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Prices Will Fall - But Not As Much As 40% In My Opinion

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I've read in various articles from various sources of prices dropping over the next 1-5 years. The range of the predictions are immense. Indeed, by even looking at the homepage of this site you will see predictions ranging from 0% change to as much as 50%.

I've also read through the forums here about people saying that it's best to hold out from buying until buying becomes cheaper than renting again. The only problem is - I don't think the crash will go this far.

Indeed, many of my relatives who bought in London in the 70's and 80's have been known to say:

"things where tough then... there'd be noone moving into a fully furnished house. it took years and years to get all your bits and pieces"

"we were lucky to get a mortgage and when we got it it took a huge chunk of your uncles wages, and me trying to raise three childen"

My point is, it has always been difficult to get your first house and always will be. I don't think property will fall until such a point where buying is cheaper than renting. It is inevitable that, when you take the plunge and buy your first property, sacrafices must be made.

Taking the Halifax figures for example. The last month where theuy quote a P/E ratio is June. Here, they give an average price of £162,693 and a P/E ratio of 5.46. This means that properties would need to drop to the following price to give a P/E ratio of the magic 3.5:

£162,693 / 5.46 * 3.5 = £104,290

At this quoted average salary, people will be on an average salary of £1,769 AFTER TAX.

The mortgage repayments on a Woolwich mortgage (current rate 5.09%) for a 25-year repayment morgage would be £615 per month or 34% of TAKE-HOME pay. Average rents would also cover this level of a mortgage with money left over - i.e. the professional BTL's would get back in here - and probably slightly sooner. I don't see this level a drop happening.

In my opinion, houses will continue to fall until they are at a level where some of the higher-earning first time buyers as well as those with big deposits can buy. This is more likely to be nearer a 4.5 salary multiple giving a house price of £134,087 - a drop of 17.5%. Prices will then be seen to level off at which point the STR's will get back in. This will be seen to be the bottom by many and prices will turn.

It should be noted that at £134087, the mortgage would be £790 per month (also 25-year repayment) which would be manageble by all but the lowest earners - with a bit of sacrafices.

In short, ask anyone who bought a house at any point in history. Most, if not all, will tell you that it was tough for them and they had to make sacrafices too - even at the low prices of those times. It will never be a walk in the park but the phsycology behind, and the pride of, owning your own house will mean that sacrafices WILL be made.

That being said, my advice is - set an absolute percentage drop, e.g. 20% from the peak, and when prices reach this level BUY. You may find that, if you wait for the 40% or 50% drop quoted by some, and the market rises a little at 20% or 25% below peak, people will be unwilling to sell at the 10% off asking prices likely to be seen at this point. Instead, they'll see their properties rising and will be likely to hold on to them ar sell them at above asking price (sound familiar). We need to be very careful not to miss the boat when it berths this time round :blink:

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That being said, my advice is - set an absolute percentage drop, e.g. 20% from the peak, and when prices reach this level BUY. You may find that, if you wait for the 40% or 50% drop quoted by some, and the market rises a little at 20% or 25% below peak, people will be unwilling to sell at the 10% off asking prices likely to be seen at this point. Instead, they'll see their properties rising and will be likely to hold on to them ar sell them at above asking price (sound familiar). We need to be very careful not to miss the boat when it berths this time round :blink:

"When the facts change, re-evaluate" - And that's what I shall do!

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The potential problem with the "When the facts change, re-evaluate" is that it suggests buying when the market turns.

This, in my opinion will lead to losing out on the huge differences between asking prices and agreed selling prices that are likely to be seen close to that time - probably in excess of 10%.

When the market turns, the newspapers will report it and when this happens, you are likely to lose that 10% overnight. Indeed, houses could then start selling at above asking prices, i.e. it will turn from a buyers market to a sellers market again.

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Taking the Halifax figures for example.

