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Pieman Pieface

What do you rate the chances of a House Price Crash?

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So having lurked for a while here and going back through the older posts it seems there is a feeling / hope that a HPC is around the corner. I think we all dream about it. But so far every time it looks like it might happen the government pull something out of their rectums and keep the whole thing afloat. I'm getting the feeling the day will never come, instead the best we will see is a bit of a slowdown.

So for some of the more educated and knowledgeable members of the forum, id love to get your opinion:

1) What do you rate the chances of a crash in the next 5 - 10 years?

2) What conditions do you think need to be in place for it to happen? How high do interest rates need to go until things go tits up?

3) Will it destroy the country completely? 

Thanks for your replies 

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16 hours ago, Pieman Pieface said:

So having lurked for a while here and going back through the older posts it seems there is a feeling / hope that a HPC is around the corner. I think we all dream about it. But so far every time it looks like it might happen the government pull something out of their rectums and keep the whole thing afloat. I'm getting the feeling the day will never come, instead the best we will see is a bit of a slowdown.

So for some of the more educated and knowledgeable members of the forum, id love to get your opinion:

1) What do you rate the chances of a crash in the next 5 - 10 years?

2) What conditions do you think need to be in place for it to happen? How high do interest rates need to go until things go tits up?

3) Will it destroy the country completely? 

Thanks for your replies 

I would not consider myself as very knowledgable about house prices, but I certainly have been watching house prices in my area for years. 

1) In my view due to low interest rates, which means there is no real growth in the economy, it is just being moved from one place to another, there is a good chance of a recession next year. The same old blunders leading to the 2008 crash are being played out. House prices will crash in my view.

2) I think a recession will do it,

3) No it won't, greedy foreign investors will jump at the chance of picking up cheap property. The whole cycle starts again this time even more first time buyers being pushed out.

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I think there'll be a "crash" but it will be minor - 20% or so (which is minor considering the insane prices).  The crash will be over-played by VIs as some kind of "reset" yet prices will remain unaffordable to many but a minority who hoover up -20% prices - then prices rises again. I don't think we'll ever go back to the mid 90s and before in terms of actual affordability. 

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I'll only answer the last question. The long term future of society is stuffed without a serious readressing of people's incomes, ability to save for a rainy day/times they won't work and the amount of money they have to spend on shelter.

So if a crash did 'destroy the country', out of the ashes is likely a better future.

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Well from what I see at the moment there are few houses for sale at silly prices.

Every time it starts to wobble a few fools capitulate and prolong the agony and then everyone sitting in overpriced houses battens down for another few months.

if it was up to our government there would not be a crash but i am confident now that outside factors will bring it down.

Trump and to a certain extent our government will want to stimulate the economy to mitigate Brexit and I think austerity will go out the window.

The US will carry out its stimulus programme and any protectionist measures will see money running to get in behind the wall causing rates to rise in the UK.  Why hold crappy £ when $ will offer such a higher return.

We may even get a Trump boom as strange as that may sound and the worst thing for our property market is good economic news and rising inflation/rates offering alternative bubbles.

I saw that statistically 80% plus of changes for a new president are made in the first 100 days so this + BTL tax changes + US rate rises = 2017 as a good bet for things to get going proper.

 

Edited by Fromage Frais

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As long as interest rates stay where they are then there is no chance of a crash or even a modest correction imo.

 

If they were to rise just 2-3% though... then game on.

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18 hours ago, Pieman Pieface said:

So for some of the more educated and knowledgeable members of the forum, id love to get your opinion:

1) What do you rate the chances of a crash in the next 5 - 10 years?

2) What conditions do you think need to be in place for it to happen? How high do interest rates need to go until things go tits up?

3) Will it destroy the country completely? 

Thanks for your replies 

Well I don't know about educated and knowledgable, but I'll have a go:

1)  No idea.  I see that HM Government will do absolutely anything it can to avoid an HPC, but external factors are key:  the US Federal Reserve raising rates, economic uncertainty until a Brexit deal is concluded etc.

2)  A gilt strike.  I believe that the BoE MPC will respond to any significant rise in rates in the credit market with a request to HM Treasury to do more Quantitive Easing.  The only thing that could cause a gilt strike despite effectively unlimited QE would be a complete loss of confidence in sterling.

3)  An HPC would be very good for the country, but the circumstances required to bring it about would cause an economic cataclysm.

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1) What do you rate the chances of a crash in the next 5 - 10 years?

