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GrizzlyDave

Prices Fall 50% - What Happens Next?

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Lets say prices fall 50%. What happens next?

Will you be able to get a mortgage, will you still have a job?

Even if I can't benefit from a 50% fall, I would like to see it crash and burn.

To quote Mrs Doyle 'Maybe I like the misery".

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Wont prices fall until they reach a level people can afford, ie, whatever the employment base and wages support.

Assumes you still have a job and can get a mortgage.

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Wont prices fall until they reach a level people can afford, ie, whatever the employment base and wages support.

You forgot interest rates and mortgage deposit requirements.

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If you can't afford a 500k house now, you probably still won't be able to afford a 250k house post crash, but, accommodation cost should drop for all.

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If you can't afford a 500k house now, you probably still won't be able to afford a 250k house post crash, but, accommodation cost should drop for all.

That's exactly right- people seem to have forgotten that money is a made up concept which tries to allocate the cost of labour and time. IF property prices went down 50% overnight:

  • All banks would immediately go bankrupt in the UK. The government would have to back them all in order to bail them out
  • All taxes would immediately go up to show gilt investors that we might one day pay this back
  • New policies would be adopted to try and allocate prices back up
  • millions would lose their job, not just in real estate but any ancillary service which benefits from it - think banks, restaurants, steel manufacturing
  • Government will cut resources in order to shrink govt spending - govt employees would be sacked
  • The G8 would meet and come up with another Bretton Woods / Gold standard based on what USA and IMF say.
  • over the next 5 years 40% of adults will pay no tax, 300,000 people pay 30% of all taxes and the rest of the 15m-odd people pay 70%. Expect the rich to pay a lot more and the middle class to get banished out of high income pen pushing jobs into low income pen pushing jobs just like barristers have found when legal aid was withdrawn.

There is no real possibility of a crash, not in the way that lay people think. We will either crush our currency against Euro/Dollar/Yen/Rupee/Yuan etc or we will inflate away our debt with most goods rising in "cost" for the local inhabitants but shrinking for anyone in a foreign currency. Additionally, taxes on property would start to rise ( as they have already) in order to pay for the "fortune" of being able to afford your own property. If we did either of these, expect the other countries to follow us - much like the current cat and mouse game between the USD/Yen and Yuan.

The world is now linked together, we must have more to feed the machine or it will crumble in on itself like any empire- and that day, you would need to be worried about safety, heat, light and food rather than house prices. My bet is on the lying and pretend strategy - as long as we have a mass populous that is apathetic, full of food and drink and has the average mathematical capability of a 11 year old, we can continue high house prices for at least one more generation 20-30 years. With interest rates as they are, most pension funds will collapse within the next 5-10 years, the pensioners will grow too old and ill to vote and the government will reneg on all their cradle to grave policies and take their funding for pensions in exchange for some made-up pieces of paper -Govt Debt mark 2 - or whatever. They'll say its much safer for them to control things because of terrorism or "corporate greed" or something "scary" that women and children will have an irrational fear of.

There would have to be a ground swell to change the system, and as angry as I was in 2008, I was amazed at the lack of action from the majority. They just didn't understand that their living standards were about to fall - the restaurants were full of the chattering classes, the eastern Europeans were happy to be working for minimum wage living in a bedsit; and the rich re-allocated capital into politics to ensure they kept their advantages. Instead of being angry they talked about austerity as increased debt more than the previous 20 years combined. The rich will always be there, the poor will get poorer but still be able to eat, the middle class are about to have a lot less of everything they expected, including housing.

Obviously forecasting is an art and not a science so I could be totally wrong. We could invent some new technology or transmission mechanism for capital allocation and everyone could prosper...

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That's exactly right- people seem to have forgotten that money is a made up concept which tries to allocate the cost of labour and time. IF property prices went down 50% overnight:

  • All banks would immediately go bankrupt in the UK. The government would have to back them all in order to bail them out
  • All taxes would immediately go up to show gilt investors that we might one day pay this back
  • New policies would be adopted to try and allocate prices back up
  • millions would lose their job, not just in real estate but any ancillary service which benefits from it - think banks, restaurants, steel manufacturing
  • Government will cut resources in order to shrink govt spending - govt employees would be sacked
  • The G8 would meet and come up with another Bretton Woods / Gold standard based on what USA and IMF say.
  • over the next 5 years 40% of adults will pay no tax, 300,000 people pay 30% of all taxes and the rest of the 15m-odd people pay 70%. Expect the rich to pay a lot more and the middle class to get banished out of high income pen pushing jobs into low income pen pushing jobs just like barristers have found when legal aid was withdrawn.

