Jump to content
House Price Crash Forum
jasonpistol

The Stages Of A Crash/correction

Recommended Posts

we've had mmr for about 6 weeks and it seems to be having an impact

these are the stages in which i see the different types of buyers reacting:

stage 1- people buying with a mortgage can't get the credit so get priced out

minimal impact on prices as

stage 2- bomad types have their parents to cover the shortfall so continue to pay high asking prices

once they hit the limit

stage 3- cash buyers carry the market as credit is not an issue to them

lack of effective demand puts downward pressure on prices until

stage 4- foreign investors realise whats going on and then the party really gets going

i believe we're currently at late stage 2/early stage 3

once price falls show up on the stats things will really get interesting

any thoughts/opinions?

Share this post


Link to post
Share on other sites

we've had mmr for about 6 weeks and it seems to be having an impact

these are the stages in which i see the different types of buyers reacting:

stage 1- people buying with a mortgage can't get the credit so get priced out

minimal impact on prices as

stage 2- bomad types have their parents to cover the shortfall so continue to pay high asking prices

once they hit the limit

stage 3- cash buyers carry the market as credit is not an issue to them

lack of effective demand puts downward pressure on prices until

stage 4- foreign investors realise whats going on and then the party really gets going

i believe we're currently at late stage 2/early stage 3

once price falls show up on the stats things will really get interesting

any thoughts/opinions?

Would have thought BOMAD might be running on fumes now as so much of it was funded by equity release/previous house sales? Houses on the market for years mean BOMAD is also struggling for credit? Smart cash buyers won`t be in this market, it will be FTB`er HTB types and idiots just taking all their savings and loans from family plus whatever bank loans they can scrape up and putting it all on HPI? When things wobble and overseas "investors" start pulling out it will decline very rapidly as you say.

Share this post


Link to post
Share on other sites

I agree with all the stages you've highlighted, but running backstop to all of them will be the brain dead BTL "I'll fill my boots as they get cheaper" brigade, because they won't be subjected to MMR.

I think that lot will keep the market afloat for quite a while after the smart money has exited, because:

1. They aren't very smart

2. It's easier for the banks - no mis-selling or public outcry when they lose their shirts, because it's just business, not personal

3. A lot of them are probably releasing enough cash from their pensions to be able to buy at low LTV, which will insure the banks against the inevitable.

As someone else posted recently, I believe that what we are seeing right now is the deliberate suckering in of as much unearned equity as possible in order to spread the losses as thinly and widely as possible.

Only a complete moron amateur speculators would buy right now, given the current climate.

Share this post


Link to post
Share on other sites

I agree with all the stages you've highlighted, but running backstop to all of them will be the brain dead BTL "I'll fill my boots as they get cheaper" brigade, because they won't be subjected to MMR.

I think that lot will keep the market afloat for quite a while after the smart money has exited, because:

1. They aren't very smart

2. It's easier for the banks - no mis-selling or public outcry when they lose their shirts, because it's just business, not personal

3. A lot of them are probably releasing enough cash from their pensions to be able to buy at low LTV, which will insure the banks against the inevitable.

As someone else posted recently, I believe that what we are seeing right now is the deliberate suckering in of as much unearned equity as possible in order to spread the losses as thinly and widely as possible.

Only a complete moron amateur speculators would buy right now, given the current climate.

I agree about spreading the losses, not so sure about BTL. There may be figures that contradict me, but I think the peak of BTL was the securitization/HPI peak (2007?) because the bank had a buyer for the loan, and the BTL borrower had HPI, whether they got tenants all the time or not. Now everyone knows someone who has had empty BTL flats for months/years, and the HPI isn`t there now (I`m in Edinburgh) so the desire to dive in is much less IMO.

Share this post


Link to post
Share on other sites

I agree about spreading the losses, not so sure about BTL. There may be figures that contradict me, but I think the peak of BTL was the securitization/HPI peak (2007?) because the bank had a buyer for the loan, and the BTL borrower had HPI, whether they got tenants all the time or not. Now everyone knows someone who has had empty BTL flats for months/years, and the HPI isn`t there now (I`m in Edinburgh) so the desire to dive in is much less IMO.