A near certainty. I see at least a reduction of 50%

2) What conditions do you think need to be in place for it to happen? How high do interest rates need to go until things go tits up?

A small rise in interest rates and a few months of consecutive falls. Once people start seeing falls they'll wait for more falls. BofE at 1.5% should do it.

3) Will it destroy the country completely? 

No, it will be painful for some (the ones who deserve pain) and liberating for others (the ones who deserve to be liberated).

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From where i`m standing it`s all about affordability ,not the price of the house but the mortgage payments, as long as that`s affordable it`s the same old ,at best it will be stagnation in the middle/ upper end of the market 

The bottom end is a different matter BTL bailing will have an effect but the million dollar question is ...how many greater fools are left to take over the helm ?

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The housing market is hanging on by one hand to the edge of a cliff. After ultra low interest rates for so long even a rise would have a psychological impact, anything above one percent then prices start to fall. However, the irony is those in power know this and will do everything they can to stop this happening. They also know that low interest rates and the hope of house price inflation is all that is keeping the middle classes in the game now that a decent well paid job and a good pension are a thing of the past. 

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Was thinking about the interest rate death spiral we seem to be in whilst out on the bike today. This train of thought was piqued by my bank pushing personal loans up to 25K at 3.4% which is ridiculously cheap.

The thing that strikes me is as we are increasingly expected to adequately fund our retirement whilst paying greater amounts of tax and forking out greater income multiples for a roof over our heads the only way they can push finance is with lower rates. Personal loans used to be the main preserve of financing a car but as people increasingly couldn't afford conventional finance they moved en-masse into renting new cars instead.

The disconnect is that something has to give to prop the whole mess up and that will be the cost of housing before it is eventually forced down by the forced sale of destitute pensioners homes.

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I agree with the general consensus here, modest falls medium term; only on the back of an economic shock.

We could speculate about when and by how much. I've spent years wondering about it.

My advice, at the age of 39, is figure out what you need and be content with that. Don't put your life on hold, or hold yourself back. Life is for living, and a modest and small footprint on the earth can give greater freedoms to enjoy family, friends, travel, good food, and the rest of life's pleasures.

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Past caring to be honest, past the point of no return.....have no intention of buying at any price. It is the young that will feel the pain of paying the price.....it is their world to change things, the ball is now in their court, good luck and wish them better a quality of life, health, wealth and prosperity than those left behind them, if it doesn't get better it can only get worse.....;)

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11 minutes ago, GrizzlyDave said:

My advice, at the age of 39, is figure out what you need and be content with that. Don't put your life on hold, or hold yourself back. Life is for living, and a modest and small footprint on the earth can give greater freedoms to enjoy family, friends, travel, good food, and the rest of life's pleasures.

A decent 4 bedroom detached house in a nice near the school my kids love.

= £550,000 ;-)

(was 300/350k in 2011)

Edited by Fromage Frais

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1) I'm 70% sure of a correction or crash within 10 years.

2) The uncertainty surrounding Brexit might be enough.

3) Don't be silly :)

P.S. Never trust someone who claims to know the future (and certainly don't trust me ;) )

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39 minutes ago, Fromage Frais said:

A decent 4 bedroom detached house in a nice near the school my kids love.

= £550,000 ;-)

(was 300/350k in 2011)

Sorry mate, those days are gone. I would love the same for my family,  as would plenty of other folk out there, but it's not going to happen.

You can lament the circumstances, as I have done for years, or try to accept it, and make do with what you can afford. This is what I honestly believe is essential for happiness.

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I find it strange that everyone is giving up hope now of all times. Parts of London have been crashing for over a year now. Much of prime central London is down over 10% in the last year (some areas have done that in a couple of months). The nicer areas outside of central London have been static at best for the last year or so and have been dropping since Brexit. The only reason you can't see this in the indices is that each of the outer boroughs have a mix of nice and not so nice areas - the cheaper parts of each borough have been rising which masks the drops in the more expensive parts. 

Leveraged BTL is dead. I've seen plenty of evidence that BTLers are selling up (or trying to), there might be some greater fools left but they'll be few and far between and will probably be saved from themselves by the banks refusing to lend to them. There are going to be plenty of BTLers selling up in the next year or two due to S24 and rising costs of BTL mortgages and they're going to have to sell for what FTBs can actually afford to pay.

