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David Smith

House Price Crashes Are Rare

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House price crashes are rare. The only crash in nominal house prices we have seen in recent years was in the early 1990s, on the back of a doubling of interest rates and a a near-doubling of unemployment. In the two other episodes - also after big economic shocks in the 1973-5 and late 1970s/early 1980s periods, real house prices fell but nominal house prices didn't. The mechanism was stagnation in house prices at a time of high inflation.

The early 1990s deserves revisiting. Many people believe house prices started to fall sharply from 1989 onwards, precipitating recession. It didn't happen like that. House prices stagnated for a couple of years from mid-1989. They only began to fall sharply when it was clear the economy was in recession and unemployment was climbing sharply. The big fall was over the 1991-93 period.

The belief that housing boom is always followed by bust is a common misconception as it is simply not the case in the UK, at least as far as nominal house prices are concerned. House prices, to adapt a phrase used by Keynes, are "sticky downwards"; people don't cut unless they are forced to. That's one reason why the adjustment we've seen has been in transactions rather than prices.

There will be no HPC as long as the economy is still growing. As long as people can afford to buy, and have jobs to do so, they will. Property needs a shock to crash, something serious like a large rise in interest rates, or a recession, something that will bring forced sellers into the market in droves.

The doom mongers say that current repossession levels are high, yet they've only risen from an extraordinary low base, and would need to rise approx seven fold to match the early 90's.

Property is affordable due to low interest rates, even on the higher multiples we now see in many areas.

You need an abundance of forced sellers to cause a crash. Unless you are forced to sell (e.g. through unemployment, divorce etc.) you are more likely to take your property off the market and tighten your discretionary spending elsewhere. At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

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Spot on!!.

Interest rates will have to rise significantly for the market to collapse. Even then a drop in house prices takes a good 12months to filter in as people are finally forced to hand in the towel having exhausted all their assets in trying to hang on to something they just cannot afford.

First things to go are the flash car, followed by the pensions, then the silver and artivacts of any value, then I'm afraid its that dreaded tap on the door to greet the baliffs. The whole process is very protracted hence my view that it will be seven years before we see any real bargains on the market.

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At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

But they aint affordable for a FTB like myself....

so whats your point.

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There will be no HPC as long as the economy is still growing. As long as people can afford to buy, and have jobs to do so, they will. Property needs a shock to crash, something serious like a large rise in interest rates, or a recession, something that will bring forced sellers into the market in droves.

And given our fragile economy is in fact reliant on MEW spending, the stagnation of houseprices will begin the recession in this country, which in turn feed back into a full blown HPC.

Simple really :)

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But they aint affordable for a FTB like myself....

so whats your point.

Its the lack of first time borrowers which has me worried too. I think they are at 30% as opposed to an historic 50%. Can prices stay as they are with so many potential buyers giving it a miss. And looking to the future, the students graduationg today are carrying big debts with them. Will they hold off buying too?

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House Price Crashes Are Rare,

Your post reminds me of a poster on The Singing Pig. You`re not that Bill Gates aka Bruno are you.?

Noticed you doing a bit of searching, looking for your old posts. :D

Edited by fedupwaiting

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Its the lack of first time borrowers which has me worried too. I think they are at 30% as opposed to an historic 50%. Can prices stay as they are with so many potential buyers giving it a miss. And looking to the future, the students graduationg today are carrying big debts with them. Will they hold off buying too?

They will keep renting. BTL will cover FTB absence.

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They are indeed rare in recent history, but then so are situations such as these:

Where a significant number of people totally ignore retirement saving becuase they have no spare income.

Where a significant numer of people are not even able to save for a deposit - they have to borrow one (LOL), ge given one (quite often from parental MEW), or scavenge one (from builder/deller kickbacks).

Where a significant number of people not only can't afford a deposit, but also can;t afford a repayment either - switching ro interest only.

Where a significant number of lenders who in order to bolster their turnover and sales throw away their previous lending criteria out of the window.

