Summary of Arguments for a House Price Crash

[APerson]

When explaining HPC theory to a normie these are the points I hit. Am I missing everything:

 

House prices are artificially inflated because:

• Banks lent more money they they have historically
  • Self certified loans in the 2000s
  • Low interest rates
• Buy-to-let land lords buying up properties due to low interest rates and high rental yeld
• Investment in property due to low interest rates making it a risk to keep money in cash
• Recent House price rises causing people to FOMO and buy into the market in the hopes that they will make money by doing so.
• Foreign buyers inflating the market
• Immigration incrasing demand.
• Lack of building social housing and right to buy decreasing supply at the bottom of the market and increasing profitability of BTL
• Aging population meaning housing isn't passed on as fast as it was previously.
• Women entering the workforce meaning house prices are based on 2 incomes rather than one
• Removal of squatting laws for residential property meaning owning an empty house isnt the risk it once was.
• Deindustrialisation moving jobs to central hubs inflating property prices around cities/commutable areas.
• Government schemes like help-to-buy further inflat prices rather than decrease the problem.

House prices will crash because:

• Interest rates cannot remain as low as they are indefinitely - they are cut everytime there is a finantial crisis but at 0.75% they cannot be cut much futher.
  • When raised BTL morgages and heavily leveraged morgage payers will be flunked.
  • New buyers will be dissuated from putting in high offers as they will not be able to afford the moragage payments.
• The home owning boomers will begin to pass away and the market will be flooded with probate properties at some point - surpressing prices.
• The masses of 18-35 yeard olds who have no hope of buying are liable to vote for a Corbyn/socialist government at some point as they are not invested in the current economic system as they do not benefit from it in the same way that elder Gen X/Boomers do. This will either crash the system or put enough pressure on Tory's to build lots of affordable housing.
  • More regulation & Taxes on Buy-to-let land lords are/will be introduced making the business unprofitable - causing them to sell and flooding the market with houses lowering price.
• The current conventional wisdom is that "house prices always go up". When the above points start to force the market lower - panic selling will ensue and there will be a crash for a period of time.

[Freki]

Great post:

 

I would add about BTL:

Has a tax advantage (can tax deduct maintenance costs, gets tax relief on interest payment)

BTL buys based on rental value, OO based on salary and expenses

About housing stock:

mis allocation of stock: StampDuty is a tax on transaction, does not create an incentive for downsizing (moving tax really)

NIMBY and planning permission delay house building

Edited March 29, 2019 by Freki

[VancouverGuy]

Add:

• The Price-Earnings ratio on a typical house in all the worlds bubble cities is roughly comparable with the NASDAQ at the peak of the dotcom bubble.
• The cheapest money we'll all ever see in our entire lives is now in the rear-view mirror.

[LetsBuild]

For me it will be the bonfire of the BTLers and the demise of the baby boomers that will facilitate the crash.

As the tax changes start to make an impact at the margin for what were once profitable assets we will see the falls start as BTLers try to get out - we may or may not be seeing this right now.

The oldest boomers are what 74 years old this year? There is an often stated statistic on here that I cannot verify that half of the people who are 65 today will be dead in the next 10 years, we also know that 43% of the housing equity in the UK (Savills) is owned by the over 65s - that has huge potential to flatten the market come the mass extinction event of boomers.

[happyguy]

2 hours ago, APerson said:

• Interest rates cannot remain as low as they are indefinitely - they are cut everytime there is a finantial crisis but at 0.75% they cannot be cut much futher.
  • When raised BTL morgages and heavily leveraged morgage payers will be flunked.
  • New buyers will be dissuated from putting in high offers as they will not be able to afford the moragage payments.
• The home owning boomers will begin to pass away and the market will be flooded with probate properties at some point - surpressing prices.
• The masses of 18-35 yeard olds who have no hope of buying are liable to vote for a Corbyn/socialist government at some point as they are not invested in the current economic system as they do not benefit from it in the same way that elder Gen X/Boomers do. This will either crash the system or put enough pressure on Tory's to build lots of affordable housing.
  • More regulation & Taxes on Buy-to-let land lords are/will be introduced making the business unprofitable - causing them to sell and flooding the market with houses lowering price.
• The current conventional wisdom is that "house prices always go up". When the above points start to force the market lower - panic selling will ensue and there will be a crash for a period of time.

