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Had Epiphany About What Eventually Causes Real Estate Fall

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We now have seen a number of crashes around the world so looking in depth at what happens in them and you can see the same pattern everytime. Because of course it is human beings in all cases who respond the same way. So I first saw the real estate crash in Florida, then in Nevada and Arizona, then the mother of all crashes in California, then Ireland. I was blog reading through all of them.

The first phase is buyers stop. Of course there is still a few sales but the volume of sales drop say 50% yoy when looking at monthly comparisons. There is then a 'Mexican standoff' for 18 to 24 months. Where sellers won't lower the prices and an interesting point is that in all cases buyers were still trying to pay top dollar. Its not just sellers who are emotionally invested with real estate always going up, ironically buyers don't want to imagine the market going down. Everyone buys real estate believing it is an 'investment'. What happens is buyers simply can't get access to credit. So we see the bizarre situation where people are continuing to make offers on homes, but the deals keep falling through when the banks won't give the credit. -the UK besides greater London is clearly at this point.

The second phase to crash guru bloggers is called the 3 d's. Its where people must sell for one reason or another, death, divorce, distress(job loss). But I realized this is wrong. When I looked at individual examples.. even when forced to sell, sellers will not sell for less than the market high. The main reason for this is most people have gone all the way on the home equity lines, so to sell for much less would instantly bankrupt them. Therefore they literally cannot lower the price. Yes there is the very odd sale that goes through, and lasts on the market for 2 days, like a smart family gets an inheritance and just dumps it. But this is a small part of the market. Don't underestimate the emotional attachment to a price too, if someone has built up their retirement on a certain selling price they emotionally can't lower it.

The real second phase is these houses sit on the market literally until the people get foreclosed. I've seen it happen time and again. This phase can last like two years.

The third phase is the real place the crash happens. The bank now forecloses and is holding the property. They idiotically won't sell it for less than the note is worth either, because they dont' want to admit a loss - which on their books this loan is still not recognized as a loss. But then they have to start paying the expenses of upkeep.. like maintenance, and property taxes and such. Well at this point the accountants in London almost have a heart attack, because these are operating expenses. They have to report those expenses this quarter! Its at this point that the bank wants these off its books AT ANY COST.

Once the banks pull the trigger its unbelievable how the market falls apart. Right now in Britain the banks are just starting to end up with a number of foreclosures.

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Its not widely known yet but the UK banks are starting to end up with UK foreclosures.

In a rising real estate market there is no such thing as foreclosures. Anyone who gets into serious trouble sells the property, pays off the note, and has a few tens of thousands of pounds extra. There is also no emotional attachment ot price, because its always a new high every month.

Its only a sustained period where real estate stagnates and no sales are happening that the bank will end up with foreclosures. And in each case the individual will try to put the house for sale and sell for what at least is owed. As we see in the UK so many houses languishing at unrealistic price, but the seller not lowering the price.

The real estate bull, EA agent, newspaper response to this phenomenon is to calm everyone down by saying, oh there are lots and lots of people who don't need to sell they are just willing to sell if they get a certain price. Which is BS. That may be what the future foreclosuree tells his friends.. but very few people are in that good of financial situation they can just let a house sit for sale for 2 years.

And the few people who are that rich don't want the headache, they'll just drop the price by 10% and sell it in a few days.

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The real statistics that matter (and I don't know what whey are):

  • how many people bought before the spike ( 2001?)
  • how many people have MEW'd themselves to feck even thought they bought before the spice?
  • how many as a subset of the above, are at risk of job loss and/or not being able to service their debts in a NIRP world?

The delta worst case for the above WILL precipitate a crash. The rest of the population will likely just stay put and tough it out.

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The real statistics that matter (and I don't know what whey are):

  • how many people bought before the spike ( 2001?)

  • how many people have MEW'd themselves to feck even thought they bought before the spice?

  • how many as a subset of the above, are at risk of job loss and/or not being able to service their debts in a NIRP world?

The delta worst case for the above WILL precipitate a crash. The rest of the population will likely just stay put and tough it out.

My banker friend who is a lender told me what most people were doing is running up credit card and other consumer debt for a few years.. then when it became noticeable how huge the interest payments were, rolling it into MEW for the lower interest rates.

A few weeks ago I talked to him, and he said just in 2 days he had to turn down 5 couples who attempted to do consolidation loans. All of them had previously done consolidation loans, and the amounts were all between £30k and £60k of debt averaging ~20%. He wanted to give them the loans but they didn't have home equity left.

The best he could do was for one couple place £10k of credit card debt onto home equity.. out of their £60k of consumer debt. Wisely he chose the highest rate debt to consolidate.

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Don't you think it weird that the mere talk of implementing plans to make the banks operate more safely results in them getting downgrades?

Just shows how bust the fraudulant feckers really are and still operating on a blustering 'front' cliff edge to enable coining in of their bonuses

Also exposes the Brown-Darling collusion with the bust frauds to change 300+ year old City rules that Banks had to declare in the Media when they were forced to borrow extraordinay cash from BOE to enable them meeting everyday running expenses!

