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AvoidDebt

Are we about to see the perfect housing market correction?

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Nice try. This article presupposes that there won't be a crash because there are no buyers, consequently no sellers. And so the so-called 'value' of properties won't move downward. 'Market has dried up' it says, because no more buyers physically exist. Which is pretty funny.

Of course the buyers exist. They just won't entertain the thought of making the stupid mistake of assuming £300-500K in debt to play along and provide the owners with their god-given right to a profitable return on what's actually depreciating capital. 

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"The obvious solution – and perhaps the one we’ll get – is for prices to fall in “real” (after-inflation) terms"

House Prices in real terms have been falling for 10 years and are already back to where they were in 2004...

 

"And the biggest threat to house prices in the UK – a rise in interest rates"

No, it isn't....

 

"I'm not convinced there will be a house-price crash"

Guess if he knew anything about money, he'd be too rich to work his job, but still, hard to believe he works for a magazine with Money in the title...

 

"An inflation-driven correction in the housing market would avoid all the problems you’d get with banks’ balance sheets if prices were to fall in nominal terms."

Yes, it would - shame we're facing 20 years of deflation....

 

"I’d like to see prices fall by a decent chunk, I struggle to see how it would happen."

There's a good reason for that....

 

 

 

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He's missing out on the three D's of forced sellers - debts, deaths and divorces. So while there may not be as many voluntary sellers when prices are stagnant, there will still be properties coming on to the market.

This is of course presupposing that there aren't any other types of owners of residential property whose financial circumstances (and wider market trends) may encourage them to sell over the coming months.

 

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Apart from what's already been mentioned, he's missing a couple of key points:

1. Investors. There areally a huge number of them. In the case of cash investors, it only needs HPI to be lower than the rate you can get from a savings account for a sustained period, and they will bail for the higher returns and safety of them. In the case of leveraged investors, then assuming an average of 75% LTV, then it needs to be 1/4 of savings account returns. If HPI were 0% for more than a couple of years, there'd be an exodus as it's just not worth the risk.

2. Recession. How long does he think stagnation would return prices to the long term real average? 10 years? Have there been many of those without a recession? It's going to happen, and sooner rather than later.

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1 hour ago, bear.getting.old said:

I'm amazed Merryn Somerset-Web allowed this article through, its full of missing things as mentioned above.

Most articles are treading a fine line, all it takes is a little push and a domino effect will begin. This coming drop will be because inflation is on the up, because the base rate in the US increases the dollar value of the imports into the U.K.

To fight inflation requires interest rates to rise, to make it cheaper. In 2011 the interest rates was near 5% and the base rate was 0.5%. Prices will probably drop to 2013 levels, maybe more because the UK has effectedly landlocked its borders.B)

At the 2013 prices is not a crash, that's normalisation based on relax credit lending terms. 

The impacts from the increase costs to the single market, will determine if foreign businesses continue to see viability in continued presence. It's wider than just financial markets.

i'd love a crash, but I'm not seeing it on the horizon.

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4 hours ago, MonkeyPuzzle said:

Nice try. This article presupposes that there won't be a crash because there are no buyers, consequently no sellers. And so the so-called 'value' of properties won't move downward. 'Market has dried up' it says, because no more buyers physically exist. Which is pretty funny.

Of course the buyers exist. They just won't entertain the thought of making the stupid mistake of assuming £300-500K in debt to play along and provide the owners with their god-given right to a profitable return on what's actually depreciating capital. 

It also presupposes that the economy will continue to grow after mortgage lending turns negative. Given that lenders retire 3-4% of their mortgage books each and every year, the credit impulse may already be negative.

Got to keep filling that leaky bucket... or down we go. ;)

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I don't see why he uses the word "perfect" either, if things unfold as he predicts then people who bought houses against all logic will not be too badly off, whereas those of us who sensibly refused to pump the bubble (including him) will see massive savings erosion.

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London is getting cold turkey

Quote

the least affordable places in Britain to buy a property

In London, Hackney tops the rankings of least affordable areas as the average house price in the area is £575,511, which is a staggering 17.03 times the average wage of £33,800. It is followed by Brent at 16.37 times and Haringey at 16.21 times, with Waltham Forest, Ealing, Harrow and Barnet also featuring in the least affordable areas to buy a property in the capital.

 

These was already picked up on London thread

Quote

Massive over-building at the top end of the market means there are now 59k high-end apartments under construction in London, yet annual sales of new-build flats are just 6k icis

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Mark carney is perfectly relaxed appearing on tv telling everyone inflation will outstrip their incomes for the forseeable future, making the majority of the population  poorer. He would never dare to even hint that their houses may temporarily fall in value; hpc has become the ultimate political taboo. Its telling that the  public has become resigned to stagnating wages as long as the paper value of their house is propped up.

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Looks like the interbank lending rates are rising due to risks from the fallout between the U.K. & the EU. 