Interest rates will never be as high as they were the world has changed and all govt are dedicated to low rates

Many new buyers already cannot afford to buy thats is not a change

Many boomers will pass their property on to siblings it will not come onto  the market

Anyone who thinks Corbyn will help them buy a house is mad, his party support the EU and refugees and mass immigration.  This will increase the demand for rental units which will encourage BTL which is exactly what happened with freedom om movement. Anyone who thinks Corbyn will help them get a home does not understand supply and demand 

The Uk is a home buying culture as soon as they become more affordable it encourages people to buy which increases demand and prices

[hotblack42]

55 minutes ago, LetsBuild said:

For me it will be the bonfire of the BTLers and the demise of the baby boomers that will facilitate the crash.

As the tax changes start to make an impact at the margin for what were once profitable assets we will see the falls start as BTLers try to get out - we may or may not be seeing this right now.

The oldest boomers are what 74 years old this year? There is an often stated statistic on here that I cannot verify that half of the people who are 65 today will be dead in the next 10 years, we also know that 43% of the housing equity in the UK (Savills) is owned by the over 65s - that has huge potential to flatten the market come the mass extinction event of boomers.

Invest in funeral services now!  It'll be the gift that keeps giving.

Actually I'm serious. Hacked off that I didn't ride the cruise & conservatory boom.  B*ggered if I'm going to miss out on another front & centre boomer money opportunity.

[APerson]

These are my current thoughts on a potential crash:

• The Fundermentals indicate the market is over-inflated, but that there are more supporting factors that would negate a retraction to 1990s level prices adjusted to inflation (namely, immigration and women in work causing the need for 2 incomes).
  • I believe that given these factors we'll see a gradual fall of around 20-30%.
  • If it falls further than this it will bounce back.

However, I think there is a likelyhood of a large econmic crash. 2007-2008 x 3-5 as the fundermentals of the credit crunch have not been fixed - just papered over- plus as mentioned above interest rates cannot be cut even more as an emergency measure by the BoE.

• In this event we might see a large ammount of people end up forced to sell coupled with a drought of buyers in the market. This could cause a more rapid collapse of prices althought this might be short term.

[iamnumerate]

2 hours ago, happyguy said:

Anyone who thinks Corbyn will help them buy a house is mad, his party support the EU and refugees and mass immigration.  This will increase the demand for rental units which will encourage BTL which is exactly what happened with freedom om movement. Anyone who thinks Corbyn will help them get a home does not understand supply and demand 

 

I agree with that bit, although the threat of Corbyn could make an intelligent politician want prices to be cheaper.

[morty]

I'll go the other way and suggest the market follows the opposite of this website's name.  I'm looking at Hertfordshire and the prices just keep getting more berserk each day, new builds in the middle of nowhere going for 600k plus.  How can we even have a recession like before with such low interest rates?  The market will correct 5 maybe 10% maximum and as usual London won't feel a thing.

[morty]

I know nothing anyway.  I want to believe in HPC though.  I hope I look back on this post sitting in a nice property.

[jiltedjen]

seems to me whatever happens with any slight wage increase is mirrored x100 in house prices just due to the sheer leverage. 

All the stops were pulled out to keep house prices high and growing, that’s the policy. 

i think we are more likely to see total currency destruction before anything more than a 10-15% fall in house prices. again that’s policy. the whole economy will (and has) been thrown under the bus to keep house prices high and growing. 

Only in the most extreme circumstance like a hellish cold winter clearing off the rancid boomers might we see some real falls. 

even to get -0.27% falls over a year will have the government sweating bullets. 

best thing you can do at the moment is to buy a house, but have physical gold, and bitcoin. either your ‘bet’ buying the house pays off (with the might of the British government right behind you) or it all goes wrong and you lose the house. but then due to the inevitable collapse in the U.K. economy due to falling house prices and thus the destruction of sterling (as they are pretty much one of the same), then your gold/bitcoin becomes an instant house deposit on your next house. So if you hedge, then both situations lead to you having your own house, one situation requires buying an expensive house and paying it off for the rest of your life, the other is basically the same thing with some extra steps.

although being a debt slave to corrupt private banks who deliberately drove up prices with their own fecking printing presses is something you either accept or don’t. 