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So no chance that houses will return to 'reasonable' prices? Are our perceptions of what houses are worth now completely skewed permanently? I refuse to believe that I need a million quid to afford a house for my family, or that the same house would have cost 300k less a few years ago. But seemingly this is the new normal 

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5 minutes ago, Pieman Pieface said:

So no chance that houses will return to 'reasonable' prices? Are our perceptions of what houses are worth now completely skewed permanently? I refuse to believe that I need a million quid to afford a house for my family, or that the same house would have cost 300k less a few years ago. But seemingly this is the new normal 

It's the new GLOBAL norm. Even in places with sh:t loads of land, prices are bonkers.

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In the past you would say that a financial crisis would do it, but every time there is a jolt to the economy they just use that as a pretext to lower interest rates or print money as carney did after brexit. They have no idea how to grow the economy without debt fuelled house price inflation and consumption. 

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1 hour ago, ChewingGrass said:

Was thinking about the interest rate death spiral we seem to be in whilst out on the bike today. This train of thought was piqued by my bank pushing personal loans up to 25K at 3.4% which is ridiculously cheap.

The thing that strikes me is as we are increasingly expected to adequately fund our retirement whilst paying greater amounts of tax and forking out greater income multiples for a roof over our heads the only way they can push finance is with lower rates. Personal loans used to be the main preserve of financing a car but as people increasingly couldn't afford conventional finance they moved en-masse into renting new cars instead.

The disconnect is that something has to give to prop the whole mess up and that will be the cost of housing before it is eventually forced down by the forced sale of destitute pensioners homes.

I think people are slowly moving away from renting cars and towards ownership especially taking cash in lieu of company cars which are increasingly being seen by HMRC as a cash cow. MrsLTS has no choice but to drive a premium car as specified by her role. It's unfair that she should be taxed punitively for what is essential in her work but only useful outside these hours. In three years the BIK will be x2.5 what it was only 10 years ago and there are rumours that National Insurance will be the next sting on this 'perk'. 

This time she has opted to take the cash (effectively £650 a month net) and purchase a car using exactly this loan over 7 years at £332 (insurance £73, servicing/tyres ~£125)) leaving £120 to cover exceptional costs. It will be run in place of a company car for six years.

IMO banks are chasing this kind of refinancing (switching from mb) to HSCB shaving 1.4% off the APR and isn't financial suicide. Lending at these rates for a wedding or holiday of a lifetime however ...

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IMO:

1. Depends on location, but between 15-25% nominal drops are pretty much a certainty within the next 5-10 years, probably within the next 3. I think the top will be in within 12 months if not already. I don't consider this to be a crash, just a leg down to a longer term downward trend*. It might, however, represent the best buying opportunity (for those who really want to) for a long time, as after that I think the drops will be more real than nominal.

2. Exactly the current conditions. The banks and the economy can handle a 25% drop no problem at all, since LTV over the past 5 years and the recent increases in many places, means there's 20% that's pretty much just froth. Also, BTL and other investors have been nicely set up as the patsies this time around so we're finally going to see a lot of "wealth" destroyed as speculators lose their deposits while the banks remain largely cushioned. This needs to occur if there's any chance of the current financial system staggering on for another few decades. If it doesn't happen, the financial system collapses sooner and we get a crash anyway. Nobody said you had to be on the right side of it.

3. No, of course not. Destruction of misallocated capital is a positive thing for the country in the long term. On an individual level however, there's going to be a lot of pain, and it's not possible to say where that's going to be felt. Investors will be at the epicentre, but there will be collateral damage. Blast radius depends on how soon it happens - sooner equals smaller.

* House prices need to drop by >50% before they stop being a drag on the economy, but there's no chance in hell of that happening in a single crash. Govt intervention and knife catchers will see to that. But longer term I think we will see real drops of >50% and most likely more. IMO capital will simply rotate out of property because it becomes clear that it's not the golden goose people currently believe it is and you end up with an attitude of revulsion toward it. That leaves all the "new paradigm" brigade holding onto their property in a world where nobody's buying, but death, divorce and financial hardship mean there are always people needing to sell. Hence slow grind down until it finally represents value again in real terms.

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14 minutes ago, Pieman Pieface said:

So no chance that houses will return to 'reasonable' prices? Are our perceptions of what houses are worth now completely skewed permanently? I refuse to believe that I need a million quid to afford a house for my family, or that the same house would have cost 300k less a few years ago. But seemingly this is the new normal 

London.png

Source

London dominates the UK property market. London has crashed before.

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