Prices Won't Drop - Annecdotal

[Longtermrenter]

Relative works, as a team leader, in large american mortgage company, they have already laid off loads of staff over last 2 years. Relative is thinking of moving to new larger house to replac 2 bedroom terrace they have nearly finished restoring in affluent area north west of london. Baby on the way. I explained they would be better waiting for prices to drop. Relative told me this was no good as price of their own house will drop. I tried to explain that they would still owe the same amount on the existing property but would have to borrow less to get larger property. Relative struggled to understand idea. Then told me, ' I don't think prices will drop anyway' . Absolute faith that house prices never drop.

[gimble]

We've been in the eye of a massive global economic storm for nearly 3 years but the price of nice houses in nice areas of London still haven't really dropped significantly. I think that so far, in London, you'd have to admit that they're more right than you are.

[Longtermrenter]

Watch this space....

[guitarman001]

Regardless, imagine working for a mortgage company and not being able to figure out the simple maths example the OP gave. We are being run by complete idiots!! Seriously, how can they not understand the benefit when looking at the maths?

Edited November 29, 2010 by guitarman001

[General Congreve]

Regardless, imagine working for a mortgage company and not being able to figure out the simple maths example the OP gave. We are being run by complete idiots!! Seriously, how can they not understand the benefit when looking at the maths?

This is why we will win the day in the end!

[Peter Hun]

Regardless, imagine working for a mortgage company and not being able to figure out the simple maths example the OP gave. We are being run by complete idiots!! Seriously, how can they not understand the benefit when looking at the maths?

Total faith in your employers business mode is more important that intelligence

[Longtermrenter]

Total faith in your employers business mode is more important that intelligence

Best bit is that relative's employer was very big in sub-prime.

[arrgee1991]

This is why we will win the day in the end!

When is the end? I am perplexed by prices in London at times. Logic would suggest they have to fall yet they don't.

Sellers rarely reduce prices even when they have spent months trying to sell, and when a half decent new property comes online it achieves pretty close to asking price.

Sometimes you simply can't wait for prices to drop and have to just move. Even with prices heading south, we needed to move earlier this year to get into a catchment area for a good school. Sadly we didn't and now have to pay for that in the form of school fees.

When I bought my place in 2001, I thought the price of £250K was ridiculous and that it would probably fall at the time, yet now it is worth about twice that.

From my point of view the only thing that matters is the difference in what I sell at and what I buy for. Drops and rises I can live with given my investment is only around £175K (£75K for 1st house and £100K extra on current) , and the mortgage is now miniscule thanks to been able to pay off chunks over time.

The problem with winning in the end is whether or not it's worth the wait and if you can take advantage. I did back in 1992 but it was mainly down to moving back from abroad with a big bag of cash. When the crash does come it will be due to fundamental problems which will prevent the waiters from buying.

[non frog]

Total faith in your employers business mode is more important that intelligence

[Reluctant Heretic]

That was funny! Though he was once described as someone so lacking in conviction that he would struggle to persuade a child to eat an ice cream. I often think his political commentary is surprisingly astute though.

Edited November 29, 2010 by Reluctant Heretic

[PbroAgent]

Relative works, as a team leader, in large american mortgage company, they have already laid off loads of staff over last 2 years. Relative is thinking of moving to new larger house to replac 2 bedroom terrace they have nearly finished restoring in affluent area north west of london. Baby on the way. I explained they would be better waiting for prices to drop. Relative told me this was no good as price of their own house will drop. I tried to explain that they would still owe the same amount on the existing property but would have to borrow less to get larger property. Relative struggled to understand idea. Then told me, ' I don't think prices will drop anyway' . Absolute faith that house prices never drop.

I fear it's you that has it the wrong way round Longtermrenter. In the norm, house prices of different sized properties are not pegged to each other in percentage terms but in pound notes terms, e.g. if his house is worth £250k now and he wants to move to a £300k house, then when the price of his falls £50k, the more expensive one will only have dropped by £50k too.

The issue is that your relative will have lost a large chunk of his equity, will find it harder to get a good interest rate with a smaller amount of equity, if he even has enough deposit to get a mortgage at all, and may have to pay more in the long run on interest payments as a consequence.

[Lagarde's Drift]

Lol if a 1 million pound house drops by 150k does that make the average house free? Pmsl

[PbroAgent]

Lol if a 1 million pound house drops by 150k does that make the average house free? Pmsl

Which is why I said "in the norm".

[Longtermrenter]

I fear it's you that has it the wrong way round Longtermrenter. In the norm, house prices of different sized properties are not pegged to each other in percentage terms but in pound notes terms, e.g. if his house is worth £250k now and he wants to move to a £300k house, then when the price of his falls £50k, the more expensive one will only have dropped by £50k too.