Edited by erranta

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My banker friend who is a lender told me what most people were doing is running up credit card and other consumer debt for a few years.. then when it became noticeable how huge the interest payments were, rolling it into MEW for the lower interest rates.

A few weeks ago I talked to him, and he said just in 2 days he had to turn down 5 couples who attempted to do consolidation loans. All of them had previously done consolidation loans, and the amounts were all between £30k and £60k of debt averaging ~20%. He wanted to give them the loans but they didn't have home equity left.

The best he could do was for one couple place £10k of credit card debt onto home equity.. out of their £60k of consumer debt. Wisely he chose the highest rate debt to consolidate.

Yes. People had been repaying unsecured debts post 2008 but in the last 6 months this has been rising again , not due to confidence, but due to it being the only way many can pay their living costs.

The bank downgrade, being discussed on the slyness thread, could be the catalysts whci raises rates and puts a final knife in the back of many families struggling to cope

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Its not widely known yet but the UK banks are starting to end up with UK foreclosures.

In a rising real estate market there is no such thing as foreclosures. Anyone who gets into serious trouble sells the property, pays off the note, and has a few tens of thousands of pounds extra. There is also no emotional attachment ot price, because its always a new high every month.

Its only a sustained period where real estate stagnates and no sales are happening that the bank will end up with foreclosures. And in each case the individual will try to put the house for sale and sell for what at least is owed. As we see in the UK so many houses languishing at unrealistic price, but the seller not lowering the price.

The real estate bull, EA agent, newspaper response to this phenomenon is to calm everyone down by saying, oh there are lots and lots of people who don't need to sell they are just willing to sell if they get a certain price. Which is BS. That may be what the future foreclosuree tells his friends.. but very few people are in that good of financial situation they can just let a house sit for sale for 2 years.

And the few people who are that rich don't want the headache, they'll just drop the price by 10% and sell it in a few days.

This is the time that percentage rates bite the rich on the ass

- cos there is 10% off an ordinary, say, sarf east £400,000 then there is 10% off their nouveau £2 Million 'show piece' pad bought in the rising bubble times (reductions coming just when their income has dropped like a stone due to recession!)

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So we see the bizarre situation where people are continuing to make offers on homes, but the deals keep falling through when the banks won't give the credit. -the UK besides greater London is clearly at this point.

Lefèvre nailed this one - a bull run ends with an inflationary blowoff on thin volume, every time; some recognition of this is the difference between a successful momentum trader and a serial bankrupt.

Right now in Britain the banks are just starting to end up with a number of foreclosures.

I'm more interested in the true extent of Schrödinger-esque sub-prime in the UK...

http://www.citywire.co.uk/money/why-are-landlords-selling-when-rents-are-high/a520516

There could be a number of reasons but the most likely is that the small landlords who financed their buy-to-let purchases with loans of 75% or more in the dog days of the market boom in 2007 are now coming up to remortgage their properties and cannot find a deal that stacks up – or even any deal at all.

:

They may now have very little equity left in the property – not enough to qualify for a remortgage...

:

Some landlords could be coming up to retirement...

I realise the very natural (and very human) tendancy toward "hope springs eternal", but at least from my altitude this is all turning into a case of "not just a river in Africa" at a fairly impressive clip.

Maybe some of those "overseas investors" I hear about will "snap up some bargains" letting the hoi polloi de-leverage (and wriggle free of the hook) this side of Christmas*.

(* which, if we believe the equity indicies' collective forecast, is going to be more a case of "oh-oh owe" than "ho ho ho" this year)

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Yes. People had been repaying unsecured debts post 2008 but in the last 6 months this has been rising again , not due to confidence, but due to it being the only way many can pay their living costs.

The bank downgrade, being discussed on the slyness thread, could be the catalysts whci raises rates and puts a final knife in the back of many families struggling to cope

For a lot of people it will take real financial control for many years to pay down the unsecured debt.. if they can't roll it over into MEW. Like all these couples were 'average' people, like teachers, firefighters, military, etc.. Just the interest on £40k in credit card debt is over £600 pounds a month.

So they will have to cover that. Plus start making principle payments. Which paying another £600 a month on top of the interest it would still take 5 years to pay it off. (although the interest would luckily be coming down).

On top of that they would have to stop going further into debt. Which they were heading in about £1000 every month. So we are talking a massive, catastrophic drop in spending, for five years.

For most people when you look at their after tax income. Then look at their mortgage costs, food costs, electric costs, cell phone costs, petrol, car insurance, car maintenance, heating costs, property tax, property insurance, personal insurance.. A best case scenario is they are going to have nothing left at the end of each month.

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For a lot of people it will take real financial control for many years to pay down the unsecured debt.. if they can't roll it over into MEW. Like all these couples were 'average' people, like teachers, firefighters, military, etc.. Just the interest on £40k in credit card debt is over £600 pounds a month.

So they will have to cover that. Plus start making principle payments. Which paying another £600 a month on top of the interest it would still take 5 years to pay it off. (although the interest would luckily be coming down).