it’s a horrible corrupt system. 

i don’t think we will get youth riots or even enough of a critical mass of votes to drive house prices down. anyone who really really wants a house will get a house using corrupt help to buy schemes. That doesn’t sound that bad, but when you remove enough frustrated buyers from the market, it’s enough to prevent a critical mass of voters. 

without help to buy labour would be in power right now. 

here on HPC we scream at the moon at the horror of the situation, at having our lives stolen to pay mortgages or rent, when it’s very unfair. where the smart get fecked over and the reckless rewarded. 

but what are we really doing about it? voting won’t help, protests won’t help, the very monitary system has to change, the very fabric of economics needs Disruption. we need to change money creation itself. All value creation is controlled (stolen) by private banks. 

just like churches used to rule the country, Now is huge private banks. 

we wont see a house price crash in fiat terms, but we might one day see value return to houses. and £20 for a loaf of bread. 

[LetsBuild]

47 minutes ago, jiltedjen said:

but what are we really doing about it? voting won’t help, protests won’t help, the very monitary system has to change, the very fabric of economics needs Disruption. we need to change money creation itself. All value creation is controlled (stolen) by private banks.

I don’t know about you but I voted for the Brexit cruise missle to fly into parliament and turn the status quo on its head. It is exceeding my expectations so far - we might come out of this with a very very different political landscape.

[Spindler]

Incredible Long Time Lurker...i read and read and read to find nuggets...I have to say i understand what you are saying jiltedjen but every fibre of my being tells me to buy now ESPECIALLY with HTB is utter utter financial suicide ! I would only wish that on my worst enemy ! I have bought before...been more OO than renter......but this pyramid scheme is DONE...and you can see that in evidence over the last 2 years of hard facts not indices of VI's or media rampers

[winkie]

14 hours ago, morty said:

I know nothing anyway.  I want to believe in HPC though.  I hope I look back on this post sitting in a nice property.

What is a 'nice' property?.......does it have to be in a 'nice' place.....what would make somewhere a nice place to live?...do all expensive properties only exist in 'nice' places?........

How wealthy you are, boils down to how much you can afford to borrow, or how much someone will lend or give you, for how long.....as health fades and age increases so does the number of new opportunities available......no good being in a nice property if all you can do is sit in a chair......a chair can be anywhere.

[jiltedjen]

48 minutes ago, LetsBuild said:

I don’t know about you but I voted for the Brexit cruise missle to fly into parliament and turn the status quo on its head. It is exceeding my expectations so far - we might come out of this with a very very different political landscape.

I voted to remain. Brexit won't change house prices if any meaningful way.  Money creation needs to change, or at least who controls it.

Brexit is just what happens when you have uneducated masses, who having no desire or ability to understand the root cause of their own problems look mindlessly for an easy target, as they have done since time began.  

All the anger should of been directed towards private banks, and central government for allowing them to be bailed out without drastic reform. 

Instead you get morons moaning about immigrants, or how Europe somehow means they cant afford their own home. 

Where will the anger be directed when we finally do leave, and due to a damaged economy the average leave voter (low earners, less secure) is worst affected by job losses?, it still wont be the real root cause, it will just be another group who gets anger directed at them, probably some poor minority group.   

[rockerboy]

House prices will not crash - it's a sad fantasy to think they will. I repeat, houses will never, ever, ever ever crash, just as in the case of the last 300 years or so.

People live longer now, if anything, mortgages should be increased to 35 years and everyone should jolly well swallow it. There's more money sloshing about anyway (in investments AKA debt).

Even if you want to factor huge inflation, houses can not ever ever "crash" because the value of a house will always remain as the value of a house - unlike cash, which is continually debased.

Perhaps another way, is to think about how much percentage value of "cash" earned in a year is shrinking , compared to how much a person now earns in their lifetime.

in other words, what percentage of a person's income is spent on their housing as a percentage of their entire earnings over their lifetime. I haven't done the math, but I suspect it's fairly constant. After all, once you pay off your mortgage, you're living "rent free" and if you live longer, you are "saving" more on housing cost over your lifetime - and that is why I believe fundamentally, that whilst there is a perceived HPI on today's relative value of your yearly salary, there isn't a HPI once you factor the overall salary earned over your lifetime, simply because we are living longer.

