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Cornona Effects on House Prices


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Just now, 2buyornot2buy said:

400k? I know people with 800k mortgages who only put down a 10% deposit.

Bloody hell.

(Well that's exposed how thoroughly working class I and the circles I move in are - I had no idea you could buy an £800K house with £80K down.)

I'm not a very high earner and I just want somewhere decent to live - but spending £200K+ for a crumbling 70 year old 2.5 bed semi in Belfast just seemed ridiculous to me (that's what the last one I viewed last year sold for and it had visible damp and needed redecorated).

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Just now, 2buyornot2buy said:

Not so much it dried up as people couldn't raise a 15% deposit. Banks were willing to lend, transactions didn't stop but people couldn't save enough or didn't have savings.

Well in that vein:

https://www.bbc.co.uk/news/business-52106119

Quote

On Tuesday, Nationwide - one of the UK's biggest lenders - effectively pulled out of new deals.

and

Quote

Other lenders that have taken similar action include Santander and Skipton Building Society but many have gone further, by reducing the loan-to-value ratio to 60%.

That means borrowers will need a 40% deposit or equity in their home to be able to get a mortgage.

Lenders that have done this include Barclays, Halifax, Virgin Money and The Family Building Society, while the Coventry Building Society has cut its LTV ratio to 65%.

 

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18 minutes ago, Belfast Boy said:

You where on here, as I was, at the time. You don't remember ZIRP, QE, FLS and HTB? I'm certain prices would have fallen much more or still be stagnating without those props.

Oh BB I do... But the market hit the skids in Aug '07 & iirc those measures weren't introduced until 2008 when the London market started showing signs of stress. Negative sentiment had taken hold in NI by that stage & it was too late to stop the crash.

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25 minutes ago, JoeDavola said:

I might be wrong but I thought that one of the things that happened was that mortgage lending dried up for a while? And then started again around 2012/2013 or am I not remembering that right.

I reckon that's about right as I bought in June 2012... If the crash timeframe remains similar I'll plan to move in 2024/25 so I might be more of a regular on here for a while...

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21 minutes ago, headmelter said:

Oh BB I do... But the market hit the skids in Aug '07 & iirc those measures weren't introduced until 2008 when the London market started showing signs of stress. Negative sentiment had taken hold in NI by that stage & it was too late to stop the crash.

IIRC at the top - prices in Northern Ireland were the same as London. Despite the fact that local average earning were/are much lower. Once speculation stopped - it was a credit crisis and affordability that caused prices to fall.

Edit: prices that high were simply unsustainable.

Edited by Belfast Boy
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9 minutes ago, Belfast Boy said:

IIRC at the top - prices in Northern Ireland were the same as London. Despite the fact that local average earning were/are much lower. Once speculation stopped - it was a credit crisis and affordability that caused prices to fall.

Yeah I think that's about right:

"The crisis began in 2007 with a depreciation in the subprime mortgage market in the United States, and it developed into an international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008."

 

12 years unbelievable how easy the details are forgotten.

BB were you not looking out towards the Cookstown area at a stage ?.. 

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So the question is will the corvid-19 lockdowns and resulting economic contraction cause another credit crunch?

After the lockdown and resulting economic contraction - are current house  prices affordable and sustainable?

Edit: another question we may want to discuss - has there been much speculation in the local housing market this time?

 

Edited by Belfast Boy
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Difference this time is that the banks aren’t going bust (yet). They still have cash in reserve that can be lent out when the coronavirus has passed, rather than the last time when they had no cash to lend and needed bailed out. The government are propping up wages this time round (for now) up to £30k per year which is above the national average salary for NI. Even if they’re only getting 80% of their salary, they’ll not be spending anywhere near as much as they were before socialising and dining out etc. With such a high % of workforce in public sector it will help cushion NI. 
I still expect house prices to drop in the next 12 months, but if we see big drops I don’t think it’ll be for long (like the credit crunch)- it’ll just be market jitters like after the referendum coupled with higher unemployment for a year or two. That’s my guess anyway, no need to slag me off if I’ve got it wrong and it all goes tits up!

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57 minutes ago, nigooner said:

Difference this time is that the banks aren’t going bust (yet). They still have cash in reserve that can be lent out when the coronavirus has passed, rather than the last time when they had no cash to lend and needed bailed out. The government are propping up wages this time round (for now) up to £30k per year which is above the national average salary for NI. Even if they’re only getting 80% of their salary, they’ll not be spending anywhere near as much as they were before socialising and dining out etc. With such a high % of workforce in public sector it will help cushion NI. 
I still expect house prices to drop in the next 12 months, but if we see big drops I don’t think it’ll be for long (like the credit crunch)- it’ll just be market jitters like after the referendum coupled with higher unemployment for a year or two. That’s my guess anyway, no need to slag me off if I’ve got it wrong and it all goes tits up!