Well, that's where your argument goes pear shaped from the start. Halifax (recent) figures are a very bad example. I don't know how they arrived at them, but I suspect they are a mendacious manipulation of true figures. Already London properties are having to drop up to 15% to get even a viewing, so it doesn't take much savvy to assume that the eventual, SOLD, prices are going to drop a lot more than this over the next two years.

All you have to do, even to get a feel for OFFER prices, is look at rightmove for a few properties and then login a few weeks later. You'll find that a great many houses are dropping like bricks.

30-40% easily over a couple or three years.

VP

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alright then, consider this...

Friends in Ealing bought a place a while ago (about 25 years ago). Stretched themselves at the time - but were doing ok. House is now "worth" about £1m. I am doing ok as is my wife. To go out and get a mortgage for £1m when we are on an income of about £150k (if only - she it on Mat leave), would be madness to say the least.

To say that it has always been a struggle is a little misleading. nah, its total rubbish - there has to be a big correction to get things back on track. The fact is that you have missed is that when it happens, there will be a lot of negative sentiment towards property that will cause people to shy away from and only reinvest when the prices are definately on the way up. Also, people won't be able to invest because of a general credit crunch.

You are right in saying that it will be always hard to buy a nice place because even if prices are low, factors will conspire to make it appear hard.

VP - just read your post. I agree.

Edited by woody

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The potential problem with the "When the facts change, re-evaluate" is that it suggests buying when the market turns.

This, in my opinion will lead to losing out on the huge differences between asking prices and agreed selling prices that are likely to be seen close to that time - probably in excess of 10%.

When the market turns, the newspapers will report it and when this happens, you are likely to lose that 10% overnight. Indeed, houses could then start selling at above asking prices, i.e. it will turn from a buyers market to a sellers market again.

time will tell, but I can't help thinking that by the time 20% nominal falls have occurred, and are widely acknowledged to have occurred, that there will be widespread gnashing of teeth, unemployment, wailing and general despair... this crash will take a lot of other things down with it, and there simply won't be enough confidence and cash floating around to change the momentum of the market at that point.

The consensus here is of a "return to trend" and there are very sound reasons for that which have been better explained elsewhere... but such a return to trend would see 30% off - minimum. Naturally, it will undershoot, and there is also a possibility that it could go yet further if peak oil is as real as some suspect (I am not saying it is, although it's sufficiently likely to be wary of)... all in all, and given the slow speed at which the market will turn, I am not overly concerned about jumping in at -20% or even missing the precise bottom.

My logic is that I will buy when I don't have to stretch myself to do so. Our parents may have made sacrifices but then again they were buying in their early 20s, I will have an extra 10 yrs on them (ok not all spent saving, but that's modern life for you!)

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Taking the Halifax figures for example. The last month where theuy quote a P/E ratio is June. Here, they give an average price of £162,693 and a P/E ratio of 5.46. This means that properties would need to drop to the following price to give a P/E ratio of the magic 3.5:

£162,693 / 5.46 * 3.5 = £104,290

At this quoted average salary, people will be on an average salary of £1,769 AFTER TAX.

The mortgage repayments on a Woolwich mortgage (current rate 5.09%) for a 25-year repayment morgage would be £615 per month or 34% of TAKE-HOME pay. Average rents would also cover this level of a mortgage with money left over - i.e. the professional BTL's would get back in here - and probably slightly sooner. I don't see this level a drop happening.

In my opinion, houses will continue to fall until they are at a level where some of the higher-earning first time buyers as well as those with big deposits can buy. This is more likely to be nearer a 4.5 salary multiple giving a house price of £134,087 - a drop of 17.5%. Prices will then be seen to level off at which point the STR's will get back in. This will be seen to be the bottom by many and prices will turn.

It should be noted that at £134087, the mortgage would be £790 per month (also 25-year repayment) which would be manageble by all but the lowest earners - with a bit of sacrafices.

Most of what you say is sensible but there are flaws. Firstly you say that the average take home will be £1,1769. I make that £28,800 p.a. - I know there are more parts of the country get nowhere near that average salary. So house prices should be in ratio like the were years ago. Now I have seen houses down south cheaper than they are in Liverpool, and better!