There is no real possibility of a crash, not in the way that lay people think. We will either crush our currency against Euro/Dollar/Yen/Rupee/Yuan etc or we will inflate away our debt with most goods rising in "cost" for the local inhabitants but shrinking for anyone in a foreign currency. Additionally, taxes on property would start to rise ( as they have already) in order to pay for the "fortune" of being able to afford your own property. If we did either of these, expect the other countries to follow us - much like the current cat and mouse game between the USD/Yen and Yuan.

The world is now linked together, we must have more to feed the machine or it will crumble in on itself like any empire- and that day, you would need to be worried about safety, heat, light and food rather than house prices. My bet is on the lying and pretend strategy - as long as we have a mass populous that is apathetic, full of food and drink and has the average mathematical capability of a 11 year old, we can continue high house prices for at least one more generation 20-30 years. With interest rates as they are, most pension funds will collapse within the next 5-10 years, the pensioners will grow too old and ill to vote and the government will reneg on all their cradle to grave policies and take their funding for pensions in exchange for some made-up pieces of paper -Govt Debt mark 2 - or whatever. They'll say its much safer for them to control things because of terrorism or "corporate greed" or something "scary" that women and children will have an irrational fear of.

There would have to be a ground swell to change the system, and as angry as I was in 2008, I was amazed at the lack of action from the majority. They just didn't understand that their living standards were about to fall - the restaurants were full of the chattering classes, the eastern Europeans were happy to be working for minimum wage living in a bedsit; and the rich re-allocated capital into politics to ensure they kept their advantages. Instead of being angry they talked about austerity as increased debt more than the previous 20 years combined. The rich will always be there, the poor will get poorer but still be able to eat, the middle class are about to have a lot less of everything they expected, including housing.

Obviously forecasting is an art and not a science so I could be totally wrong. We could invent some new technology or transmission mechanism for capital allocation and everyone could prosper...

Excellent post.

I am hunkering down. Accepting that the modest terrace house i have on a small mortgage is my castle, and channeling my hard earned into improving it as best I can for the longer term.

Without BOMAD, or inheritance, I just can't afford a larger home without exposing myself to too much risk.

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Well the major banks are all stress tested to 30% HPC and they cruise it, plus stock market crash, high inflation... whole lot more.

No rebrand required. Always HPC for the win - imo. I suspect those only those here who want to speculate long for HPI after buying at lower price, with their HPI riddled minds.

The VI point to how things were stopped in 2009 (ish), and suggest it means no real HPC ever. Try stronger banks and speculators who've doubled down in belief that's what it meant for the future, who now have BTLs and their own homes on the line. All ready to take the HPC. That's why we're getting dormant hpcer accounts being reactivated and many new VI 'voice of reason' members - in shock from C.24 and higher stamp duty, trying to play down chances of HPC.

Everyone here says the young are being ******ed over, which they are. But even if there is HPC of -50%, few young people will be able to buy on a zero hours contract - if they even have a job at all.

Then we'll have to have a 90% correction.

I'm of the mind that HPC = great for the economy... after initial pain, great for jobs and pay and spending power. Of course the anti-HPCers would prefer to think it means everyone loses their jobs, so why even bother hoping for a HPC. Lock in the HPI yeahhh.

In World's Best-Run Economy, House Prices Keep Falling -- Because That's What House Prices Are Supposed To Do
Started by canbuywontbuy, Jul 19 2015 08:14 PM


[...]On Wiles’s figures, German house prices in 2012 represented a 10 percent decrease in real terms compared to thirty years ago. That is a particularly astounding performance compared to the UK, where real prices rose by more than 230 percent in the same period.

http://www.forbes.com/sites/eamonnfingleton/2014/02/02/in-worlds-best-run-economy-home-prices-just-keep-falling-because-thats-what-home-prices-are-supposed-to-do/

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Can you explain how you see certain jobs becoming extinct if house prices fell 50%?

Well I tend to associate a house price bubble collapse also with a recession and job losses.

Given the banks are bingo on solvency (it is all a stack of cards); there may not be any banks to lend you the mortgage money if prices collapse, the demand of banking collapses, and the economy contracts. Maybe some banks will survive, but the lending limits will be crippling (high deposits, low multiples); so if you can get a mortgage, it might not be enough.

As an earlier poster said, if you can't afford a £500k house, you might not be able to afford it if prices fall 50%.

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Lets say prices fall 50%. What happens next?

Will you be able to get a mortgage, will you still have a job?

Even if I can't benefit from a 50% fall, I would like to see it crash and burn.

