Jump to content
House Price Crash Forum
eric pebble

Bank of England "models" 30% decline in house prices

Recommended Posts

"Deteriorating sentiment about the outlook for the UK housing market - with the Bank of England modelling a 30% fall in residential property prices in the event of a no-deal Brexit - has contributed to waning investor appetite for estate agency shares."

https://news.sky.com/story/online-estate-agent-emoov-faces-repossession-11566731

 

 

To get back to normality* --- it needs to be a 70% decline.

 

* 3-3.5 x income mortgages - based on REAL Non LIAR incomes --- thus -- NON-LIAR LOANS......

Edited by eric pebble

Share this post


Link to post
Share on other sites
2 hours ago, eric pebble said:

To get back to normality* --- it needs to be a 70% decline.

* 3-3.5 x income mortgages - based on REAL Non LIAR incomes --- thus -- NON-LIAR LOANS......

I think if we assume that moving to two incomes being used to assess mortgage affordability is a permanent game changer then actually a 30-35% fall would probably be the "new normal". 

Assuming 25k average salary, average house price of around £150,000 is something close to 3x joint income as well as being roughly equal to the house prices from 2000 (before it went bananas) plus RPI to today.

I can't see average house prices now being £75,000 in a world in which two incomes are used to price them.

Share this post


Link to post
Share on other sites

Indeed not much chance of a 70% fall we have feminism and bankerism to than for that. 30% would be about what i expect maybe overshoot to 40% in a heavy/fast decline

Share this post


Link to post
Share on other sites
22 minutes ago, scottbeard said:

I think if we assume that moving to two incomes being used to assess mortgage affordability is a permanent game changer then actually a 30-35% fall would probably be the "new normal". 

Assuming 25k average salary, average house price of around £150,000 is something close to 3x joint income as well as being roughly equal to the house prices from 2000 (before it went bananas) plus RPI to today.

I can't see average house prices now being £75,000 in a world in which two incomes are used to price them.

Moving to two incomes did permanently change the housing market, but I think that mostly happened in the 80s/90s didn't it? The increase in the last twenty years is more to do with the continual expansion of BTL and subsequently low interest rates, HTB and other schemes. I think it will take more than a 30% fall to undo this. I suppose perhaps the stagnation of the last few years means we may already have seen a real fall of something like 5% though.

Share this post


Link to post
Share on other sites
10 minutes ago, Kosmin said:

Moving to two incomes did permanently change the housing market, but I think that mostly happened in the 80s/90s didn't it? The increase in the last twenty years is more to do with the continual expansion of BTL and subsequently low interest rates, HTB and other schemes. I think it will take more than a 30% fall to undo this. I suppose perhaps the stagnation of the last few years means we may already have seen a real fall of something like 5% though.

Basically yes I agree with - but that's what's underlying my figures isn't it?

Take the average house price in 2000 of about 80k [already reflecting two earners] and add RPI to now [x1.7] and you get 136k.  However, back in 2000, they would apply a lower multiple to joint incomes than to single incomes.  Allowing for a higher multiple would probably get you back to 150k ish compared to the 215k the average price actually is.  So a 30% fall takes you to the average. 

Share this post


Link to post
Share on other sites

It just makes you wonder how the global- or western economies at least- would be doing if all that cash was being poured into productive enterprise and startups rather than ludicrously overpriced bricks and mortar. Taken cumulatively, over the last twenty years, you'd have to say that the alternative universe would look very different. 

Share this post


Link to post
Share on other sites
58 minutes ago, scottbeard said:

I think if we assume that moving to two incomes being used to assess mortgage affordability is a permanent game changer then actually a 30-35% fall would probably be the "new normal". 

Assuming 25k average salary, average house price of around £150,000 is something close to 3x joint income as well as being roughly equal to the house prices from 2000 (before it went bananas) plus RPI to today.

I can't see average house prices now being £75,000 in a world in which two incomes are used to price them.

This fall would only return London house prices back to where they were just before the crisis. Was that normal?

London probably needs a much bigger fall because the bubble is that bit bigger. 

Share this post


Link to post
Share on other sites
1 minute ago, Ah-so said:

London probably needs a much bigger fall because the bubble is that bit bigger. 

