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LuckyOne

So How Is This Crash Going To Unfold ?

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Let use 100 as a base for 1999 house prices and pretend that they were roughly sensible.

From what I can see, prices right now are between 200 to 500+ in different parts of the country.

If we use 4% as the average wage growth from 1999 to 2011, the 100 should be about 155 to-day.

As a rule of thumb, does it make sense that all house prices will drop back to roughly 155% of their 1999 price when the bursting of the bubble is complete?

This would mean that price in the parts of the country which "bubbled" the least will fall by about 25% from here, the average house will fall by about 50% and houses in the parts of the country with the largest bubbles will fall by 70%.

If house prices are to revert to some sort of sensible value relative to incomes, these are the types of falls that we might expect unless there have been a permanent shift in income distribution between different areas of the country realtive to 1999.

This is a variation on the "multiple of local incomes" theme as there are parts of the country which experience inward migration from people who have accumulated wealth elsewhere.

With a nod to ToW, it is always frothiest at the top. For those who want to buy a house to-day, probably for non-economic reasons that we might not agree with, does it make sense to look for areas which have had the smallest bubble since 1999 or not?

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As a rule of thumb, does it make sense that all house prices will drop back to roughly 155% of their 1999 price when the bursting of the bubble is complete?

(£77K in 1999 vs £163K today). http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php

Possibly. However I think there are a few things that mean they won't drop as much as that

i) Housing scarcity - the amount of unoccupied houses is probably far less these days than in 1999

ii) Lower Interest rates - unlikely interest rates will be allowed to go as high as 5-6% in current environment

iii) Housing improvements - with few houses built, the ones that remain have been improved and would have cost more in 1999 if they were the same back then

iv) Government support - given the bank bail out, there is little chance of any bank been able to repossess at will, so prices will be propped up by payment holidays and reduced payments.

There are probably a whole host of other things I have not considered.

I suspect up to a third could be taken off prices on average in a big crash. I think the impact on a regional basis could be far more drastic and you may find prices go back to 1999 levels.

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Let use 100 as a base for 1999 house prices and pretend that they were roughly sensible.

From what I can see, prices right now are between 200 to 500+ in different parts of the country.

If we use 4% as the average wage growth from 1999 to 2011, the 100 should be about 155 to-day.

As a rule of thumb, does it make sense that all house prices will drop back to roughly 155% of their 1999 price when the bursting of the bubble is complete?

This would mean that price in the parts of the country which "bubbled" the least will fall by about 25% from here, the average house will fall by about 50% and houses in the parts of the country with the largest bubbles will fall by 70%.

If house prices are to revert to some sort of sensible value relative to incomes, these are the types of falls that we might expect unless there have been a permanent shift in income distribution between different areas of the country realtive to 1999.

This is a variation on the "multiple of local incomes" theme as there are parts of the country which experience inward migration from people who have accumulated wealth elsewhere.

With a nod to ToW, it is always frothiest at the top. For those who want to buy a house to-day, probably for non-economic reasons that we might not agree with, does it make sense to look for areas which have had the smallest bubble since 1999 or not?

I think that rather than using only average inflation, one should also use average interest rate (7% perhaps, someone on this forum might know) to assess what the house has actually cost the borrower. The reason I think average rates should be used is because most houses are bought with a mortgage and so the cost of a house 10yrs later may be more than inflation.

An example: 1999 = 100, you borrow 90 over 25yrs @ 7% average, in 11yrs you pay -> you have paid the bank 85, but still owe 68 so your house has cost you so far 63 so your house should now be 163 even if inflation has been lower. Conversely, if inflation has been very high then it should drive the price of your house.

So, find the average inflation for the past 11yrs, the average mortgage rate for the same period and see which leads to the highest price, that will be your "inflation" adjusted house value IMHO.

Edited by frenchy

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  • 312 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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