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House Prices Have Nowhere To Go But Down

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Just when we (in Hong Kong) thought that property values MUST fall they have risen another 40% in the last 18 months.

Credit crunch what? where?

Its not right.

but never say never

PS another one that Blubbypants got wrong (and he lives here!)

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Guest BetterOffOnBenefits

Shouldn't this be obvious?

Unless you think that lending will resume and progress to 10,11,12,13,14,15x annual salary multiples?

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Just when we (in Hong Kong) thought that property values MUST fall they have risen another 40% in the last 18 months.

Credit crunch what? where?

Its not right.

but never say never

PS another one that Blubbypants got wrong (and he lives here!)

Are you really that surprised though? With a long history of speculative activity the rise is a continuation of a trend which began before the credit crisis. The absurdly low rates, banks awash with cash and whimpish government response adds fuel to the fire. HK is an impossible call and another 40% rise or fall from here would not surprise.

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Yet another media piece about falling house prices :o . Now if you thought that governments could manipulate the media to get their intentions across you might come to the conclusion that there was a bit of a campaign underway.

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Yet another media piece about falling house prices :o . Now if you thought that governments could manipulate the media to get their intentions across you might come to the conclusion that there was a bit of a campaign underway.

its the language used.....they use Adjustment, dip, negative growth, limp, cool....all words and phrases that say DONT PANIC...yet a rise is heralded with RECOVERY, SOARING, Housing CHEER, plus all the VI press releases "its never been a better time", "dont miss out"

course, the media is there to sell space that people look at.

people like good news.

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http://www.guardian.co.uk/business/2010/aug/30/house-prices-first-time-buyers

"House prices have nowhere to go but down

With first-time buyers unable to get on the ladder, the property market is shuddering to a halt

Only a mug bets against rising house prices in Britain. This is a small island that has a rising population, tight planning controls and a tax system that favours property. Demand tends to run well ahead of supply, and that means bricks and mortar always seems a good investment.

Well, call me a mug if you like, but house prices are overpriced and have to fall. Activity is weak, with the number of new mortgage applications running at less than half their pre-recession levels. First-time buyers, according to a survey from Rightmove out today, account for only 20% of the market, about half the level needed to lubricate housing chains. A separate snapshot of the market from Hometrack says that sagging prices are more than the customary seasonal lull.

On the face of it, this seems strange. Friday's revised figures for UK growth in the second quarter showed output expanded by 1.2% – the strongest surge in nine years. Traditionally, there is a symbiotic relationship between growth and house prices; the two feed off each other. At the moment, however, this relationship has broken down and it's not hard to see why: the market has been rigged in favour of existing owner-occupiers at the expense of those trying to get on the housing ladder. Bank rate was cut from 5% to 0.5%. The Bank of England launched its quantitative easing programme, which has added £200bn to the money supply. Ministers put pressure on lenders to go easy on those in mortgage arrears.

All this was done with the best of intentions. Back in the early 1990s, Britain saw record repossessions when boom turned to bust. Given that the downturn of 2008-09 was far more severe, there were justifiable fears that a tidal wave of repossessions would tip Britain into a full-scale slump. The policy was a double success. First, repossessions were capped at about half the levels in the milder recession two decades earlier. Second, the boost to real incomes for those with variable-rate home loans meant that they could spend a bit more while at the same time paying down their debts.

But there was a downside to rigging the market in this way: it created what economists call a classic insider-outside problem. When the property bubble popped in the late 1980s, house prices fell for six years, making them affordable again for first-time buyers. This time, the scale of the policy response meant prices steadied much more quickly; they were edging up in the spring of 2009, even though economic output was still falling.

The much more cautious approach adopted by lenders made matters worse. In the boom years, the easy availability of 100% home loans meant many first-time buyers could pay inflated prices, even if it was one heck of a financial squeeze. But once the credit crunch arrived, banks and building societies started to ask for deposits of 20% or more. The average price of a home is well over £150,000, putting property out of the reach of all but the wealthiest first-time buyers.

Only three things can happen in these circumstances. The incomes of potential first-time buyers can rise so that they can afford higher prices. House prices can fall to make them compatible with what first-time buyers can currently manage. Or – and this best sums up the present position – the property market comes to a grinding halt.

Miles Shipside of Rightmove said: "Many of those who should be buying for the first time have declared themselves as non-participants in the housing game. Due to the new deposit rules they have to play by, it comes as no surprise that they are staying away, as they are probably busy saving."

The Council of Mortgage Lenders says the number of first-time buyers is down from 500,000 a year at the turn of the century to 200,000.

Governments have sought to address the problem by cutting stamp duty for first-time buyers but the reduction has not been nearly enough to counter what is a deep, structural flaw in the market. Work by Professor Steve Wilcox at the University of York's Centre for Housing Policy showed that in 40 local authority areas back in 2005, 40% of younger working households – the key first-time buyer demographic – were earning enough to pay more than a social sector rent but not enough to buy even the cheapest available home.