I agree.  The 30% is an national average, so London probably needs more and some other places less.

7 minutes ago, Drummer said:

A price fall of 15% would be enough to see me buy a house. Each to their own

As above, depending on where you live that may be more than enough to bring your area back to a more normal position.

Share this post


Link to post
Share on other sites
1 hour ago, scottbeard said:

I think if we assume that moving to two incomes being used to assess mortgage affordability is a permanent game changer then actually a 30-35% fall would probably be the "new normal".

The big assumption there is that you would both have a job after a hard brexit.

When two people are required to service a mortgage dept, you just doubled the chance of default.

A couple where either one of them is capable of earning enough to cover the mortgage would half the chance of default.

Share this post


Link to post
Share on other sites
5 minutes ago, scottbeard said:

Basically yes I agree with - but that's what's underlying my figures isn't it?

Take the average house price in 2000 of about 80k [already reflecting two earners] and add RPI to now [x1.7] and you get 136k.  However, back in 2000, they would apply a lower multiple to joint incomes than to single incomes.  Allowing for a higher multiple would probably get you back to 150k ish compared to the 215k the average price actually is.  So a 30% fall takes you to the average. 

Maybe 30% falls nationally, but I think bigger falls are likely in areas that have experienced greater price increases.

When you consider the problem of IO mortgages ending, people MEWing and coming unstuck, reaching pension age and struggling, BTLs having to offload, people struggling once the HTB honeymoon period ends, the end of HTB, etc., there could be sustained downward pressure for years before we even start worrying about recessions or interest rates rises. And it's looking like inflation will pick up and we will be a recession at some point.

Also, those entering the workforce have progressively less disposable income for a variety of reasons, most notably much bigger student loans with higher interest rates.

Share this post


Link to post
Share on other sites
2 minutes ago, Habeas Domus said:

The big assumption there is that you would both have a job after a hard brexit.

When two people are required to service a mortgage dept, you just doubled the chance of default.

A couple where either one of them is capable of earning enough to cover the mortgage would half the chance of default.

In the old days where a handful of missed payments and you'd be repossessed that's true.

As talked about on another thread, there's no real winners in repossession.  As a result banks these days therefore do all sorts of things to help tide people over until that second earner gets another job back again, such as extend the mortgage terms, move to interest only, or other things.

Share this post


Link to post
Share on other sites
13 minutes ago, Habeas Domus said:

The big assumption there is that you would both have a job after a hard brexit.

When two people are required to service a mortgage dept, you just doubled the chance of default.

A couple where either one of them is capable of earning enough to cover the mortgage would half the chance of default.

But with just one in work you can move to interest only and maintain the payments until the other is back in work. With only one earner it may be challenging to meet even the interest payments. 

In reality banks are very reluctant to repossess homes often well after the point of default since they know eventually people get back into work and resume the payments,  which I think is reasonable. 

Share this post


Link to post
Share on other sites
3 hours ago, eric pebble said:

To get back to normality* --- it needs to be a 70% decline.

Can't argue with that. The only problem is the BoE will sacrifice sterling before their housing bubble. In the old days, the BoE would put rates up if sterling was in trouble. Now they put rates down and blame everything but themselves on inflation.

Share this post


Link to post
Share on other sites
30 minutes ago, scottbeard said:

...banks these days therefore do all sorts of things to help tide people over...

That's in a generally rising market, when house prices start to look shaky I would not be surprised to see the banks change their policy

Share this post


Link to post
Share on other sites
1 hour ago, Society of fools said:

It just makes you wonder how the global- or western economies at least- would be doing if all that cash was being poured into productive enterprise and startups rather than ludicrously overpriced bricks and mortar. Taken cumulatively, over the last twenty years, you'd have to say that the alternative universe would look very different. 

Everybody would be well off, there’d be job / career opportunities and having a swimming pool at your house would be normal. UK would be an economic power house with big global clout. Banks wouldn’t be able to make as much money out of doing Fook all though.

Share this post


Link to post
Share on other sites
51 minutes ago, Captain Kirk said:

Can't argue with that. The only problem is the BoE will sacrifice sterling before their housing bubble. In the old days, the BoE would put rates up if sterling was in trouble. Now they put rates down and blame everything but themselves on inflation.