Affordability is not all about interest rates - particularly in a situation where the blowback from more or less unlimited money creation via debt is severely affected bankruptcy levels already and also causing severe problems for business when it cannot compete with countries who not only have a lower cost base, but a re also quite prepared to prevent similar ailments affecting their future ability to compete. Affordability at these rates is already reflected in falling transaction volumes, which would have fallen siginificantly further if it were not for many jumping onto the SIPPS bandwagon - funny how there is not a peep from the housing/lending industry abnout SIPPS now that that little fiasco is over.

We would have had a severe run on the pound and very high imported inflation if it were not for the fact that many other central bankers are playing the same game. Not that we haven't had and are having very high inflation in many areas of expenditure already.

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Pete95 just started a HPC that was partly identical to Bill Gates from Singing Pig. and now David Smith has kicked off a thread with a post identical to a Bill Gates (the bull from hell) thread on Singing Pig. Are all the bulls on here actually the same person.

"House price crashes are rare.

House price crashes are rare. The only crash in nominal house prices we have seen in recent years was in the early 1990s, on the back of a doubling of interest rates and a a near-doubling of unemployment. In the two other episodes - also after big economic shocks in the 1973-5 and late 1970s/early 1980s periods, real house prices fell but nominal house prices didn't. The mechanism was stagnation in house prices at a time of high inflation.

The early 1990s deserves revisiting. Many people believe house prices started to fall sharply from 1989 onwards, precipitating recession. It didn't happen like that. House prices stagnated for a couple of years from mid-1989. They only began to fall sharply when it was clear the economy was in recession and unemployment was climbing sharply. The big fall was over the 1991-93 period.

The belief that housing boom is always followed by bust is a common misconception as it is simply not the case in the UK, at least as far as nominal house prices are concerned. House prices, to adapt a phrase used by Keynes, are "sticky downwards"; people don't cut unless they are forced to. That's one reason why the adjustment we've seen has been in transactions rather than prices.

There will be no HPC as long as the economy is still growing. As long as people can afford to buy, and have jobs to do so, they will. Property needs a shock to crash, something serious like a large rise in interest rates, or a recession, something that will bring forced sellers into the market in droves.

The doom mongers say that current repossession levels are high, yet they've only risen from an extraordinary low base, and would need to rise approx seven fold to match the early 90's.

Property is affordable due to low interest rates, even on the higher multiples we now see in many areas.

You need an abundance of forced sellers to cause a crash. Unless you are forced to sell (e.g. through unemployment, divorce etc.) you are more likely to take your property off the market and tighten your discretionary spending elsewhere. At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures."

--------------------------------------------------------------------------------

The continuing housing boom is good news because it is preventing the STRs from getting back onto the property ladder and it is forcing them to continue paying dead money in rent that is helping to pay off their landlord's mortgage whilst they continue to see the value of their STR fund money being eroded away by inflation.

The STRs want a property crash to occur so that they can buy a property at a low price so that they can then sell for a much higher price and make a substantial profit in the next property boom.

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House price crashes are rare. The only crash in nominal house prices we have seen in recent years was in the early 1990s, on the back of a doubling of interest rates and a a near-doubling of unemployment. In the two other episodes - also after big economic shocks in the 1973-5 and late 1970s/early 1980s periods, real house prices fell but nominal house prices didn't. The mechanism was stagnation in house prices at a time of high inflation.

The early 1990s deserves revisiting. Many people believe house prices started to fall sharply from 1989 onwards, precipitating recession. It didn't happen like that. House prices stagnated for a couple of years from mid-1989. They only began to fall sharply when it was clear the economy was in recession and unemployment was climbing sharply. The big fall was over the 1991-93 period.

The belief that housing boom is always followed by bust is a common misconception as it is simply not the case in the UK, at least as far as nominal house prices are concerned. House prices, to adapt a phrase used by Keynes, are "sticky downwards"; people don't cut unless they are forced to. That's one reason why the adjustment we've seen has been in transactions rather than prices.

There will be no HPC as long as the economy is still growing. As long as people can afford to buy, and have jobs to do so, they will. Property needs a shock to crash, something serious like a large rise in interest rates, or a recession, something that will bring forced sellers into the market in droves.

The doom mongers say that current repossession levels are high, yet they've only risen from an extraordinary low base, and would need to rise approx seven fold to match the early 90's.

Property is affordable due to low interest rates, even on the higher multiples we now see in many areas.