Honestly hope you're right. This will either be a relatively short sharp shock and quick recovery or it'll be a complete system wide reset. I really hope it's the latter or the economy is screwed for a very very long time and house prices will be the least of anyone's worries. 

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2 hours ago, nigooner said:

Difference this time is that the banks aren’t going bust (yet). They still have cash in reserve that can be lent out when the coronavirus has passed, rather than the last time when they had no cash to lend and needed bailed out. The government are propping up wages this time round (for now) up to £30k per year which is above the national average salary for NI. Even if they’re only getting 80% of their salary, they’ll not be spending anywhere near as much as they were before socialising and dining out etc. With such a high % of workforce in public sector it will help cushion NI. 
I still expect house prices to drop in the next 12 months, but if we see big drops I don’t think it’ll be for long (like the credit crunch)- it’ll just be market jitters like after the referendum coupled with higher unemployment for a year or two. That’s my guess anyway, no need to slag me off if I’ve got it wrong and it all goes tits up!

The tide has gone out. We will find out if the banks have been lending responsibly. Airbnb investments may be a (sub)prime example.

I wonder will this crash be similar to the last one? House prices peaked in Northern Ireland in the summer 2007. When did prices bottom 2012/13? 5 or 6 years?

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18 minutes ago, Belfast Boy said:

I wonder will this crash be similar to the last one? House prices peaked in Northern Ireland in the summer 2007. When did prices bottom 2012/13? 5 or 6 years?

2012/2013 was the bottom.

I can't remember whether most of the falls happened in the first couple of years after the peak however - does anyone here with a better memory than me remember?

Problem here is this bailout is so huge that I wouldn't wanna wait 6 years until I bought something as I think the pound will be toilet paper by then.

Solution maybe being to move out of the pound into something else (but not housing) for a while, but if there is a correction I hope it's a quick one i.e. taking less than 2 years.

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23 hours ago, JoeDavola said:

Bloody hell.

(Well that's exposed how thoroughly working class I and the circles I move in are - I had no idea you could buy an £800K house with £80K down.)

I'm not a very high earner and I just want somewhere decent to live - but spending £200K+ for a crumbling 70 year old 2.5 bed semi in Belfast just seemed ridiculous to me (that's what the last one I viewed last year sold for and it had visible damp and needed redecorated).

I agree with you and add I'm throughly working class. 

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29 minutes ago, JoeDavola said:

2012/2013 was the bottom.

I can't remember whether most of the falls happened in the first couple of years after the peak however - does anyone here with a better memory than me remember?

Problem here is this bailout is so huge that I wouldn't wanna wait 6 years until I bought something as I think the pound will be toilet paper by then.

Solution maybe being to move out of the pound into something else (but not housing) for a while, but if there is a correction I hope it's a quick one i.e. taking less than 2 years.

They dropped like a stone, then we had the dead cat bounce in 2009, then down again from there. Plenty got back in in 2009. 

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Just now, 2buyornot2buy said:

They dropped like a stone, then we had the dead cat bounce in 2009, then down again from there. Plenty got back in in 2009. 

Thanks - even I had forgotten the finer details of the crash even though I was on this site during the time tracking it!

I do remember the peak very clearly - and the bottom of the market in 2012/2013, but the bit in between is a bit of a blur!

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3 hours ago, Belfast Boy said:

The tide has gone out. We will find out if the banks have been lending responsibly. Airbnb investments may be a (sub)prime example.

I wonder will this crash be similar to the last one? House prices peaked in Northern Ireland in the summer 2007. When did prices bottom 2012/13? 5 or 6 years?

Average House price currently £135k? A 30% drop in prices would bring the average house prices down to £94k which I think is unrealistic long term, so even if it drops that low I don’t see it being there for long with most of the population being furloughed on 80% of their pay. Might take a bit of time for those workers to be back up to full pay, and then longer for the staff of companies that do go bust to find work again, but if the banks still have money to lend then the paralysis in the market from lenders should be relatively short lived compared to 2007-2013. I also think the companies that do go bust will just start again fairly quickly- they still have the skills and access to their staff, they’ll just go bust and start up under a NewCo (it will be genuine cash flow problems that killed them rather than poor business sense, in the majority of cases).