Inflation is rising because the US are gearing up to auction off its debt hence the disparity between £ & $ is causing imports to rise in costs.

As inflation rises so does the cost of borrowing. The domino effect comes from BoE start hiking.

 

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My friend at local French bank told me yesterday that the best/lowest rate for a 20yr fixed term mortgage has risen by 0.1% this week. Small,  yes, but friend reckons IR's are heading up. Sooner than many borrowers imagine.  

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The only small bit of consulation for me is that I kept hold of my NS&I index linked bonds, which are now paying out about 3.4% because of 3.2% RPI. If May really wanted to help us poor savers she would have got NS&I to relaunch this product, not some crappy bond that pays less than inflation.

Edited by bear.getting.old

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12 hours ago, anonlymouse said:

He's missing out on the three D's of forced sellers - debts, deaths and divorces. So while there may not be as many voluntary sellers when prices are stagnant, there will still be properties coming on to the market.

This is of course presupposing that there aren't any other types of owners of residential property whose financial circumstances (and wider market trends) may encourage them to sell over the coming months.

 

Most people assume selling prices set by the vendor, who sells at leisure, and can refuse any insulting offers.  The 3Ds you mention get ignored... Many people have to sell under pressure and can't hold on for a better offer indefinitely.

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14 hours ago, anonlymouse said:

He's missing out on the three D's of forced sellers - debts, deaths and divorces. 

 

There are actually five - you forgot Decrepitude and Dementia (care home fees).  

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I can see 2013 prices returning by the end of 2018. So for me locally (Plymouth) that means houses which peaked asking prices December 2016 at 220k, selling around 155k. so a sizeable crash. (Currently already fallen to 190k May 2017)

the bubble outside of London was shorter, and started later but very tall, should correct in the same manner. 

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Yeah I looked at Plymouth the other day to see how my old haunts are getting on. Lots of 'investment opportunities' available for the savvy investor with an eye on the student HMO market. Hoping that my friends who are still there will be able to afford a place of their own soon. 

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"...There are still plenty of parts of Britain where prices have only just regained their previous financial crisis-era peaks..."

Why is this used as the benchmark? The peak that brought us armageddon!

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He forgets about the animal spirits.

UP People get FOMO, prices go up, GREED drives the property market up.

DOWN Prices don't go up, they slowly start sliding, FEAR drives the property market down.

Easy credit, IRs, Brexit are merely cameo actors; the real drama is between Mr Greed and Mrs Fear.

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As stated by others, forced sellers will decide the market. Most forced sellers will come from affordability issues or relocation.

I see no sign of this at the moment. The only hope I can cling to is BTL forced sellers. 

The reality is that the market for a home is malfunctioning to such an extent, that most people below 30 (40) have become disenfranchised. What this means for society seems very unhealthy going forward. It will take a seismic change in financial policy to correct.

This seems unlikely, further, apart from Germany it seems to be a similar case across Europe.

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26 minutes ago, frederico said:

As stated by others, forced sellers will decide the market. Most forced sellers will come from affordability issues or relocation.

I see no sign of this at the moment. The only hope I can cling to is BTL forced sellers. 

The reality is that the market for a home is malfunctioning to such an extent, that most people below 30 (40) have become disenfranchised. What this means for society seems very unhealthy going forward. It will take a seismic change in financial policy to correct.

This seems unlikely, further, apart from Germany it seems to be a similar case across Europe.

Perhaps the trend of home ownership from the 60s onwards was a blip and we are returning to the historical norm: multi-generational households, slum landlords, workhouses (sports direct, amazon).

Government policy dictated by the rich (old and new money).

Feudalism, it hasn't gone away. 

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1 hour ago, thisisthisitmaybe said:

Perhaps the trend of home ownership from the 60s onwards was a blip and we are returning to the historical norm: multi-generational households, slum landlords, workhouses (sports direct, amazon).

Government policy dictated by the rich (old and new money).

Feudalism, it hasn't gone away. 

Any evidence this indeed was the norm? I understand freemen have had mortgagees since the middle ages, nothing new in home ownership.

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4 hours ago, anonlymouse said:

Yeah I looked at Plymouth the other day to see how my old haunts are getting on. Lots of 'investment opportunities' available for the savvy investor with an eye on the student HMO market. Hoping that my friends who are still there will be able to afford a place of their own soon. 

Anyone wanting to invest in student accommodation/towns will get fingers burn more than others - EU student will not get reduced fees/loans after Brexit - and that is a big chunk of them in some towns

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3 hours ago, thisisthisitmaybe said:

Perhaps the trend of home ownership from the 60s onwards was a blip and we are returning to the historical norm: multi-generational households, slum landlords, workhouses (sports direct, amazon).

Government policy dictated by the rich (old and new money).

Feudalism, it hasn't gone away. 

Definitely feudalism, those with money and lawyers

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