You need an abundance of forced sellers to cause a crash. Unless you are forced to sell (e.g. through unemployment, divorce etc.) you are more likely to take your property off the market and tighten your discretionary spending elsewhere. At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

Depends what you mean by rare. I have experienced three crashes not including the one that is underway. The first was in the late 60's-early 70's, then the early and late 1980's. In the late 80's we bought a house in the US and then another in the UK (Surrey). In the US we bought for $284k, sold a year later for $384k and two years after that the new owners sold for $275k. In the UK we bought in Surrey in 1990 for 189k from sellers who had bought 3 or 4 years earlier for 249k.

Each crash was more severe than the last in percentage terms and follows the pattern demonstrated in the chart on this website's home page. The pattern is that the crash is roughly 50% of the previous peak. Since we have had HPI of around 120% in the last run up the follow-on fall looks like it will be a shocker.

House speculation is a UK national sport and there has rarely been periods of stability since the late 1950's. Up swings and crashes are rare if one every 7 or 10 years is infrequent I suppose.

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Just as the world has changed with Globalisation, the property market has changed.

I think we are heading into uncharted waters, its not going to be the same as last time.

For a start money is far more transient, it is moved around the world in seconds with little interference from anyone.

As mentioned above Youngsters embarking on joining the workforce with debts of 10K plus is equally going to play its part, and I think also with will play an even larger part in the lowering of standards of financial prudence amongst the younger generation. If your government have told you its OK to borrow vast sums of money, and they are doing themselves the for sure you will follow suit.

I predict the UK to enter into a European style property market where the workers rent, and the business leaders and the high earning proffessionals are the Landlords.

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Until 1929 stock market crashes were rare.

In fact all crashes of any asset are rare unless they have been in a bubble.

So, answrr the question - has housing (worldwide) been in a bubble and particularly AUS, US, Eire and UK

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With decreasing transaction levels, a smaller number of forced sellers can set the achieved prices.

As a result, achieved prices can ratchet down, even if prices are sticky. On the other side a small number of high end market deals can mask many low end price drops when averaged out.

However, increased price transparency (through websites such as nethouseprices, rightmove, hometrack etc) means that buyers now know true acheived prices, within specific sub-markets, so enhancing the effect of any actual drops.

In specific segments of the market, pure oversupply puts downward pressure on prices, particularly where the segment is predominantly speculative (1-2 bed newbuilds-to-let). In this submarket there is scope for rapid price drops as builders themselves run out of schemes to mask the price drops they are introducing (to the consternation of their recent customers who have instantly aquired negative equity). Lurid stories of stock market and commodity gains will suck away more speculative investment from this sub-segment and power the disparity between supply and demand. Even though these price drops will be confined to an atypical segment of the market, the stories generated will generate a sense of risk in property limiting a willingness to spend over the odds.

So there are plenty of forces that can assist prices in a downward direction. Once people are familiar with this reality on the ground the expectation of future price drops will develop its own dynamic.

Whether anyone will call 0.5% to 1% drops per month a crash is a matter of interpretation. Whether or not its called that, it will have an impact on psychology.

Further out, there are plenty of reasons to believe that the overall economy is not so rosy as the current government paints it. Public sector employment has reached the end of its current expansion. Contraction is a genuine possibility as the pump priming draws to a close.

Edited by 2MeterBear

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But they aint affordable for a FTB like myself....

so whats your point.

You see previously, in the last 4 years or so, house prices to wage ratio has been high. Everything else was okay (running your car, council tax etc.). House prices stood out of sync with everthing else. Now when you see restuarant bills to wage ratio rising, do you think that restuarant bills should come down because wage hasn't increased? The answer is house prices do not stand out overpriced as much as before. Other things are catching up. It's the other way round now. Time for wage increases.

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You need an abundance of forced sellers to cause a crash. Unless you are forced to sell (e.g. through unemployment, divorce etc.) you are more likely to take your property off the market and tighten your discretionary spending elsewhere. At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

Ho hum.

If people tighten discretionary spending in, for example, retail, shops won't need to employ so many people.

QED

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do you think that restuarant bills should come down because wage hasn't increased? Time for wage increases.

