and will benefit from getting the value of their huge mortgages steadily corroded via inflation. Meanwhile those of us with savings earning 2% interest will be slowly bled as 5%+ inflation from negative real interest rates and money printing eats away at the value of those deposits. You've got to ask yourself who the loser here is (i.e. seems to be me)?

Successive governments seem intent on keeping the system of inflated property prices. Because retail housing is not "mark-to-market" in the same way that all other financial sector bets are, people will continue to pay the interest as long as they can when values fall because the only other option is a painful bankruptcy. If people had to collateralise their loans to maintain a maximum LTV thresholds then you would see large volumes of stock dumped on the market and prices coming down to clear at more realistic levels. As mark-to-market doesn't happen then only large income reductions will cause good volumes of stock to be dumped. As most borrowers are salaried, then this has to be either unemployment driven or induced by a payment-shock from rapidly rising rates.

I only see two crash scenarios:

- run away inflation and currency collapse forces the BoE to rapidly increase rates

- spike in prolonged unemployment

Personally I see the former as more likely than the later. Yes the new government is going to start to cull the zero-productivity government jobs of the labour era, and this may hit regional areas with no real non-government jobs hard, but for London its unlikely to have as material an impact.

So run away inflation is the best bet for a crash. I suspect the reality will be protracted inflation at medium rates, eroding real house prices back to a more sensible level, but without drastic nominal falls. So that would suggest investing in inflation proof assets and waiting for the next 10 years. Unfortunately we don't have infinite life-spans, and for better or worse most people want to own their own place, so I don't see large proportions of the market taking the long-term view on this. This too will help support or further increase prices.

Despite all reasonable sense, there is no house price crash!

Where will "large proportions of the market" get money to buy at 2007 prices?

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There does seem to be a real difference if you are in the south east. Mike Livingstone keeps reporting that it's business as usual there; even though it is definitely crashing everywhere else.

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Guest Noodle

Excellent analysis

Thats the rub

'fwaid so. Tis wot 'appens wen gubberments pwint monie.

Did say a few days after the button was pushed.

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London's still down on 2007. Where are you classing as London?

I live on the edge of London and it's 15% down on the peak. Central London may be peaking again, but that market is dictated by foreign buyers or buyers who that don't care about price; and the weak £ makes it look cheap.

Your normal area is still dropping and in line with the rest of the UK.

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London's still down on 2007. Where are you classing as London?

I live on the edge of London and it's 15% down on the peak. Central London may be peaking again, but that market is dictated by foreign buyers or buyers who that don't care about price; and the weak £ makes it look cheap.

Your normal area is still dropping and in line with the rest of the UK.

Its true there are large chunks of london that have been immune to the crash and will pretty well be unless something dramatic happens. The demand in suburban pretty well heeled areas such as barnet,richmond or wimbledon is always going to outstrip supply. However there are plenty of ordinary areas in between that have and will feel the crunch.

You only have to look at birmingham and manchester to understand what sort of crash has occured and there is no change soon

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Question 1: what has THIS government done to support prices?

Question 2: what happens to london prices when the price differential with other areas becomes too large to ignore and people live further out?

Question 3: is sterling appreciating or depreciating in value?

Question 4: will the end of SLS make mortgages easier to get?

Question 5: will people have more or less disposable income in the next few years?

Answer these correctly and you'll know which way prices will be heading...

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Guest PenelopePitstop

Move north young man and you can afford a house right now.

But won't be able to find a job - I live in the North BTW.

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volumes are down. while highly paid bailed financial bods can support london prices, then so they will...but London bods will dump when they see prices falling again. money is their game.

FTBS getting subsidised mortgages??

remember...the biggest bubble pops the most.

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volumes are down. while highly paid bailed financial bods can support london prices, then so they will...but London bods will dump when they see prices falling again. money is their game.

FTBS getting subsidised mortgages??

remember...the biggest bubble pops the most.

Lots of these sorts of threads recently, what people need to understand is we did not have a housing bubble in London we had a multi-decade mega bubble, it is a beast that took a long time to form and it will take a while to conclude.

As one of my Investment banking friends said in 2008 'London is finished' this was before GB handed out a bit more free money to tide us over until the election.

Downhill from here, and the disparity will not be erroded by inflation, certainly not wage inflation at that is the only one that counts with regards to a debt overhang.

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Guest BetterOffOnBenefits

Question 1: what has THIS government done to support prices?

Question 2: what happens to london prices when the price differential with other areas becomes too large to ignore and people live further out?

Question 3: is sterling appreciating or depreciating in value?

