House Prices To Fall 20% - 30%

[libspero]

Thanks to quiet guy for finding this one (HPC front page):

Guardian

Heather Stewart

19th Feb 2011

.

Homeowners should brace themselves for a "short, sharp shock", with house prices set to fall by up to 20% over the next two years as rising unemployment and public spending cuts take their toll, experts are warning.

The cost of the average home fell by up to one-fifth between mid-2008 and the end of 2009 as the credit crunch gripped the mortgage market, but then regained about half of that ground last year, aided by record low interest rates.

With the Bank of England's policymakers locked in an acrimonious public row about whether rates should start rising again to choke off inflation, analysts say prices now look too high to be sustainable.

"Prices are trending slowly downwards at the moment, but our view is that this is really the start of the second leg of the correction, and we expect prices to fall significantly further," said Paul Diggle, property economist at consultancy Capital Economics.

He calculates that the average home remains up to 20% overvalued by historical standards – and with the mortgage market still tight and unemployment rising, 2011 could bring prices crashing back to earth

.

Thanks for a great article Heather.. bear food all around

More HERE

[edit: font size]

Edited February 19, 2011 by libspero

[Pauly_Boy]

I fear she'll be another unemployment statistic come Monday.

I'm surprised she didn't try to blame it on the tories knowing some of the rubbish the guardian publishes!

[Redcellar]

However, he believes there is another possible scenario in which it could be possible that prices will remain flat for many years to come, while wages gradually catch up.

What about that sh1t though. He recognised increased unemployment and yet somehow magically wages will increase 4 - 5% YoY for ten years???

You're lucky to have a job and when your company is losing money, you get little or no rise.

The only answer is falls, not peoples money catching up with houses.

[Roy Orbison]

the average home remains up to 20% overvalued by historical standards – and with the mortgage market still tight and unemployment rising, 2011 could bring prices crashing back to earth

I would like to suggest he is being gentle with the populace.

In ten years, VI BS apart, & with UK property well below the historical average (which it already when measured in real money) the question will be 'will this decline ever end'.

As ever those renting from BTL landlords & not claiming HB will be the ones being screwed, unless HB is killed, which it damm well ought to be & a fixed allowance put in its place.

I think I've said too much there, sorry.

[caparn]

However, he believes there is another possible scenario in which it could be possible that prices will remain flat for many years to come, while wages gradually catch up.

What about that sh1t though. He recognised increased unemployment and yet somehow magically wages will increase 4 - 5% YoY for ten years???

You're lucky to have a job and when your company is losing money, you get little or no rise.

The only answer is falls, not peoples money catching up with houses.

They seem to have covered them not crashing too.

[okaycuckoo]

Short sharp shock?

No! House prices will decline for decades. It's going to look like a graph of the Tokyo stock exchange from 1990 onward.

[WiseBear]

House prices set to fall by up to 20%

This is pathetic. Up to 20% is only one good years gain from decades of ponzi style price rises. When this house of cards finally collapses we will not see mild declines of up to 20%, we will see a proper restructuring of the housing market and the over bloated financial section that helped cause it. In my option a fall of 50% is more than likely but expect more.

[Bloo Loo]

This is pathetic. Up to 20% is only one good years gain from decades of ponzi style price rises. When this house of cards finally collapses we will not see mild declines of up to 20%, we will see a proper restructuring of the housing market and the over bloated financial section that helped cause it. In my option a fall of 50% is more than likely but expect more.

SMI and "deals" betwixt Government and banks for "Leniency" for defaulters will ensure a slow decline.

billions spent on SMI props banks who whould really be possessing properties for forced sales.

Job losses will force more into bankruptcy though as private unsecured debt is a huge factor, so a counter force there....but SMI for the really big debt will delay things for another 2 years....for each debtor.

[Blue Nose Bear]

Thanks to quiet guy for finding this one (HPC front page):

Guardian

Heather Stewart

19th Feb 2011

Thanks for a great article Heather.. bear food all around

More HERE

[edit: font size]

What a great article to get up to on a Sunday!