Yes I think you're right about "informed" BTL - I was referring specifically to the type of halfwit who has spent years watching other people making money and now decides that it's his chance to get a piece of that pie. Probably at 60% LTV with the 40% deposit from savings, inheritance or pension withdrawal.

If I was a bank I'd bite his arm off for that piece of business.

Share this post


Link to post
Share on other sites

yes, i forgot to factor in the btl leaches

i think the btl bird has flown

i remember going on a block viewing in tottenham around 8 months ago. there was a woman with two spoiled kids with her (she was probably buying a house for them) talking to the ea about how low margins are these days. and that was before tottenham really rocketed

Share this post


Link to post
Share on other sites

we've had mmr for about 6 weeks and it seems to be having an impact

these are the stages in which i see the different types of buyers reacting:

stage 1- people buying with a mortgage can't get the credit so get priced out

minimal impact on prices as

stage 2- bomad types have their parents to cover the shortfall so continue to pay high asking prices

once they hit the limit

stage 3- cash buyers carry the market as credit is not an issue to them

lack of effective demand puts downward pressure on prices until

stage 4- foreign investors realise whats going on and then the party really gets going

i believe we're currently at late stage 2/early stage 3

once price falls show up on the stats things will really get interesting

any thoughts/opinions?

Good topic. There has to be some truth in all of those points, and it's 2-3 for me as well. It's not earning anything in the bank. I'd like to think it could seize up quite quickly, but there has to be an overflow of your investors, cash buyers seeing a bit more of a bargain, last of the bomads.

I read the quoted bit below in a news story last night, and is also think is in the mix. It's was in an recent article for a different country (Aus, 10th June 14) but points relevant to here.

Wider house prices are set by what sellers and buyers transact at.

As a group older housing VI are still complacent, thinking super-high values are locked in. £750K for a little dormer-bungalow with old furnishings, and 'expert' older owner saying the solution for the young is for more social/rental property to be built, not wanting to spill a drop of their HPI. I think house prices are going to fall hard, but their massive egos of some of the older VI are going to fall harder.

In the near future, some other HPI winners are going to betray their neighbours and sell for lower house prices. A few more of those outright owners of mid-to-high end stock who've been holding out for high prices faltering. The overstretched in the mix. Buyers seeing opportunity in first phase to trade up.

What may not be immediately apparent is that the pace of growth has slowed significantly for both owner-occupiers and investors over the past six months.
On a trend basis, growth in the value of loan approvals to owner occupiers slowed to 0.1 per cent in April (compared with 1.7 per cent in October) while for investors, growth slowed to 0.5 per cent (compared with 4.0 per cent in September).
This should come as little surprise, though to the best of my knowledge it has received little emphasis elsewhere, and is a trend that we should keep an eye on. Low interest rates have encouraged owner-occupiers and investors to bring their purchases forward, but that eventually creates a void that must be filled.
If it can’t be filled — and it is unlikely that anything can replace investor speculation — then loan approvals will tank and house prices, which are demand-driven, will inevitably follow suit.
Certainly, investor demand is unlikely to be replaced by loan approvals to first home buyers, which fell by 7 per cent in April on a seasonally adjusted basis to be 9 per cent lower over the year.

Share this post


Link to post
Share on other sites

so investor demand is the key?

but how long will investors take to realise that the market has changed?

if that article about chinese buyers posted here a couple of days ago is to be believed they are completely detached from whats happening on the ground

we could see a two-tier market emerge where horrible new builds are being sold off-plan to foreign investors whilst existing stock drifts downwards

Share this post


Link to post
Share on other sites

dumb....if a price is unaffordable for a buyer due to borrowing costs, then someone else, relying on those self same borrowing costs to be covered and exceeded by the self same failed borrowers, is in the same boat...ie, the renter cant afford to cover the investors costs either.

Edited by Bloo Loo

Share this post


Link to post
Share on other sites

we've had mmr for about 6 weeks and it seems to be having an impact

these are the stages in which i see the different types of buyers reacting:

stage 1- people buying with a mortgage can't get the credit so get priced out

minimal impact on prices as

stage 2- bomad types have their parents to cover the shortfall so continue to pay high asking prices

once they hit the limit

stage 3- cash buyers carry the market as credit is not an issue to them

lack of effective demand puts downward pressure on prices until

stage 4- foreign investors realise whats going on and then the party really gets going

i believe we're currently at late stage 2/early stage 3

once price falls show up on the stats things will really get interesting

any thoughts/opinions?