The Chartered Institute of Housing (CIH) has a name for this group – the "in-betweens", caught in a twilight zone between housing dependency and fending for themselves. These are precisely the families lionised endlessly by politicians of all colours: the hard-working people who play by the rules, are ambitious to get on, and want to fend for themselves. Hard-working families may be idealised on the hustings but, as Sarah Webb, the CIH chief executive, rightly notes, "they are forgotten when it comes to their housing needs and aspirations".

A century ago only 10% of Britons owned their own homes. The proportion rose steadily in the three decades after the second world war but by the start of the 1980s, about 45% of people still rented their homes from the private or public sector.

The UK then embarked on what market participants call the golden age of owner-occupation. In the first wave during the 1980s, right-to-buy legislation and financial deregulation gave families in council homes the opportunity to buy property at bargain prices. The housing downturn of the early 1990s was then followed by a second wave stimulated by a long period of low inflation, rising employment and cheap money. According to the CIH, this golden age is now over, a conclusion backed up by figures that show owner-occupation in England peaked at 71% in 2002-03 and had fallen to 68% by 2008-09, the year the financial crisis was at its most intense.

There has been much talk recently of the sins of the baby boomers, and when it comes to the property market there is a case to answer. Rising prices have been great for the older age groups, particularly those seeking to trade down on retirement, but bad for potential new entrants to the market. They either have to rent, live at home for longer, or hope that their parents will use some of their windfall gains from the property market to pay the deposits on their children's first homes. This, of course, is an option open only to the winners from the system, which tends to mean the better off in the better-off parts of Britain. The upshot is housing inequality every bit as pronounced as income inequality.

So what can be done? Ministers could give councils and other providers the right to build more homes in the parts of the country where people want to live. A combination of nimby-ism and spending cuts makes that unlikely. They could promote an active regional policy that might encourage people to move to those parts of the country oversupplied with homes. Given that the spending cuts are likely to fall heaviest on the regions outside of the south-east, that too looks improbable.

They could, of course, be bolder over tax, imposing a land value tax instead of putting up VAT, an idea backed by Andy Burnham, one of the contenders for the Labour leadership. But that, in property-fixated Britain, is for the birds.

Despite the policy inertia, the market will eventually adjust to the underlying reality. A lack of first-time buyers equals weak activity equals lower prices. It may be a long, drawn-out process."

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"Miles Shipside of Rightmove said: "Many of those who should be buying for the first time have declared themselves as non-participants in the housing game. Due to the new deposit rules they have to play by, it comes as no surprise that they are staying away, as they are probably busy saving."

Can't pay

Won't pay

Its a buyers strike & it going to start working VERY soon !

:)

Mike

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Are you really that surprised though? With a long history of speculative activity the rise is a continuation of a trend which began before the credit crisis. The absurdly low rates, banks awash with cash and whimpish government response adds fuel to the fire. HK is an impossible call and another 40% rise or fall from here would not surprise.

I'm hoping for another 40% rise. :rolleyes:

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Larry Elliot in the Grauniad

http://www.guardian....rst-time-buyers

good summary of why "the only way is down"

Anyone who has read Elliot's book Fantasy island will know that he identified the overinflated housing market as one of the major causes of Britain's debt problems.

Now all the storm flags for a decline are being hoisted at once.

Tight credit conditions, falling incomes, job insecurity and above all a tipping point in generational demographics means that all the usual props are being kicked away.

I think this may be the start of quite a long slide.

Edited by realcrookswearsuits

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"Miles Shipside of Rightmove said: "Many of those who should be buying for the first time have declared themselves as non-participants in the housing game. Due to the new deposit rules they have to play by, it comes as no surprise that they are staying away, as they are probably busy saving."

Can't pay

Won't pay

Its a buyers strike & it going to start working VERY soon !

:)

Mike

Buyers strike indeed... and it's going mainstream. A friend who bought at peak in Greater London has just managed to sell at a small profit and is moving back with parents as she refuses to buy again at current levels (once bitten, twice shy). Another friend is trying to sell in Ashford and intends to rent "and wait for the market to crash". These people are not HPC types and had previously been in the "you can't go wrong with bricks and mortar camp". I know plenty of others, like myself, who are happy to rent and refuse to buy until prices are at sane levels. It won't happen quickly (unless the whole system collapses), but it WILL happen.

Edited by Constable

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Larry Elliot in the Grauniad

http://www.guardian....rst-time-buyers

good summary of why "the only way is down"

I hope he's right, in fact as someone who sold to rent five years ago I REALLY hope he's right!. But actually there is somewhere else property prices could go...sideways. They could just stay flat for ten years and inflation could do the price correction that any sensible person knows has to happen.