TBH the stoicism of this bubble has been remarkable but with it now being attacked from all sides:

Rising unemployment

Inflation squeezing household budgets

Supply starting to outstrip demand

Media sentiment turning increasingly bearish

It's gonna go very very soon with or without IR's rising

Happy Days

[jhnpennington]

Same old Capital Economics bo**ocks.

[uncle_monty]

What a great article to get up to on a Sunday!

TBH the stoicism of this bubble has been remarkable but with it now being attacked from all sides:

Rising unemployment

Inflation squeezing household budgets

Supply starting to outstrip demand

Media sentiment turning increasingly bearish

It's gonna go very very soon with or without IR's rising

Happy Days

I would counter with:

QE

MIG (return of the 90% mortgage)

HPI into CPI (continuation of ZIRP/near ZIRP)

Looks more like a 20-30% crash in real terms over 5-10 years.

In terms of a HPC, one way or another a generation is going to get fracked. Boomers, Gen X or Gen Y? My money's on Gen X.

[Blue Nose Bear]

Looks more like a 20-30% crash in real terms over 5-10 years.

Yea, keep seeing this wheeled out. Only problem is this requires the current situation to remain the status quo over the same period and in that scenario all generations will be 'fracked', ain't gonna happen, someones going to blink long before then.

QE!! not this side of an HPC.

The first round solved nothing as all the bad debt is still out there in the form of unsustainable mortgages against overvalued property assets.

I've said it before there, will be no recovery until we get back to a sustainable position. So either property values fall or wages rise by 100%. I know what my monies on

[catmandu]

Capital Economics have been claiming a fall for years. I don't think it's worth writing dramatic headlines based on one company's opinion. We all hated it when a dramatic article was written based on one VI claiming house prices would soar. Nice to have some balance maybe, but not exactly top journalism.

[uncle_monty]

Yea, keep seeing this wheeled out. Only problem is this requires the current situation to remain the status quo over the same period and in that scenario all generations will be 'fracked', ain't gonna happen, someones going to blink long before then.

QE!! not this side of an HPC.

The first round solved nothing as all the bad debt is still out there in the form of unsustainable mortgages against overvalued property assets.

I've said it before there, will be no recovery until we get back to a sustainable position. So either property values fall or wages rise by 100%. I know what my monies on

A real decline in house prices is stated government policy (see Grant Schapps' comments of late).

Today prices are flat/slightly down on 2007, so we're almost 4 years into a "real" correction.

These are independently verifiable facts, not supposition and opinion.

Boomers avoid being fracked as nominal prices remain flat (I make no comment on their losses related to their real incomes, funding carehomes, etc. - this is a discussion on house prices only).

Gen Y'ers and younger benefit from lower real house prices in 10-15 years time (they will be in their 20s/30s), so avaoid being fracked (although they face less jobs, lower pay, higher uni debts).

In contrast, Gen X'ers look to be the real losers of a long-term real decline in house prices.

[Blue Nose Bear]

A real decline in house prices is stated government policy (see Grant Schapps' comments of late).

Today prices are flat/slightly down on 2007, so we're almost 4 years into a "real" correction.

These are independently verifiable facts, not supposition and opinion.

Boomers avoid being fracked as nominal prices remain flat (I make no comment on their losses related to their real incomes, funding carehomes, etc. - this is a discussion on house prices only).

Gen Y'ers and younger benefit from lower real house prices in 10-15 years time (they will be in their 20s/30s), so avaoid being fracked (although they face less jobs, lower pay, higher uni debts).

In contrast, Gen X'ers look to be the real losers of a long-term real decline in house prices.

More than slightly down I feel ,10-15% down ( according to BoE's latest inflation report, page 15, I think). The market is in denial thats why we're still seeing new properties coming to the market at 2007 +10%. This is fact which can be verified by reading the inflation report and checking Rightmove prices against historical values.

In actual fact these properties are therefore 25% overpriced and that's why they are not selling.