I've lost count of the number of times in the past seven or eight years that I've read, "once x or y happens things will really get interesting"

Why will you be right when they were all wrong?

Share this post


Link to post
Share on other sites

Yes I think you're right about "informed" BTL - I was referring specifically to the type of halfwit who has spent years watching other people making money and now decides that it's his chance to get a piece of that pie. Probably at 60% LTV with the 40% deposit from savings, inheritance or pension withdrawal.

If I was a bank I'd bite his arm off for that piece of business.

Mmmm... not really convinced that BTL can stop the implosion though. Many of the real halfwits will already have blown themselves up with I.O and MEW, and those with sizeable savings tend to fall into the more informed category that lives on here? Those halfwits descended from halfwits will probably just inherit property (that their parents struggled without I-Pods to buy 60 years ago) along with all the mental ideas about how property is a one way bet. Those inheriting substantial cash/shares etc. probably also inherited enough financial sense to stay away from a dying Ponzi?

Hopefully those with any pension to raid will be older, already up to the eyeballs in property and MEW, and will either use the money to pay off existing debt, or just blow it on a cruise. The average sheep doesn`t have the funds to keep blowing the bubble, it was all credit.

Edited by dances with sheeple

Share this post


Link to post
Share on other sites

Mmmm... not really convinced that BTL can stop the implosion though. Many of the real halfwits will already have blown themselves up with I.O and MEW, and those with sizeable savings tend to fall into the more informed category that lives on here? Those halfwits descended from halfwits will probably just inherit property (that their parents struggled without I-Pods to buy 60 years ago) along with all the mental ideas about how property is a one way bet. Those inheriting substantial cash/shares etc. probably also inherited enough financial sense to stay away from a dying Ponzi?

Hopefully those with any pension to raid will be older, already up to the eyeballs in property and MEW, and will either use the money to pay off existing debt, or just blow it on a cruise. The average sheep doesn`t have the funds to keep blowing the bubble, it was all credit.

For sure the well will run dry at some point - I guess we will only know how deep it was when the stones stop splashing and echo back with a dull "thunk" instead :)

Share this post


Link to post
Share on other sites

Yes I think you're right about "informed" BTL - I was referring specifically to the type of halfwit who has spent years watching other people making money and now decides that it's his chance to get a piece of that pie. Probably at 60% LTV with the 40% deposit from savings, inheritance or pension withdrawal.

If I was a bank I'd bite his arm off for that piece of business.

You must mean my work colleague. Priced out of London, but still desperate for some BTL riches action, so has panic bought out in Surrey, in an area they don't know. 2 bed flat 310k. 60k deposit. 250k IO BTL mortgage. Projected rent of £1,150pm. Depending which mortgage deal they go for they'll be making either -£15pm or £188pm (providing no major repairs or long voids). That last bit was my sums, not theirs. They earn £30kpa.

Share this post


Link to post
Share on other sites

You must mean my work colleague. Priced out of London, but still desperate for some BTL riches action, so has panic bought out in Surrey, in an area they don't know. 2 bed flat 310k. 60k deposit. 250k IO BTL mortgage. Projected rent of £1,150pm. Depending which mortgage deal they go for they'll be making either -£15pm or £188pm (providing no major repairs or long voids). That last bit was my sums, not theirs. They earn £30kpa.

Yep, that's the type I mean. "This time next year, Rodney..." :)

And really, there's no problem with the likes of them getting rinsed is there?

Share this post


Link to post
Share on other sites

I've lost count of the number of times in the past seven or eight years that I've read, "once x or y happens things will really get interesting"

Why will you be right when they were all wrong?

Hopefully soon. Policies of intervention have prevented correction, and caused reflation, but my view is it can't last. Owners are not a club of people who've all sworn an oath not to sell for less than it's worth. When money tighten up on the buying side, some owners will look for the exit at 90% of peak, followed by others. It doesn't take too many sales at lower prices to bring market down. So why hang around. Let's have more of your posts how high prices are all about undersupply and about our hopeless position..