I do agree that Airbnb purchases were overpriced, but I don’t know of any mortgage lenders who based the rental income on an actual Airbnb model, I only know of them being based on traditional monthly rent- so I would guess that those ones that are in trouble now, the banks won’t take much of a loss on those loans. I don’t know banks that were lending say £200k on an air bnb model for a flat that was only worth £150k for example. It’s more the Airbnb-ers income that will take a hammering rather than the actual LTV of the property. 

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9 hours ago, nigooner said:

Average House price currently £135k? A 30% drop in prices would bring the average house prices down to £94k which I think is unrealistic long term, so even if it drops that low I don’t see it being there for long with most of the population being furloughed on 80% of their pay. Might take a bit of time for those workers to be back up to full pay, and then longer for the staff of companies that do go bust to find work again, but if the banks still have money to lend then the paralysis in the market from lenders should be relatively short lived compared to 2007-2013. I also think the companies that do go bust will just start again fairly quickly- they still have the skills and access to their staff, they’ll just go bust and start up under a NewCo (it will be genuine cash flow problems that killed them rather than poor business sense, in the majority of cases).

I do agree that Airbnb purchases were overpriced, but I don’t know of any mortgage lenders who based the rental income on an actual Airbnb model, I only know of them being based on traditional monthly rent- so I would guess that those ones that are in trouble now, the banks won’t take much of a loss on those loans. I don’t know banks that were lending say £200k on an air bnb model for a flat that was only worth £150k for example. It’s more the Airbnb-ers income that will take a hammering rather than the actual LTV of the property. 

No everyone is getting the option to furlough. 1 million extra universal credit applications in the UK in the past 2 weeks. 20k for NI. That's going to keep rising. The really surprising thing for me is the number of companies that don't have the cash reserves to pay on furlough and claim back at a later date. 

The lack of reserves also points to difficulty with your bust the company idea. If they same company can't afford to furlough, they can afford to restart and wait 60-90 days for payment. The banks don't appear to be playing ball either. 

Then there's the question of how this massive spending is going to be paid back. They'll tax it or inflate it, or a mixture of both. Noting about this points to a quick return to "normal". 

I think BVI is right. We'll be looking at "bail ins" within the next few years. 

 

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12 hours ago, nigooner said:

Average House price currently £135k? A 30% drop in prices would bring the average house prices down to £94k which I think is unrealistic long term, so even if it drops that low I don’t see it being there for long with most of the population being furloughed on 80% of their pay. Might take a bit of time for those workers to be back up to full pay, and then longer for the staff of companies that do go bust to find work again, but if the banks still have money to lend then the paralysis in the market from lenders should be relatively short lived compared to 2007-2013. I also think the companies that do go bust will just start again fairly quickly- they still have the skills and access to their staff, they’ll just go bust and start up under a NewCo (it will be genuine cash flow problems that killed them rather than poor business sense, in the majority of cases).

I do agree that Airbnb purchases were overpriced, but I don’t know of any mortgage lenders who based the rental income on an actual Airbnb model, I only know of them being based on traditional monthly rent- so I would guess that those ones that are in trouble now, the banks won’t take much of a loss on those loans. I don’t know banks that were lending say £200k on an air bnb model for a flat that was only worth £150k for example. It’s more the Airbnb-ers income that will take a hammering rather than the actual LTV of the property. 

I have not predicted how much the housing market will fall this time. Though I do predict that it will be worse than last time.

Last time it was just a small crisis that nearly brought down our banks. It was easily papered over. This economic crisis is much, much bigger. So I do not agree that it will be 'short lived'.

Thanks for explaining the Airbnb lending. I didn't know that they are just BTLs.

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2 hours ago, 2buyornot2buy said:

I think BVI is right. We'll be looking at "bail ins" within the next few years. 

There are a lot of things being said on here that will eventually be proven to be wrong. 

The Cyprus 'bail in' was a requirement of an EU bailout. The UK can simply print money.

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As I said before: It is impossible at this stage to predict how much the housing market will fall. (And my predictions were wrong last time.)

First we have to look at the health crisis - 

1. How long will this current lockdown last? 3 months? (Lockdowns are doing the most economic damage.)

2. Will the coronavirus cases increase when lockdowns are relaxed? (Schools may be the key here. Some classes have over 30 children - making 'social distancing' impossible. And, try telling a class of primary 1 children to 'social distance'.)

3. How long will this crisis last? (I think we need a vaccine and that will take over a year.)

In summary: At least 1 year of rolling lockdowns and resulting economic damage. (I don't think we 'bounce back' form that.)

