What Will Finally Tip House Prices Over The Edge?

[AvidFan]

http://blogs.thisismoney.co.uk/2010/08/what-will-finally-tip-house-prices-over-the-edge.html

What will finally tip house prices over the edge?

Simon Lambert, assistant editor, This is Money

What will it be that finally tips house prices over the edge and pushes property back down to affordable levels?

The house price bears who subscribe to the 30% falls still to come school of thought have a wealth of theories on this:

Interest rates suddenly rising, a new banking shock, a sovereign debt default, rampant austerity cuts, all are in the queue to deliver the final blow to Britain’s over-priced property market.

The theory is that prices hit their peak in 2007, they then staged a bear market rally and now the market is preparing for the real falls ahead.

The classic bubble chart below, by Dr Jean-Paul Rodrigue, is cited as proof that property is due a fall, along with it remaining about 30% more expensive than it should be.

But what will bring this about? The property bears tend to point to the reasons above, but also suggest the arrival of a new Black Swan event – the something we just can’t predict that will deliver the killer blow.

But what if the Black Swan is actually that against the odds the property market doesn’t take a dive. That we see a prolonged stagnation or even slow growth: with low interest rates, slowly recovering banks, an improving mortgage market and austerity biting slowly, letting prices never return to the magic four times salary benchmark.

Could that happen? If not, what do you think will be the thing that finally brings the curtains down on the great British house price boom show and when will it arrive?

Looks a little HPC-esque to me. Anyone we know? I think I even posted their other graphic on here once:

[mattyfc]

It would have to be mass unemployment. The market is so lacking in liquidity, it is not easy to sell. Why would anyone realize a massive loss on a property without it being forced on them through repossession and auction. No one is going to sell voluntarily sell when they are underwater.

Prices will not drop fast without massive rises in unemployment.

I don't think this is likely having seen the policy response over the last few years.

[Mal Volio]

It would have to be mass unemployment.

Or a decent hike in interest rates.

The market is so lacking in liquidity, it is not easy to sell. Why would anyone realize a massive loss on a property without it being forced on them through repossession and auction. No one is going to sell voluntarily sell when they are underwater.

I think there's some truth in this. Even with NE people tend not to walk away if they can pay the bills. What tips them over is not being able to fend off the bailiffs.

My guess is that the Govt don't want financial armagidion for the masses voters so they'll try to engineer a stagnation coupled with mild inflation for as long as they can hold it together.

[foxy]

I note he says 'austerity biting slowly' - has it even started yet?

Edited August 6, 2010 by foxy

[Pent Up]

It would have to be mass unemployment. The market is so lacking in liquidity, it is not easy to sell. Why would anyone realize a massive loss on a property without it being forced on them through repossession and auction. No one is going to sell voluntarily sell when they are underwater.

Prices will not drop fast without massive rises in unemployment.

I don't think this is likely having seen the policy response over the last few years.

But the vast majority of home owners will not be in negative equity if you bought more than six or seven years ago you can take a massive drop and still 'make' money. Plus the house you want to buy will have dropped too. The only ones who need forcing are those who bought within the last 5 years.

[Si1]

But the vast majority of home owners will not be in negative equity if you bought more than six or seven years ago you can take a massive drop and still 'make' money. Plus the house you want to buy will have dropped too. The only ones who need forcing are those who bought within the last 5 years.

where I live they are back to 2003 levels and dropping

[The Masked Tulip]

Coastal erosion.

[Mr 0.01%]

Black swan event!

My new favourite phrase!

I agree though, surely it has to be mass unemployment?

Or perhaps less likely extreme benefits cuts?

[fatsam]

Coastal erosion.

[deflation]

But the vast majority of home owners will not be in negative equity if you bought more than six or seven years ago you can take a massive drop and still 'make' money. Plus the house you want to buy will have dropped too. The only ones who need forcing are those who bought within the last 5 years.

I think you should refine that to those who bought their first house with a high LTV mortgage, in the last 5 years. Anyone who sold, and then bought another house may well have ploughed all the equity into the next house. (E.g. me - moved in 2007, but have 50% LTV)

Also, some people haven't moved for 20 years + but are MEWed up to the eyeballs.

There is no typical person who will be underwater really, apart from, IMHO, young couples being conned into overpaying for new flats with 95% mortgages. Oh and BTLers of course.

Edited August 6, 2010 by deflation

[Fairies Wear Boots]

I'm beyond caring what will finally tip house prices over the edge. I just wish it'd fcking hurry up.