Remind me what happened with selling your high-quality self-build in the early 90s crash? There wasn't a rush of people wanting to overpay. How did that crash happen when there's always too few houses for population? Higher rates then? Borrowing conditions may tighten in the here and now, MMR, and lower borrowing rates are still substantial vs the hyperinflated values house prices have topped out at.
Reconcile yourself to a massive hpc, imo.

What a great article. And he's absolutely right, ultimately there is only one solution...build more houses.

But as that's not going to happen any time soon the only rational conclusion is that any meaningful fall in house prices is probably a generation away.

Now isn't a good time to buy. But tomorrow won't be much better.

House prices are way too high in most of the UK, but with ultra low interest rates set to continue for many more years there's no reason why prices won't stay high for many years to come.

The only exceptions are areas like the North East where some isolated pockets of sanity exist. Although there's a good argument that says even there prices may drift down further so you could still be better off waiting.

Unless you really want to own a property for non financial reasons, and can afford to buy outright, then the rational thing is to reconcile yourself to a lifetime of renting and structure your personal affairs accordingly.

Share this post


Link to post
Share on other sites

Yep, that's the type I mean. "This time next year, Rodney..." :)

And really, there's no problem with the likes of them getting rinsed is there?

No problem whatsoever. It's a one way bet on interest rates never rising. Ignorance is bliss though, they don't know what "yeild" is.

Share this post


Link to post
Share on other sites

I've lost count of the number of times in the past seven or eight years that I've read, "once x or y happens things will really get interesting"

Why will you be right when they sets all wrong?

I agree, I think the focus should be on what is the next financial scam to enable people to keep borrowing.

Share this post


Link to post
Share on other sites

No problem whatsoever. It's a one way bet on interest rates never rising. Ignorance is bliss though, they don't know what "yeild" is.

if interest rates never rise again, there can only be two drivers for price increases.

Inflation of wages.

more bailouts for banks.

to pay for bailouts will come the inflation....and this path will lead to the last thing you are going to worry about is the house price.

Share this post


Link to post
Share on other sites

I've lost count of the number of times in the past seven or eight years that I've read, "once x or y happens things will really get interesting"

Why will you be right when they were all wrong?

Where were you between 2007 and 2010 then?

3098.png

Share this post


Link to post
Share on other sites

Reconcile yourself to a massive hpc, imo.

That would suit me down to the ground. After five years of STR renting I bought a few years ago, but instead of buying the biggest house I could afford I bought the smallest house I needed, so a crash would allow me to painlessly trade up. Even more importantly I've got two kids who will soon need housing, I've put the cash aside for that, but a big fall in prices would mean that money would go a lot further. So I'd dearly love the mother of all nominal price crashes in the south east.

But me wanting something doesn't mean it's going to happen.

Every year over 250,000 net new households are formed in this country but only a little over 100,000 new homes are being built. There's also a constant flow of people away from the employment black spots towards those towns and cities with a future. Factor in ultra low interest rates stretching out as far as the eye can see, and even though residential property won't be the passport to riches that it's been for the past forty years, I can't see how a significant crash is possibly in prospect.

Share this post


Link to post
Share on other sites

That would suit me down to the ground. After five years of STR renting I bought a few years ago, but instead of buying the biggest house I could afford I bought the smallest house I needed, so a crash would allow me to painlessly trade up. Even more importantly I've got two kids who will soon need housing, I've put the cash aside for that, but a big fall in prices would mean that money would go a lot further. So I'd dearly love the mother of all nominal price crashes in the south east.

But me wanting something doesn't mean it's going to happen.

Every year over 250,000 net new households are formed in this country but only a little over 100,000 new homes are being built. There's also a constant flow of people away from the employment black spots towards those towns and cities with a future. Factor in ultra low interest rates stretching out as far as the eye can see, and even though residential property won't be the passport to riches that it's been for the past forty years, I can't see how a significant crash is possibly in prospect.

Where are the 150,000 homeless households that go without property every year living? I have asked you this before and don`t recall a plausible answer? After all the years of "under-building" there must be millions of these homeless households?

Share this post


Link to post
Share on other sites

Where are the 150,000 homeless households that go without property every year living? I have asked you this before and don`t recall a plausible answer? After all the years of "under-building" there must be millions of these homeless households?