I don't think business is in a position to increase wages by enough. As a result people will simply have to stop going to the restaurant as much. And I know some people who have already modified their behaviour in this way.

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Until 1929 stock market crashes were rare.

In fact all crashes of any asset are rare unless they have been in a bubble.

So, answrr the question - has housing (worldwide) been in a bubble and particularly AUS, US, Eire and UK

There seems to be only one time in history where there has been reckless creation of debt on a global level(disguised as and trumpeted as growth) that is even comparable to the period leading up to 1929 and that is now. Japan had a flirt with it in the late 80's and we were not far off their levels but were pulled back from the brink by rising infaltion crimping off the debt levels befoer they got too high. Japan was lucky, within a few years the world economy went into a growth phase, they still had much of their core company infrastructure left but even then it has taken 15 years+ to drag it out of the mire.

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Some well made points. IMO nothing in the data points to a crash in the market, the economy may be going through a soft spot but it's no way near recession and of course very few forced sellers.

There simply is not a great squeeze on the market, the market makers may not be doing as much business as in the last few years but there's enough for the quick and agile agents out there. From what I have seen, the smaller ones are doing OK, the corporates are finding it tough.

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The US bond market just demonstrated an iverted yield--2 year note higher than 10 year. This portends recession. Its just the law of economics at work to deflate inflationary bubbles. The US correction is already under way with new and exising home sales down to levels not seen since the late 1980's. The UK and US have always had housing crashes at about the same time. Nothing new under the sun.

BTW Gordon Brown will be announcing negative GDP in 2006 IMHO. Employment is in for a rough ride and sterling is tanking. Recession is just a kiss away.

Edited by Realistbear

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Its the lack of first time borrowers which has me worried too. I think they are at 30% as opposed to an historic 50%. Can prices stay as they are with so many potential buyers giving it a miss. And looking to the future, the students graduationg today are carrying big debts with them. Will they hold off buying too?

The CML data makes the point that the 50% figure was distorted by right to buy. Adjusting for this there

has been less of a decline (from about 40%). This makes some sense if each FTB is the start of a chain and they represented 1/2 of all purchases then the average chain can only be two houses.

I think I have convinced myself that BTL was about 10% last year making up the shortfall. Number of BTL mortgages outstanding increased by 111K and there were 1.2M house sales again from CML stats.

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Guest pioneer31

House price crashes are rare. The only crash in nominal house prices we have seen in recent years was in the early 1990s, on the back of a doubling of interest rates and a a near-doubling of unemployment. In the two other episodes - also after big economic shocks in the 1973-5 and late 1970s/early 1980s periods, real house prices fell but nominal house prices didn't. The mechanism was stagnation in house prices at a time of high inflation.

The early 1990s deserves revisiting. Many people believe house prices started to fall sharply from 1989 onwards, precipitating recession. It didn't happen like that. House prices stagnated for a couple of years from mid-1989. They only began to fall sharply when it was clear the economy was in recession and unemployment was climbing sharply. The big fall was over the 1991-93 period.

The belief that housing boom is always followed by bust is a common misconception as it is simply not the case in the UK, at least as far as nominal house prices are concerned. House prices, to adapt a phrase used by Keynes, are "sticky downwards"; people don't cut unless they are forced to. That's one reason why the adjustment we've seen has been in transactions rather than prices.

There will be no HPC as long as the economy is still growing. As long as people can afford to buy, and have jobs to do so, they will. Property needs a shock to crash, something serious like a large rise in interest rates, or a recession, something that will bring forced sellers into the market in droves.

The doom mongers say that current repossession levels are high, yet they've only risen from an extraordinary low base, and would need to rise approx seven fold to match the early 90's.

Property is affordable due to low interest rates, even on the higher multiples we now see in many areas.

You need an abundance of forced sellers to cause a crash. Unless you are forced to sell (e.g. through unemployment, divorce etc.) you are more likely to take your property off the market and tighten your discretionary spending elsewhere. At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

At the moment unemployment is low and interest rates are low, so it's no surprise that property appears affordable at current prices, which are historically high by most measures.

misinformed bilge with a lack of any real facts to support it

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Interest rates will have to rise significantly for the market to collapse.

Again, you didn't qualify what "significantly" means.

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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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