On top of that they would have to stop going further into debt. Which they were heading in about £1000 every month. So we are talking a massive, catastrophic drop in spending, for five years.

For most people when you look at their after tax income. Then look at their mortgage costs, food costs, electric costs, cell phone costs, petrol, car insurance, car maintenance, heating costs, property tax, property insurance, personal insurance.. A best case scenario is they are going to have nothing left at the end of each month.

yoou cold say all that in jsut three little words...Austrian Bust phase.

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yoou cold say all that in jsut three little words...Austrian Bust phase.

interesting, you think the austerity due to personal debt in the UK will lead to a bust in Austria?

at least Werner Faymann will be free to tell the population it started in the UK when tshtf

Edited by Tamara De Lempicka

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For a lot of people it will take real financial control for many years to pay down the unsecured debt.. if they can't roll it over into MEW. Like all these couples were 'average' people, like teachers, firefighters, military, etc.. Just the interest on £40k in credit card debt is over £600 pounds a month.

So they will have to cover that. Plus start making principle payments. Which paying another £600 a month on top of the interest it would still take 5 years to pay it off. (although the interest would luckily be coming down).

On top of that they would have to stop going further into debt. Which they were heading in about £1000 every month. So we are talking a massive, catastrophic drop in spending, for five years.

For most people when you look at their after tax income. Then look at their mortgage costs, food costs, electric costs, cell phone costs, petrol, car insurance, car maintenance, heating costs, property tax, property insurance, personal insurance.. A best case scenario is they are going to have nothing left at the end of each month.

They just go on a debt management plan. Creditors want them to cut down on expenditure? They lie about their income. Alot of them did the same when applying for mortgages, but this time they claim low income rather than high. Simples.

300,000 other unsecured debtors in the UK can't be wrong.

I appreciate your argument, but I'm afraid the effects of creditor forbearance in this country are unquantifiable. It will end in disaster, but for now we can't tell how or when.

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For a lot of people it will take real financial control for many years to pay down the unsecured debt.. if they can't roll it over into MEW. Like all these couples were 'average' people, like teachers, firefighters, military, etc.. Just the interest on £40k in credit card debt is over £600 pounds a month.

So they will have to cover that. Plus start making principle payments. Which paying another £600 a month on top of the interest it would still take 5 years to pay it off. (although the interest would luckily be coming down).

On top of that they would have to stop going further into debt. Which they were heading in about £1000 every month. So we are talking a massive, catastrophic drop in spending, for five years.

For most people when you look at their after tax income. Then look at their mortgage costs, food costs, electric costs, cell phone costs, petrol, car insurance, car maintenance, heating costs, property tax, property insurance, personal insurance.. A best case scenario is they are going to have nothing left at the end of each month.

Good points. You may find the discussion (linked) of interest, and may even wish to contribute:

http://www.housepricecrash.co.uk/forum/index.php?showtopic=168635

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interesting, you think the austerity due to personal debt in the UK will lead to a bust in Austria?

at least Werner Faymann will be free to tell the population it started in the UK when tshtf

I blame the annexation of the Sudatenland myself.

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They just go on a debt management plan. Creditors want them to cut down on expenditure? They lie about their income. Alot of them did the same when applying for mortgages, but this time they claim low income rather than high. Simples.

300,000 other unsecured debtors in the UK can't be wrong.

I appreciate your argument, but I'm afraid the effects of creditor forbearance in this country are unquantifiable. It will end in disaster, but for now we can't tell how or when.

Honestly that is my advice to most people that far in.. just stop paying the unsecured debt. The bank will still refinance the mortgage when the note comes up, becasue they don't want to recognize the loss.

Otoh that still leaves the issue of the extra £1,000 pound sa month the people were going into debt for. And who will suck up the losses on the unsecured debt.

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Well at this point the accountants in London almost have a heart attack, because these are operating expenses. They have to report those expenses this quarter! Its at this point that the bank wants these off its books AT ANY COST

That would explain whats going on in my neck of the woods to a T

Bank repoes, first they do a bit of kite flying {we have a offer of X£`s if you would like to offer above that amount pleas do so before exchange of contracts}} it stays that way for a bit then you get a couple of small drops on the asking/we got a offer of X£`s price

Now there are plenty that have bee doing the above for the last 6/12 months but in the last month or so they have cut the string on the kite, and the we have a offer off X£`s { the price the bank wants the biding to start} has suddenly dropped buy as much as 50% of the advertised asking price ,when previously they were anything from 10% below to 10% above the advertised asking price

Could get interesting in the next few months :D

Edited by long time lurking

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We now have seen a number of crashes around the world so looking in depth at what happens in them and you can see the same pattern everytime. Because of course it is human beings in all cases who respond the same way. So I first saw the real estate crash in Florida, then in Nevada and Arizona, then the mother of all crashes in California, then Ireland. I was blog reading through all of them.

Hi aa3, I am curious about the current state of the California crash in terms of what has happened so far and what is likely over the next year or two. Basically, I am looking at a possible move to the bay area (near san fran), which I know historically has been pretty expensive. Do you know anything about the market there?

Cheers, Q

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  • 284 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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