Once we start getting 1-2% MoM falls, over the next couple of months and reality kicks in, the shocker will be that HP are plummeting, when in acual fact all they will be doing is reflecting thier current true value.

[silver surfer]

Looks more like a 20-30% crash in real terms over 5-10 years.

As someone who STR'd in 2005 I sincerely hope it's more than that...and faster. However, I'm beginning to think that Uncle Monty won't be far wrong, although I get there by a different, less inflationary route.

1. Inequality in the UK is growing. But there's a big slice of the population, maybe a quarter, maybe a third, who are still doing pretty well and have access to capital. However they no longer have final salary pension schemes so need to make their own pension provisions. They've pretty much made their mind's up that as soon as property falls they're getting onto the BTL bandwagon. They'll be disappointed, because after property falls it'll drift sideways for a generation so their sums won't work out...but they'll still do it.

2. The 20-30% crash that Uncle Monty talks about is an average, sh1t property will fall more, good property will fall less. As a STR'r this is particularly bad news for me, I haven't rented for six years to get a sh1t house cheap, so I'll probably end up with a good house at a reasonable price, but it won't be the screaming bargain I'd hoped for.

3. Like anyone who STR'd I'm no better than a vulture and my plans were posited on wide spread repossessions. In 2010 repossessions actually fell. They'll probably grow a bit in 2011, but a combination of low interest rates and government intervention has been very successful in keeping failing debtors in their houses.

4. The big lesson for the world is that the dream of a property owning democracy didn't work, high rates of owner occupation have been seen to fail. Owner occupancy in this country is now dropping fast and tight credit will keep it dropping despite lower house prices. The future is one where about half the population will never own their own house. For the children of children born today it'll be even lower. Nothing unusual about this, in the 19th century rural houses averaged a bit over 1x average earnings, and urban houses averaged a bit shy of 1.5x average earnings. But tight credit meant less than one in ten households were owner occupiers. That's the long term mean we'll eventually revert to.

[Tired of Waiting]

Thanks to quiet guy for finding this one (HPC front page):

Guardian

Heather Stewart

19th Feb 2011

Thanks for a great article Heather.. bear food all around

More HERE

[edit: font size]

20% in 2 years sounds about right. And it looks like they are talking nominal prices. So, 30% in real terms.

Indeed!

[uncle_monty]

More than slightly down I feel ,10-15% down ( according to BoE's latest inflation report, page 15, I think). The market is in denial thats why we're still seeing new properties coming to the market at 2007 +10%. This is fact which can be verified by reading the inflation report and checking Rightmove prices against historical values.

In actual fact these properties are therefore 25% overpriced and that's why they are not selling.

Once we start getting 1-2% MoM falls, over the next couple of months and reality kicks in, the shocker will be that HP are plummeting, when in acual fact all they will be doing is reflecting thier current true value.

Why quote Rightmove (asking prices) as a fact that proves house are universally down by 15%? I think we are all agreed that Land Registry is the final arbiter.

http://www.thisislondon.co.uk/money/article-23920039-london-house-prices-surge-to-the-brink-of-an-all-time-high.do

Do you honestly think that a repeat of the plummet in house prices we had 2007-9 (20%) would not produce a strong policy response from government/BoE/banks?

The consensus from the powers that be is to absorb the necessary falls (and there is agreement that this at least 20%) over time in real terms. What has wage inflation been since 2007? Surely at least 5%, so 15-25% to go.

Edited February 20, 2011 by uncle_monty

[uncle_monty]

As someone who STR'd in 2005 I sincerely hope it's more than that...and faster. However, I'm beginning to think that Uncle Monty won't be far wrong, although I get there by a different, less inflationary route.

1. Inequality in the UK is growing. But there's a big slice of the population, maybe a quarter, maybe a third, who are still doing pretty well and have access to capital. However they no longer have final salary pension schemes so need to make their own pension provisions. They've pretty much made their mind's up that as soon as property falls they're getting onto the BTL bandwagon. They'll be disappointed, because after property falls it'll drift sideways for a generation so their sums won't work out...but they'll still do it.