To quote Mrs Doyle 'Maybe I like the misery".

Why can't you gain from a 50% fall? Genuinely asking. Already an owner? Got kids who might want to buy? That's a gain.

Although you're another who associates HPC to misery.... sigh.

The current lack of affordability is severely negatively impacting on the quality of life of both younger generations and those who did not happen to buy at the right moment in time.

The idea that it might perpetuate or worsen is doom and gloom. The idea that from here on out there will only ever be minor corrections is doom and gloom.

In contrast, the idea that house prices might fall back in line with historic income multiples is heartening and uplifting to anyone with a social conscience.

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Lets say prices fall 50%. What happens next?

Will you be able to get a mortgage, will you still have a job?

I'm interested in a few flats in my city that have asking prices of £110k. If they fall by 50% then I will certainly be able to afford the mortgage on them so long as my job carries on.

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If you can't afford a 500k house now, you probably still won't be able to afford a 250k house post crash, but, accommodation cost should drop for all.

I can afford a £250k house just don't want to buy one, I'd buy it at £125k though :)

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That's exactly right- people seem to have forgotten that money is a made up concept which tries to allocate the cost of labour and time. IF property prices went down 50% overnight:

  • All banks would immediately go bankrupt in the UK. The government would have to back them all in order to bail them out
  • All taxes would immediately go up to show gilt investors that we might one day pay this back
  • New policies would be adopted to try and allocate prices back up
  • millions would lose their job, not just in real estate but any ancillary service which benefits from it - think banks, restaurants, steel manufacturing
  • Government will cut resources in order to shrink govt spending - govt employees would be sacked
  • The G8 would meet and come up with another Bretton Woods / Gold standard based on what USA and IMF say.
  • over the next 5 years 40% of adults will pay no tax, 300,000 people pay 30% of all taxes and the rest of the 15m-odd people pay 70%. Expect the rich to pay a lot more and the middle class to get banished out of high income pen pushing jobs into low income pen pushing jobs just like barristers have found when legal aid was withdrawn.

There is no real possibility of a crash, not in the way that lay people think. We will either crush our currency against Euro/Dollar/Yen/Rupee/Yuan etc or we will inflate away our debt with most goods rising in "cost" for the local inhabitants but shrinking for anyone in a foreign currency. Additionally, taxes on property would start to rise ( as they have already) in order to pay for the "fortune" of being able to afford your own property. If we did either of these, expect the other countries to follow us - much like the current cat and mouse game between the USD/Yen and Yuan.

The world is now linked together, we must have more to feed the machine or it will crumble in on itself like any empire- and that day, you would need to be worried about safety, heat, light and food rather than house prices. My bet is on the lying and pretend strategy - as long as we have a mass populous that is apathetic, full of food and drink and has the average mathematical capability of a 11 year old, we can continue high house prices for at least one more generation 20-30 years. With interest rates as they are, most pension funds will collapse within the next 5-10 years, the pensioners will grow too old and ill to vote and the government will reneg on all their cradle to grave policies and take their funding for pensions in exchange for some made-up pieces of paper -Govt Debt mark 2 - or whatever. They'll say its much safer for them to control things because of terrorism or "corporate greed" or something "scary" that women and children will have an irrational fear of.

There would have to be a ground swell to change the system, and as angry as I was in 2008, I was amazed at the lack of action from the majority. They just didn't understand that their living standards were about to fall - the restaurants were full of the chattering classes, the eastern Europeans were happy to be working for minimum wage living in a bedsit; and the rich re-allocated capital into politics to ensure they kept their advantages. Instead of being angry they talked about austerity as increased debt more than the previous 20 years combined. The rich will always be there, the poor will get poorer but still be able to eat, the middle class are about to have a lot less of everything they expected, including housing.

Obviously forecasting is an art and not a science so I could be totally wrong. We could invent some new technology or transmission mechanism for capital allocation and everyone could prosper...

Entertaining post.

Except money and debt isn't capital.

After a 50% HPC there will still be as much bricks and mortar, still be as many fields growing corn, and as many factories making widgets. Capital allocation will improve and the economy will be stronger. Arguably, HPI destroys capital.

Some banks will fail. Most wont. The ones which will survive will be stronger.

Some indiiduals will go bust. Most will survive, and many wont notice. HPI at it's very, very best is a zero-sum game. For every person that loses in the crash there will be someone else who gains.

Edited by lastlaugh

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50pc fall over what period? In Japan their economy isn't great I hear but it's nothing like the Armageddon scene mentioned above

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Two further points in reply:

1. Money and debt are now the same - debt is money - read what it says on UK currency - "I owe the bearer..." Additionally, without any backing, money expansion is created through debt, it just happens to sit on the central bank balance sheet and backed by govt promises. No govt in history has ever paid back its debts, its just a rolling sum they try and inflate away through economic growth.