Furthermore, lack of first time buyers doesn't in itself tell us anything about future house prices. It's entirely possible that we'll see Britain's massively high owner occupancy rate fall to more usual levels, in other words more and more people will face a long term future of renting, but without council houses that renting will be done in the private sector. In this scenario falling numbers of first time buyers is exactly what you'd expect to see.

That's not a happy thought, but it is very possible, a future of high anxiety. Anxiety about job security and property security. F*ck, what a world we're bequeathing to our children.

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I hope he's right, in fact as someone who sold to rent five years ago I REALLY hope he's right!. But actually there is somewhere else property prices could go...sideways. They could just stay flat for ten years and inflation could do the price correction that any sensible person knows has to happen.

Furthermore, lack of first time buyers doesn't in itself tell us anything about future house prices. It's entirely possible that we'll see Britain's massively high owner occupancy rate fall to more usual levels, in other words more and more people will face a long term future of renting, but without council houses that renting will be done in the private sector. In this scenario falling numbers of first time buyers is exactly what you'd expect to see.

That's not a happy thought, but it is very possible, a future of high anxiety. Anxiety about job security and property security. F*ck, what a world we're bequeathing to our children.

There's only one type of inflation would make your sideways theory work though - wage inflation - and we aren't exactly seeing this happen are we.

Inflation in anything else will cause downward pressure, along with the increase in interest rates to suppress it (though Merv will probably come up with some more lame excuses, I just hope they don't leave it too late).

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House prices must fall to where young people can afford them again.

End of.

House prices must fall to where young people can afford them borrow enough to buy them again.

Which limits purchases by first time buyers as they discover how long it takes to save up the required deposit.

Will the prices fall or will the % deposit fall first?

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"sideways" wont happen. There are too many mutually reinforcing factors lining up - for example as prices start to fall, lenders will tighten up even more e.g. demanding ever higher deposits, thus pushing prices down even more. All those forces which kept the boom going beyond all apparent logic will be working just as hard in the opposite direction.

For those who say "what about 2009" well the move to ZIRP was a one time intervention and that wad is well and truly shot now.

Edited by goldbug9999

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I'm struggling to think of any time that property, or indeed any asset class has 'gone sideways' for any appreciable length of time.

As soon as it stops going up, it starts being a bad investment.

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My opinion is that prices are set to fall but they are underpinned by housing allowance paid by local authorities . This will keep prices to a certain level as housing allowance generally delivers a 5% return in many areas. So investors then set rent about 25% higher than LHA for young proffs and so get a 6-6.5% return.

This coupled with additional burdens placed on building will not allow prices to fall much.

Building has become so costly that it is not becoming possible to build and make a profit. Therefore people with cash will continue to buy investments which deliver them 6-6.5% return rather than developing as this makes a better return. Interestingly banks are supporting investment loans over development loans.

Investors used to shun 6.5% and look for 8% but with development loads being so hard to get as banks are offering 50-50 if offering at all ,investors now buy investment properties over development opportunities.

This of course is of no help to first time buyers but if properties drop 10% on todays prices this will be the time to buy again in my opinion. Unless of course LHA begins to fall.

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House prices must fall to where young people can afford them borrow enough to buy them again.

Which limits purchases by first time buyers as they discover how long it takes to save up the required deposit.

Will the prices fall or will the % deposit fall first?

No! That's wrong!

That's precisely the thinking that got us into this mess. You sound like one of the BBC journalists who say "we need lending to ease up to help FTBers" No we don't, we need prices to drop, and tight lending standards.

It's house prices falling to where FTBers can AFFORD them. Remember that term, we used to use it in the old days! Meaning be able to pay the mortgage back, over the whole 25 or 30 years! Without relying on ultra low IRs and inflation to inflate away our debt.

This whole, small deposit, good mortgage deal, refinancing every 2 or 3 years, avoiding ever having to actually repay with the real interest rate IS OVER !!

Edited by wtb

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My opinion is that prices are set to fall but they are underpinned by housing allowance paid by local authorities . This will keep prices to a certain level as housing allowance generally delivers a 5% return in many areas. So investors then set rent about 25% higher than LHA for young proffs and so get a 6-6.5% return.

This coupled with additional burdens placed on building will not allow prices to fall much.

Building has become so costly that it is not becoming possible to build and make a profit. Therefore people with cash will continue to buy investments which deliver them 6-6.5% return rather than developing as this makes a better return. Interestingly banks are supporting investment loans over development loans.

Investors used to shun 6.5% and look for 8% but with development loads being so hard to get as banks are offering 50-50 if offering at all ,investors now buy investment properties over development opportunities.

This of course is of no help to first time buyers but if properties drop 10% on todays prices this will be the time to buy again in my opinion. Unless of course LHA begins to fall.

I presume you're aware of the change in LHA coming into effect from April 2011?

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  • 259 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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