The issue is that your relative will have lost a large chunk of his equity, will find it harder to get a good interest rate with a smaller amount of equity, if he even has enough deposit to get a mortgage at all, and may have to pay more in the long run on interest payments as a consequence.

Regardless of who is right, the title of my post 'Prices Won't Drop' is what I am really amazed at - the fact that some can not accept that prices could ever drop, even in this climate.

[PbroAgent]

Yeah, I see a lot of naysayers but increasingly people who realise that they are in negative equity as it is being gradually driven into them.

[Hyperduck Quack Quack]

Archbishop of Canterbury caught on camera dressing up as the Pope.

Edited December 14, 2010 by Hyperduck Quack Quack

[sammysnake]

inflation on the rise, interest rates will rise by 0.25% in March, then a steady climb back to about 4% within 2 years

Quite how this will not have a negative effect on house prices is beyond me.

Stay put, build equity quick to ensure your next move in real terms will burden you less, get a fixed deal.

Providing there's no war, stability ensues.

[Number79]

I fear it's you that has it the wrong way round Longtermrenter. In the norm, house prices of different sized properties are not pegged to each other in percentage terms but in pound notes terms, e.g. if his house is worth £250k now and he wants to move to a £300k house, then when the price of his falls £50k, the more expensive one will only have dropped by £50k too.

The issue is that your relative will have lost a large chunk of his equity, will find it harder to get a good interest rate with a smaller amount of equity, if he even has enough deposit to get a mortgage at all, and may have to pay more in the long run on interest payments as a consequence.

where the feck did you learn maths?

If a 3 bed semi falls by 50k then so does the 4 bed detached?

try it this way....if prices fall by 10% then that is 25k of a 250k house but 35k off a 350k house. More money comes off the trade up and the gap narrows. Crashes are the very best time to trade up.

[SomethingHasToGive]

where the feck did you learn maths?

If a 3 bed semi falls by 50k then so does the 4 bed detached?

try it this way....if prices fall by 10% then that is 25k of a 250k house but 35k off a 350k house. More money comes off the trade up and the gap narrows. Crashes are the very best time to trade up.

But it isn't about maths, because the prices don't fall by a fixed percentage. They rise and fall by supply and demand and how the market dictates. The market depends on demographics and average financial situations of the people who buy and sell each type of house in any area.

However in my area, I looked for houses initially in late 2000. I then checked the prices for similar houses in 2005 or so when at a friends house. The gap between 2 bedroom semis and 3 bedroom semis had increased significantly during that time ( house price inflation ), I don't think it was proportional, it may have been worse than that . I assume that the same will happen during a crash. Which means the statement I have bolded is most likely still true.

So anyone at the time who was talking about house price increases being a good thing in 2005 were talking out of their ****. In fact my friend still hasn't moved because of that. Maybe he will if there is an HPC.

[Number79]

But it isn't about maths, because the prices don't fall by a fixed percentage. They rise and fall by supply and demand and how the market dictates. The market depends on demographics and average financial situations of the people who buy and sell each type of house in any area.

However in my area, I looked for houses initially in late 2000. I then checked the prices for similar houses in 2005 or so when at a friends house. The gap between 2 bedroom semis and 3 bedroom semis had increased significantly during that time ( house price inflation ), I don't think it was proportional, it may have been worse than that . I assume that the same will happen during a crash. Which means the statement I have bolded is most likely still true.

So anyone at the time who was talking about house price increases being a good thing in 2005 were talking out of their ****. In fact my friend still hasn't moved because of that. Maybe he will if there is an HPC.

of course they dont move in set percentages, just like the wont move by 50k each which was my initial point.

You yourself have just proven what I said though. During hpi the gap between steps in housing increases and during crashes it contracts. Like I said, crashes are the very best time to trade up.

[deeplyblue]

Perhaps he didn't want to say, "Listen, the wife's pregnant. The baby isn't going to wait until house prices drop. The wife says she doesn't want to have her baby in this house - the hall's too narrow to leave a baby buggy in and this and that, and anyway she grown to hate this house. Her mother's coming to stay for a couple of months, and that means our room + nursery + room for mother = more rooms than we have. The wife says we have to move, and the notion that we should go back to renting will not be well received. Just at the moment I can get a really good mortgage deal at a 2-year fixed rate. I don't want to argue house prices with you, and where we will all be in two years' time I really don't know. I do know that my household is caught up in a whole different process at the moment. Just drop it will you?"

db