3 In answer to this....".If prices fell by 50% in most of London then they would be back to the 'lows' of 2009 .... which was still a property bubble. The world did not stop or the sky fall in then and it would not be a disaster now."

The reason your lights stayed on and you didn't notice a difference is because of the massive amount of money printing and loan guarantees that went on behind the scenes. I would have loved for a bank or two to have properly failed, and house prices to have declined due to a lack of mortgages or spare cash. But the reality is, most people are too heavily indebted and if the majority go down it doesn't really matter if you were right - the system would break. Remember money is not real, just a concept that people believe in. Once that belief disappears, there are no house prices or rule of law, it goes back to t"ake what you can get" Feudal system. No one wants that which is why we will continue to extend and pretend until something better comes along. For instance, I noticed that Ireland had good take up of their new 100 year bond paying 2.5%....that is the sign of things to come.

Ironically all the people with money in the bank in the time of this type of crisis will now lose a good chuck over 75K if they have it stored in a bank. Under the latest bail-in rules, to keep us all "safe", bank customers are unwittingly bank shareholders with non of the dividends and non of the voting rights. If banks fail in the future anyone/ any company with more than 75K will get a large haircut-30-40% to recapitalize the bank. Welcome to the new safe world, where banks win and you lose - how things have changed since 2008.

Edited by katchytitle

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If prices fell by 50% in most of London then they would be back to the 'lows' of 2009 .... which was still a property bubble. The world did not stop or the sky fall in then and it would not be a disaster now. For many their property would now be worth 250k or 500k not 500k or 1,000k .... the fantasy wealth would disappear but as they would never sell or move it would make no real difference. The people who would suffer are those that assumed current prices are fixed as are current interest rates. Decisions made, beds made to be lied in. For most under 30s (or even under 40s) a 50% fall in prices would make their lives and working worthwhile. The needs of the many would be served whereas today the few are the only ones who benefit from this distorted market.

baby boomers, and BTL seem to be the ones benefiting; and there's quite a few of them out there.

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The needs of the many would be served whereas today the few are the only ones who benefit from this distorted market.

Id be interested to see some stats on % of OO(morgaged and owned outright) BTL and Generation Rent. I suspect the many are the OO and the BTL otherwise government policy would be different. Not sure if this is available.

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I'd sell my house for what l bought it for 5 years ago and take my savings and leave the UK, debt free.

Or l take my savings and buy a bigger house. But I'd probably take option a of leaving the UK as if house prices crash by 50% the country is going to be screwed.

But a crash isn't a disaster for all OO.

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Two further points in reply:

1. Money and debt are now the same - debt is money - read what it says on UK currency - "I owe the bearer..." Additionally, without any backing, money expansion is created through debt, it just happens to sit on the central bank balance sheet and backed by govt promises. No govt in history has ever paid back its debts, its just a rolling sum they try and inflate away through economic growth.

3 In answer to this....".If prices fell by 50% in most of London then they would be back to the 'lows' of 2009 .... which was still a property bubble. The world did not stop or the sky fall in then and it would not be a disaster now."

The reason your lights stayed on and you didn't notice a difference is because of the massive amount of money printing and loan guarantees that went on behind the scenes. I would have loved for a bank or two to have properly failed, and house prices to have declined due to a lack of mortgages or spare cash. But the reality is, most people are too heavily indebted and if the majority go down it doesn't really matter if you were right - the system would break. Remember money is not real, just a concept that people believe in. Once that belief disappears, there are no house prices or rule of law, it goes back to t"ake what you can get" Feudal system. No one wants that which is why we will continue to extend and pretend until something better comes along. For instance, I noticed that Ireland had good take up of their new 100 year bond paying 2.5%....that is the sign of things to come.

Ironically all the people with money in the bank in the time of this type of crisis will now lose a good chuck over 75K if they have it stored in a bank. Under the latest bail-in rules, to keep us all "safe", bank customers are unwittingly bank shareholders with non of the dividends and non of the voting rights. If banks fail in the future anyone/ any company with more than 75K will get a large haircut-30-40% to recapitalize the bank. Welcome to the new safe world, where banks win and you lose - how things have changed since 2008.

This is one reason I have a fair chunk in an offset mortgage which allows instant online transfer to the mortgage account. If another Lehmans starts to unwind, I log on and pay off a big chunk of the mortgage so the feckers cannot seize the balance.

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