Bored now.

[Mr 0.01%]

I'm beyond caring what will finally tip house prices over the edge. I just wish it'd fcking hurry up.

Bored now.

yes, Yes, YES!

[plummet expert]

I note he says 'austerity biting slowly' - has it even started yet?

No it hasn't and that's why noting has happened except a confidence crisis causing a slight fall recently. Apart from unemployment creeping up, there is another factor which will be the black swan. The Govt has secretly charged the FSA with changing the rules on mortgage lending in little bites. They have made a few announcements lately saying things like Interest only mortgages and self cert should be stopped. The only have to add income multiple rules to max 2.5 x joint income and this nonsense can be all but stopped for good.

Mervyn King has recently said (and quite rightly) that houses will always rise as far as the amount thr banks would be prepared to lend. Add in a tightening of lending criteria and you will see prices realign very rapidly over 2 years.

What we need to persuade people who don't read this site is just how much damage it does to our economy to have the uncontrolled lending leading to boom and bust every 7-15 years. It is a secret inflation in the system causing a concentration on property investing instaed of manufacturing and exporting. Compare and contrast with Germany in the post war period. It could have been us with a powerhouse economy by now.

[Fairies Wear Boots]

yes, Yes, YES!

HPC apocalypse now baby!

[NEO72]

Why do we need interest rate rises, massive unemployment, a black swan event etc etc. Did prices not fall around 20% in 07-08 based mainly on sentiment?

Hard to believe I know but there are actually a lot of homeowners who don't religiously follow the hp indices and don't even know what their house was worth at peak (shock horror!). Many of whom will lower prices based on whether there's any buyer interest-simple as.

Of course there are many who don't fall into this category but hey, most won't be moving.

The facts are this: banks aren't lending anywhere near what they were pre-bust and prices will reflect this. Yes we've had a mini-boom due to the 'cash rich buyer' but imo this is not sustainable, and particularly with the end of the SLS, the market will be starved of new blood which as everyone knows any good ponzi needs.

[lulu]

But the vast majority of home owners will not be in negative equity if you bought more than six or seven years ago you can take a massive drop and still 'make' money. Plus the house you want to buy will have dropped too. The only ones who need forcing are those who bought within the last 5 years.

But there is a mentality out there that the 2007 prices are set in stone and accepting anything less would be foolhardy regardless of the price bought for. My experience of talking to two friends who have just bought is that now is the time to buy as prices have dropped and can only now go back up.

I tried to encourage one to put in a very low offer and see what happened (the flat had been on the market for a few months and had already had a reduction) but they thought they couldn't do that as 'they had already put the price down'.

[Fairies Wear Boots]

But there is a mentality out there that the 2007 prices are set in stone and accepting anything less would be foolhardy regardless of the price bought for. My experience of talking to two friends who have just bought is that now is the time to buy as prices have dropped and can only now go back up.

I tried to encourage one to put in a very low offer and see what happened (the flat had been on the market for a few months and had already had a reduction) but they thought they couldn't do that as 'they had already put the price down'.

People do seem to be brainwashed into thinking that 15 to 25 percent hikes in house prices is normal, the last two years have been a blip and soon 'normal' service will be resumed.

[Mal Volio]

Hard to believe I know but there are actually a lot of homeowners who don't religiously follow the hp indices and don't even know what their house was worth at peak (shock horror!). Many of whom will lower prices based on whether there's any buyer interest-simple as.

This is a very good point

We tend to forget on here that we're not typical

I see houses here which have fallen in price since early 2009; that's because they're not selling, and isn't related to HP indices

Edited August 6, 2010 by Mal Volio

[exiges]

The government could stop paying the mortgages of 100,000+ people, that'd do the trick

[Fairies Wear Boots]

This is a very good point

We tend to forget on here that we're not typical

I see houses here which have fallen in price since early 2009; that's because they're not selling, and isn't related to HP indices

I see that as being true, yet in some parts of the country, there are still some numpties with access to finance willing to pay too much.

[Mal Volio]

I see that as being true, yet in some parts of the country, there are still some numpties with access to finance willing to pay too much.

Yep. If anything that's another reason to expect individual price expectation to be decoupled from indices.

[i wanna house]

HPC apocalypse now baby!

i am begining to think it will never happen

[eric pebble]

I'm beyond caring what will finally tip house prices over the edge. I just wish it'd fcking hurry up.

Bored now.