2. The 20-30% crash that Uncle Monty talks about is an average, sh1t property will fall more, good property will fall less. As a STR'r this is particularly bad news for me, I haven't rented for six years to get a sh1t house cheap, so I'll probably end up with a good house at a reasonable price, but it won't be the screaming bargain I'd hoped for.

3. Like anyone who STR'd I'm no better than a vulture and my plans were posited on wide spread repossessions. In 2010 repossessions actually fell. They'll probably grow a bit in 2011, but a combination of low interest rates and government intervention has been very successful in keeping failing debtors in their houses.

4. The big lesson for the world is that the dream of a property owning democracy didn't work, high rates of owner occupation have been seen to fail. Owner occupancy in this country is now dropping fast and tight credit will keep it dropping despite lower house prices. The future is one where about half the population will never own their own house. For the children of children born today it'll be even lower. Nothing unusual about this, in the 19th century rural houses averaged a bit over 1x average earnings, and urban houses averaged a bit shy of 1.5x average earnings. But tight credit meant less than one in ten households were owner occupiers. That's the long term mean we'll eventually revert to.

Good post.

A Black Swan could of course change things dramatically either way.

[Constable]

"Prices are trending slowly downwards at the moment, but our view is that this is really the start of the second leg of the correction, and we expect prices to fall significantly further," said Paul Diggle, property economist at consultancy Capital Economics.

Rightmove's monthly survey, due to be published on Monday , will reveal a 21% increase in the number of properties coming on to the market in London, while the market in the rest of the country is "frozen over".

Here we go!...

[Blue Nose Bear]

Why quote Rightmove (asking prices) as a fact that proves house are universally down by 15%? I think we are all agreed that Land Registry is the final arbiter.

http://www.thisislondon.co.uk/money/article-23920039-london-house-prices-surge-to-the-brink-of-an-all-time-high.do

Do you honestly think that a repeat of the plummet in house prices we had 2007-9 (20%) would not produce a strong policy response from government/BoE/banks?

The consensus from the powers that be is to absorb the necessary falls (and there is agreement that this at least 20%) over time in real terms. What has wage inflation been since 2007? Surely at least 5%, so 15-25% to go.

Indeed and Land Registry show prices are 12% below their peak.

However asking prices are 10% above peak.

Therefore you need to take 22% off current asking prices to assess what the current asking price should be.

I don't think the government/BoE/banks give a toss if people end up in neg equity as long as thier exposure is managed and limited.

However their attempts to manipulate the market will inevitably fail and the correction will come, we will be well on the way in 5-10 months, not 5 -10 years.

Edited February 20, 2011 by Agent Provocateur

[onesmallstep]

I think tptb have known all along that houses are way over priced, they have just been desperate to stop the banking system collapsing.

[uncle_monty]

Indeed and Land Registry show prices are 12% below their peak.

However asking prices are 10% above peak.

Therefore you need to take 22% off current asking prices to assess what the current asking price should be.

I don't think the government/BoE/banks give a toss if people end up in neg equity as long as thier exposure is managed and limited.

However their attempts to manipulate the market will inevitably fail and the correction will come, we will be well on the way in 5-10 months, not 5 -10 years.

Where? On average? Where you live? Where you want to live?

Please explain to me step-by-step how 20%+ nominal falls per year will tolerated without a monumental and coordinated policy response? You advocate an economic death spiral culminating in violence and revolution (i.e. loss of power and wealth by incumbent politicians (both sides of the House) and their chums). These turkeys ain't going to vote for that Christmas party.

Stop advocating what you want or wish to happen, and let's debate what we think can happen.

[uncle_monty]

I think tptb have known all along that houses are way over priced, they have just been desperate to stop the banking system collapsing.

Agreed.

TPTB = the banking system. If not the same people, then members of the same family/club/university, etc.

[catmandu]

Why quote Rightmove (asking prices) as a fact that proves house are universally down by 15%? I think we are all agreed that Land Registry is the final arbiter.

Even the LR doesn't necessarily tell the whole story - if more high value homes are sold, it looks like prices are going up.