This effect also explains why BTL is pumped mostly by the over 55's - its just that they ain''t dying early anymore - and have more spare money to "invest" which drives up the price. If you want a true HPI "crash, you want to wish for a disease/ lurgy / pestilance / plague that only affects the elderly  - the trouble is that would also affect you

 

 

I guess it truely sucks, that yet again, the younger generation are having to pay for the capability of the elderly being able to take advantage of this "once in a lifetime" opportunity to invest (drive up house prices) by the elderly spending their "spare" cash during this period of lengthening lifetimes.

 

 

Edited March 30, 2019 by rockerboy

[Captain Kirk]

2 hours ago, LetsBuild said:

I don’t know about you but I voted for the Brexit cruise missle to fly into parliament and turn the status quo on its head. It is exceeding my expectations so far - we might come out of this with a very very different political landscape.

I agree with you there. With a recession looming and populism growing all over Europe, I can only see more protests and rioting for foreseeable future. Central banks can print but they can't force banks to lend and people to borrow. And banks won't lend when there is civil unrest and people are losing their jobs. It's sad that it has had to come to this though, I agree.

[nothernsoul]

Unfortunately, politics isnt about which argument is morally right or wrong or most logically sound. The meat on the bones is power and interests with the rest just garnish. Logic should have dictated that the greatest financial crisis since the thirties, caused by risky debt speculation, on the biggest property bubble in living memory,followed by a global recession,  would result in the biggest property crash ever, with so many badly burned fingers no one would want to invest in property for a generation. Obviously, this didnt happen, not because reasoning for it happening was faulty, but because all power and interest was against it happening, and with a fiat currency they could stop it happening. 

 

[Captain Kirk]

9 minutes ago, rockerboy said:

Even if you want to factor huge inflation, houses can not ever ever "crash" because the value of a house will always remain as the value of a house - unlike cash, which is continually debased.

Yes, which should inflate or deflate along the lines of other consumables relative to a continually debased currency.

[winkie]

1 minute ago, rockerboy said:

House prices will not crash - it's a sad fantasy to think so and it will never, ever, ever ever happen, just as in the case of the last 300 years or so.

People live longer now, if anything, mortgages shoudl be increase to 35 years to reflect this and there's more money sloshing about anyway (in investments AKA debt).

Even if you want to factor huge inflation, houses can not ever ever "crash" because the value of a house will always remain as the value of a house - unlike cash, which is continually debased.

If there was a will to crash them they could very easily be crashed......triple stamp duty, restrict lending......increase capital gains tax or inheritance tax.....wouldn't even have to increase interest rates.

The reality of it is, nobody got rich by working 9 to 5 blue or white collar......only the truly wealthy know the assets/investments/instruments they hold mainly obtained via debt and the little as possible tax they pay pays for life's extra luxuries.

All these expensive homes will be paying future daily bills and living costs in the future for most people....born with nought die with naught.....

[Captain Kirk]

1 hour ago, jiltedjen said:

I voted to remain. Brexit won't change house prices if any meaningful way.  Money creation needs to change, or at least who controls it.

Brexit is just what happens when you have uneducated masses, who having no desire or ability to understand the root cause of their own problems look mindlessly for an easy target, as they have done since time began.  

All the anger should of been directed towards private banks, and central government for allowing them to be bailed out without drastic reform. 

Instead you get morons moaning about immigrants, or how Europe somehow means they cant afford their own home. 

Where will the anger be directed when we finally do leave, and due to a damaged economy the average leave voter (low earners, less secure) is worst affected by job losses?, it still wont be the real root cause, it will just be another group who gets anger directed at them, probably some poor minority group.   

People that claim other people are stupid because they hold different political views to them are not very bright in my book.

[Fromage Frais]

As we have sadly discovered house prices are not a function of demand and supply in the main.  They are a reflection of the supply and demand of credit/money.

When I look at a 450,000 fixer upper (loads of houses over 600k) in the Norfolk countryside in an area of 23,000 av salary and 30% further education participation I ask myself where does this money come from.

This massive price escalation started years ago and it built up in steps which i consider "pillars"  if all the pillars are in place you have a very strong market and you have to just admit the prices are high for a good reason.