We cant really use an average in real terms. One of the reasons the market is phucked is because there is no 'bottom rung'. We cant have an abundance of £162,693 properties. In my local rag ther are 2 houses under £100K the other 50 or so are higher. so 2%!!!!!! A lot of people cannot even borrow over £100K. If they can its over 30 years at an insane rate.

Your point of £134,087 on mortgage at £790 per month which would be manageable by all but the lowest earners. I am sorry but I dont know your locale but that is unaffordable to the majority imho. What happens if the interest rate goes up 2%? YOu would be buggered. This can happen because of the economics state. Look at the stockmarket today!!!

THE MARKETS 22:10 UK

FTSE 100 5427.8 -66.60

Dax 5069.4 -68.60

Cac 40 4594.1 -56.13

Dow Jones 10317.4 -123.75

Nasdaq 2103.0 -36.34

S&P 500 1196.4 -18.08

BBC Global 30 5470.4 -70.22

Thousands of people have just changed from fixed rates mortgages at 3.5% to 5.5% - rise of about 30% on their mortgage repayment. Thats gotta hurt with such a large debt burden?

I think you sum it up correctly though - my target is as follows. I am hoping to buy next year - by May myself and partner should have £30K+ savings. I will buy a house for £130K and get mortgage at 3.5 x Me + 1 x Her. Mortgage of about £106,000. We can afford this faily easily but we have to factor at least 2% interest rate rises. Then it gets tight. The other issues are inflation is quite low so your wages are not catching up with all the rises in utility bills. Factor those in too.

I know where Im going, but whatever I can afford and am comfortable with I am not the average buyer. I cannot afford £162K! The houses need to drop to what all people can afford.

0-60K

60-100K

100-150K

150-250K

250-500K

500K - 1M

I am confident it will drop 10% OFF last sold price, or peak price. In 12 months. My problem is the ******* EA's still pricing 30-40% about last sold!! They are getting found out and when that happens the difference between the highest askiing price to the sold price CAN and WILL be 40-50%.

NEVER SAY NEVER

When the market turns, the newspapers will report it and when this happens, you are likely to lose that 10% overnight. Indeed, houses could then start selling at above asking prices, i.e. it will turn from a buyers market to a sellers market again.

Not even 'BULLY' of Bullseye is that confident. We will not get a sellers market for some time. We will get prices dropping in full percents 1,2,3,4,5% It will start at overnight 5% - if the market dont respond which it HASNT then another 3% comes off. In the press if the number of houses sold goes from 6 per agent in a month to 10per month they will say markets booming - Sales up 60%!!!!! And try to stall prices. But the market will dictate it - they can ask more - they wont get it!!!! Once its well know that property is falling all the time it will be hard to stop it and almost impossible to get rises. Bear in mind you are selling a depreciating asset. Whether the EA's talks it up of not - its a falling stock so NO INVESTORS. Also you would want to factor the fact its falling and offer UNDER the asking price by what you feel is a sustainable amount if IR shoot through the roof and you cannot afford the payment.

MY structure is last sold minus monthly drops since that point. So lets say atm Hometrack say its on target for -5% yoY. Minus 2-10%. If they dont like it - there are SHITLOADS of houses for sale and the longer they leave it the more their asset depreciates.

Edited by teddyboy

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im sticking to -40% over 1-3 years.

It is not a case of a 20% fall it is a case of watching a bloodbath as a generation of people go bust and people lose jobs.

I expect 50-70% falls and property out of favour for a decade at least.

Only fools will rush in to buy at a 20% fall.

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My point is, it has always been difficult to get your first house and always will be. I don't think property will fall until such a point where buying is cheaper than renting.

It did in the mid nineties. How do you explain that then?

But I agree with your 20% fall based on current interest rates. If interest rates go up through it could be a bigger fall.

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  • 301 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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