Question 4: will the end of SLS make mortgages easier to get?

Question 5: will people have more or less disposable income in the next few years?

Answer these correctly and you'll know which way prices will be heading...

This is what I have said to people who think that their area won't drop.

Yes some areas will command a premium but once the gap gets too large, people will move further out

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Are you suggesting the price of matey is going to collapse? How can I protect myself?

I wouldnt worry, it leaves no bath scum ring. bath totally clean. and it doesnt sting the eyes.

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There does seem to be a real difference if you are in the south east. Mike Livingstone keeps reporting that it's business as usual there; even though it is definitely crashing everywhere else.

Essex is dropping. There are lower asking prices coming on in new listings now as well as all the reductions.

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What house price crash?

In London prices are at or higher than they were in 2007. I was patiently waiting for the house price crash, and in 2008 and 2009 I thought my patience would be rewarded. But it didn't turn out that way. Prices in the London areas I was interested in moderated slightly, however the stock of housing available declined significantly meaning there were few good buying options. Now that prices seem to have returned to 2007 levels theres a big increase in stock, and transaction do appear to be happening at those prices.

Meanwhile mortgage interest rates for FTB's barely changed as dramatic reductions in base rates were just offset by rises in product margins. Deposit requirements also shot up to 25%, reducing the ability to fund purchases.

So overall prices didn't actually move that much, the cost of funds for new entrants got worse, and the great opportunity to get in at a decent price failed to appear. Contrast this with the "irresponsible" people who bought over-priced homes they could barely afford with low deposits on interest-only tracker mortgages, they've been sitting pretty paying Base + 50bps. They're in a great scenario paying deeply subsidised mortgage rates and will benefit from getting the value of their huge mortgages steadily corroded via inflation. Meanwhile those of us with savings earning 2% interest will be slowly bled as 5%+ inflation from negative real interest rates and money printing eats away at the value of those deposits. You've got to ask yourself who the loser here is (i.e. seems to be me)?

Successive governments seem intent on keeping the system of inflated property prices. Because retail housing is not "mark-to-market" in the same way that all other financial sector bets are, people will continue to pay the interest as long as they can when values fall because the only other option is a painful bankruptcy. If people had to collateralise their loans to maintain a maximum LTV thresholds then you would see large volumes of stock dumped on the market and prices coming down to clear at more realistic levels. As mark-to-market doesn't happen then only large income reductions will cause good volumes of stock to be dumped. As most borrowers are salaried, then this has to be either unemployment driven or induced by a payment-shock from rapidly rising rates.

I only see two crash scenarios:

- run away inflation and currency collapse forces the BoE to rapidly increase rates

- spike in prolonged unemployment

Personally I see the former as more likely than the later. Yes the new government is going to start to cull the zero-productivity government jobs of the labour era, and this may hit regional areas with no real non-government jobs hard, but for London its unlikely to have as material an impact.

So run away inflation is the best bet for a crash. I suspect the reality will be protracted inflation at medium rates, eroding real house prices back to a more sensible level, but without drastic nominal falls. So that would suggest investing in inflation proof assets and waiting for the next 10 years. Unfortunately we don't have infinite life-spans, and for better or worse most people want to own their own place, so I don't see large proportions of the market taking the long-term view on this. This too will help support or further increase prices.

Despite all reasonable sense, there is no house price crash!

A plausible scenario, but the mass unemployment, resultant of the a collapse in demand what effect will that a have?

Is runaway inflation jobs positive?

Mass unemployment , high unemployment which ever, is the ticking bomb.

Medium inflation should mean compensating higher rates in bonds etc all in all nobody really knows whether the printing

will powerful enough to stop the deflationary direction.

Gold makes sense but having large amount of money in brick is asking to be robbed.

Also the more protracted it becomes the easier for banks / housing to unwind.

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We're thinking of moving back up to Lincs to be with family now we have a baby, but I fear for jobs and if we do move then the prices drop like a stone then our modest equity would be wiped away.

Round me in SW Essex there's no HPC; our house has increased (in terms of askings) by 12.5% over the last 2.5 years. I know it's not going to be like that up there!

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i'm yet to find anywhere desirable in or around london that has suffered any real crash. And wage inflation in the financial sector is definitely taking off now. My department average payrise was around 15% and bonus were not too bad. Not the whole bank but around 1000 people

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i'm yet to find anywhere desirable in or around london that has suffered any real crash. And wage inflation in the financial sector is definitely taking off now. My department average payrise was around 15% and bonus were not too bad. Not the whole bank but around 1000 people

your tax payers £ in action.

We are proud of our acheivements.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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