1)  Employment - Employment is high but wages have hardly moved with inflation X

2)  The bank - not really as they will only lend you 4-5x salary at most.  This was a big factor in the early days of the boom but to me its a maintainer rather than the cause ongoing and will not prevent falls (already tapped to max) X

3)  BTL - using coverage instead of affordability enabled high prices to be paid.  A big driver but tax changes have thankfully removed the advantage. X

Liar loans - not really as these have gone away in the main.  It amazes me how the market can be higher now than at a time where you could fake a few pay slips and wildly overstate you earnings. X

Help To Buy - This is a completely separate fake market in my region.  The prices are higher than resold houses but more affordable due to the incentives.  This will remain in place until it is stopped for the crony capitalism it is.  In of itself it is not enough to save the used market from falls. x

So where is the money coming from if not from the above?

For my area its people coming in from the South with the equity differential why do they have this differential? 36 does not go into 600+ k house prices, and often not into Norfolk prices.  We even have financially illiterate "investors" trying to buy investment properties on the same rental expectations as London.. buying in Norwich.

https://www.edp24.co.uk/business/norwich-rental-market-is-booming-see-the-high-end-flats-1-5954626 . (note the URL which is not the case at all)  

They have it due to foreign money at the top of the market imho China previously rolling its surplus back into our property market...but goosing it with dollar loans on the way.

The dollar rate is up + Capital controls in China and dis-incentives so this money is down.  It is no coincidence that most global cities are falling a bit also almost directly in proportion to their favour with Chinese investors.  This is prudent on their part as countries will move to prevent this hot money ongoing and in the future.

My argument for falls (not crash at the moment as the fed look to be cutting rates soon) is that this money has already (see nationwide thread) lead to London falls.

These London falls spread when the London sale does not exceed = price in target area.  The falls already have knocked onto the home counties and over 600k properties here in Norfolk.

In prime areas near me the SE premium accounts for 20-30% ie the difference of a 350k house going for 450+

If the London buyer falls property will still be historically expensive as elements 1/2/3 will be there to support it (unless rates rise/recession).

So falls are baked in as long as London keeps falling unless you live in an area where the jobs allow you to get a honking great mortgage on a local salary ... and then use this to buy a house.

This is already happening I have been told multiple times now by agents vendors are conflating reduced demand with Brexit and deciding not to list their properties at this time.

Nobody puts off listing a house because the market is wonderful do they?

This has lead to a moribund market with only those desperate enough or rich enough to buy one of the limited stock of overpriced houses....lending a fake sheen of price stability on low volumes.

 

 

 

 

 

 

Edited March 30, 2019 by Fromage Frais

[jiltedjen]

30 minutes ago, Captain Kirk said:

People that claim other people are stupid because they hold different political views to them are not very bright in my book.

Personally I respect the vote, that’s how democracy works like it or not. 

What I don’t respect is when people don’t bother to learn about the real root cause of their life’s issues (private banks money creation) and instead blame it on something else. 

its lazy, and ignorant. 

but there is very few people who bother to learn about money creation, and even less willing to do anything about it. so those who claim to be doing something about their life’s issue by voting for X or blaiming Y gets on my tits. 

there is plenty of anger out there. Just directed at the wrong people. personally I would like to stand side by side any brexiter or remained or whoever if we can over throw the banks (heavy reform and harsh prison sentaces for anyone involved in banking for the last 30 years). train new honest bankers and remove their ability to print money and enslave the populace of this fair isle and the rest of beautiful Europe. 

Goverment is fully in the pockets of private banks. 

without reform we will always be debt slavery, 9-5 workers. and human progress can continue to stagnate for the next 30 years again. 

[nothernsoul]

It is comforting to just blame the one percent but the malaise runs much deeper. Originally the British middle class was the dynamic class, who usurped the rent seeking aristocracy, by creating businesses, innovation, infrastructure. Now they have become or aspire to become the new aristocracy. For too many of my colleagues the rationale for working is to buy property, either the one they live in, or a rental. They have minimal savings and zero left at the end if the month. As has already been mentioned,  the profit comes from what is is invested in their property(s) rather than their earned income. That is why(unlike the 70s) a decade of stagnant wages was tolerated, as long as interest rates were on the floor to more than balance this out. 

[winkie]