And where are all the high paying jobs for them all?

Population growth = hpi no matter when more people can't afford to buy? From a relative and their home-owning friends, they're worried of crime and other associated issues (perhaps impinging on value of house prices) of your population growth without associated economic strong growth.

They've had to do HTB1+2 to allow this population growth to pay what it's worth, to the VI, and that's also drawn forward a lot of demand. Perhaps there is a limit on the buyer side to such schemes.

How about you tell me about the growth in cash savings, SS, from all this growing population wealth? :)

What's that? It's shrinking at an alarming rate, and people chase yield on possibly crash prone investments, and tread water.

Fears have been raised about the sustainability of Britain's economic recovery after new figures showed an unprecedented fall in households' deposits in Individual Savings Accounts.
The amount UK households have stored away in cash ISAs fell in April at the fastest monthly rate since the accounts were introduced in 1999, according to the Bank of England.
..In December, Sky News revealed that the overall outflow of savings deposits from all long-term accounts was the greatest and fastest in recent economic history.

When might you buy dws? If you were offered opportunity to buy an apartment, almost identical to the one you have now, at 40% off, would you? It seems prices are within some sort of value range now, but only compared to peaky mad prices, which I'm not sure is any guide.

Share this post


Link to post
Share on other sites

That would suit me down to the ground. After five years of STR renting I bought a few years ago, but instead of buying the biggest house I could afford I bought the smallest house I needed, so a crash would allow me to painlessly trade up. Even more importantly I've got two kids who will soon need housing, I've put the cash aside for that, but a big fall in prices would mean that money would go a lot further. So I'd dearly love the mother of all nominal price crashes in the south east.

But me wanting something doesn't mean it's going to happen.

Every year over 250,000 net new households are formed in this country but only a little over 100,000 new homes are being built. There's also a constant flow of people away from the employment black spots towards those towns and cities with a future. Factor in ultra low interest rates stretching out as far as the eye can see, and even though residential property won't be the passport to riches that it's been for the past forty years, I can't see how a significant crash is possibly in prospect.

Every year over 250,000 net new households are formed in this country but only a little over 100,000 new homes are being built. There's also a constant flow of people away from the employment black spots towards those towns and cities with a future. Factor in ultra low interest rates stretching out as far as the eye can see, and even though residential property won't be the passport to riches that it's been for the past forty years, I can't see how a significant crash is possibly in prospect.

250,000 Net ? where did that figure come from ? ..... this is a couple of years old but there were almost 500.000 deaths in England and Wales in 2012 http://www.ons.gov.uk/ons/rel/vsob1/death-reg-sum-tables/2012/sb-deaths-first-release--2012.html

Share this post


Link to post
Share on other sites

Where are the 150,000 homeless households that go without property every year living? I have asked you this before and don`t recall a plausible answer? After all the years of "under-building" there must be millions of these homeless households?

Good question.

You won't find many of them rough sleeping because most people will do almost anything to avoid being in this situation.

Where you will find them is,

-Still living with their parents into their 30's.

-Living in flats when they have children and want to live in a house.

-Renting smaller and smaller flats and bedsits, often ones that have been made by breaking down family houses.

-Living in smaller and smaller new build properties, when they want more space.

-House sharing into their 40's and 50's.

-Being stuck in an unemployment blackspot when they want to move to a more successful part of the country.

-Commuting for longer and longer distances because there aren't any affordable homes anywhere near where they work.

-Occupying rental properties that aren't fit for habitation.

-Staying married when they want a divorce.

-Immigrants "hot bunking" or room sharing.

-Institutionalised "sofa surfing", where people expect to spend a few weeks at regular intervals sharing space with friends or family.

I'm sure if I thought harder I could come up with many more examples.

Share this post


Link to post
Share on other sites

250,000 Net ? where did that figure come from ? ..... this is a couple of years old but there were almost 500.000 deaths in England and Wales in 2012 http://www.ons.gov.uk/ons/rel/vsob1/death-reg-sum-tables/2012/sb-deaths-first-release--2012.html

There are plenty of sources, here's just one,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/190229/Stats_Release_2011FINALDRAFTv3.pdf

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   215 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.