Except in the very short run, government laxity with the money supply is the only cause of inflation. If the dosh runs out the price drops until people can afford things.

Not that an economy can be run that way in the modern world, just saying where the blame lies.The media talks as if inflation just happens or comes from outer space. 

Inflation makes the rich richer and the masses worse off, it can't not do. Labour would be a miles better opposition if they understood this. Or wanted to, even.

Share this post


Link to post
Share on other sites

 When prices are rising 3x joint incomes may be recoverable. But in a falling market,  prices have to go back to 2+1 income  or else the banks will lose out with every baby announced. The current pretense of 25 years no baby only works if prices rise. That era is now over. 

Share this post


Link to post
Share on other sites

Ok...this is going to be a nice contribution to this topic from my side. A few years ago I found this:

https://github.com/sandtable/housingModel

Based on its description:

“This is an agent based model of the UK housing market written by the Institute of New Economic Thinking at Oxford university, in collaboration with The Bank of England. It is intended for use as a tool for informing central bank regulation policy.”

 

I checked its behaviour, and from time to time a crisis happens and prices return to an equilibrium point were value investors and families buy, producing another boom.

 

Share this post


Link to post
Share on other sites
1 hour ago, Bluestone59 said:

Except in the very short run, government laxity with the money supply is the only cause of inflation. If the dosh runs out the price drops until people can afford things.

Not that an economy can be run that way in the modern world, just saying where the blame lies.The media talks as if inflation just happens or comes from outer space. 

Inflation makes the rich richer and the masses worse off, it can't not do. Labour would be a miles better opposition if they understood this. Or wanted to, even.

Yeah, I agree. Interest rates should have already been raised. The BoE claims they will either have to go up, or - in a no deal scenario - go up a lot. But they won't raise them because of the housing bubble they've reflated and the wealth effect it has supposedly created that Andy Haldane claims has made the average family £90K richer.

Share this post


Link to post
Share on other sites

It's all a function of credit availability.

Joint incomes in the 80s & 90s were assessed at a multiple of the larger single income, plus 1x the second income. 

Mortgage repayments were still similar with the higher interest rates. You could actually argue that with jobs & careers insecure in the long term now, ability to pay on current income with a degree of stress testing rates is more important than multiples.

Share this post


Link to post
Share on other sites
11 hours ago, 24gray24 said:

 When prices are rising 3x joint incomes may be recoverable. But in a falling market,  prices have to go back to 2+1 income  or else the banks will lose out with every baby announced. The current pretense of 25 years no baby only works if prices rise. That era is now over. 

But in practice right now we're not seeing couples defaulting on their mortgage and being repossessed as soon as they have a baby.  What happens is as soon as physically possible both parents go back to work again to pay their 3x Joint mortgage.

Great for banks and childminders - not necessarily great for society - but that's what's happening.

So whilst I agree that when prices are falling banks get twitchier about how much to lend, I don't think that falling prices alone takes us back to 2+1.  It only goes back to 2+1 if one parent starts giving up work for years on end when they have a baby.

Share this post


Link to post
Share on other sites
15 hours ago, scottbeard said:

Assuming 25k average salary, average house price of around £150,000 is something close to 3x joint income as well as being roughly equal to the house prices from 2000 (before it went bananas) plus RPI to today..

Add a deposit in too.

Share this post


Link to post
Share on other sites
On 11/12/2018 at 08:24, scottbeard said:

But in practice right now we're not seeing couples defaulting on their mortgage and being repossessed as soon as they have a baby.  What happens is as soon as physically possible both parents go back to work again to pay their 3x Joint mortgage.

Great for banks and childminders - not necessarily great for society - but that's what's happening.

So whilst I agree that when prices are falling banks get twitchier about how much to lend, I don't think that falling prices alone takes us back to 2+1.  It only goes back to 2+1 if one parent starts giving up work for years on end when they have a baby.

Salary minus cost of childcare equals not worth working. When you do take that into account it does have to go back to 2+1. 

What we see is buy house with joint income then baby. Then the logic above starts . How does that work out in practice?  B mad?  With rising prices it may work. But with static or falling prices, it's curtains. 

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 293 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%



×
×
  • Create New...

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.