After the crisis - I just don't see the lockdown finishing and suddenly restaurants and cafes are full, trains and planes are full, cinemas and sports venues are full, bars and burger kings are full, hotels and tourist attractions are busy, shopping centres and town centres are busy. After the crisis it will take some time to build all that back up again. Will things ever return to the way they were?

How many other business are affected? How many business are unsustainable and will not survive this? How much money is going to be wasted trying to support them?

The government are providing short term support. How long will that last? Is providing medium term support going to be necessary, affordable and sustainable? Where is the government getting the money from? How will it be repaid? Is it realistic to expect the government to bail everyone out?

So many unknowns as this moment. And, so many unknown consequences.

 

Edited by Belfast Boy
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21 minutes ago, Belfast Boy said:

There are a lot of things being said on here that will eventually be proven to be wrong. 

The Cyprus 'bail in' was a requirement of an EU bailout. The UK can simply print money.

Legislation was brought in after the last crisis to implement bail ins. The purple book sets out bail ins as the preferred strategy. 

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19 hours ago, nigooner said:

With such a high % of workforce in public sector it will help cushion NI. 

… austerity budgets saw lots of cut backs in the public sector in Northern Ireland after the last crash. That's is exactly what will cause the next house price crash here to be just as long, if not longer.

Edited by Belfast Boy
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23 hours ago, 2buyornot2buy said:

Legislation was brought in after the last crisis to implement bail ins. The purple book sets out bail ins as the preferred strategy. 

I don't think that London can call itself a 'banking capital' if it starts stealing peoples' money. 

Edited by Belfast Boy
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Property Pal reckons we can expect a 3-5% fall short term followed by "strong rebound"... expected from a vested interest business where earnings will have been destroyed. 

Interesting part about NI being undervalued compared to the UK but state 5 times earnings like it's not just a smaller bubble. 

https://www.businessfirstonline.co.uk/our-guest-bloggers/how-might-coronavirus-impact-the-property-market/

The goal is not to get back to (unsustainable) levels in 2008, but the evidence suggests local house prices remain undervalued in a historical sense. Over the last fifty years, house prices in Northern Ireland have typically been 20% more affordable than UK properties, whereas current levels are approximately 40% more affordable. Furthermore, once wages are factored in, a typical home in Northern Ireland would require five times a full-time workers salary compared to seven times in the UK. 

A rebound in activity is expected later in the year as pent-up demand moves from Spring into the Summer/Autumn months. The extent and timing of the rebound will depend on when ‘normality’ returns to businesses and households.

From a Northern Ireland perspective, PropertyPal’s modelling suggests a reduction in prices in the short term in the region of 3-5%, but potentially by more in a more prolonged lockdown scenario. Price growth is expected to pick up at stronger rates during the rebound period giving negligible growth over the next 12-month period.

 

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2 hours ago, 2buyornot2buy said:

Property Pal reckons we can expect a 3-5% fall short term followed by "strong rebound"... expected from a vested interest business where earnings will have been destroyed. 

Interesting part about NI being undervalued compared to the UK but state 5 times earnings like it's not just a smaller bubble. 

https://www.businessfirstonline.co.uk/our-guest-bloggers/how-might-coronavirus-impact-the-property-market/

The goal is not to get back to (unsustainable) levels in 2008, but the evidence suggests local house prices remain undervalued in a historical sense. Over the last fifty years, house prices in Northern Ireland have typically been 20% more affordable than UK properties, whereas current levels are approximately 40% more affordable. Furthermore, once wages are factored in, a typical home in Northern Ireland would require five times a full-time workers salary compared to seven times in the UK. 

A rebound in activity is expected later in the year as pent-up demand moves from Spring into the Summer/Autumn months. The extent and timing of the rebound will depend on when ‘normality’ returns to businesses and households.

From a Northern Ireland perspective, PropertyPal’s modelling suggests a reduction in prices in the short term in the region of 3-5%, but potentially by more in a more prolonged lockdown scenario. Price growth is expected to pick up at stronger rates during the rebound period giving negligible growth over the next 12-month period.

 

Ah, the propaganda begins.

"PropertyPal's modelling" - that made me laugh. I think they may need a new model!

What about pent-up supply? What about deposits at 40%? What about the people who are unemployed? What about the people with reduced incomes? What about the economic uncertainty? 

Used to see lots of puff pieces like that during the last crash. Puff piece - "A journalistic form of puffery; an article or story of exaggerating praise that often ignores or downplays opposing viewpoints or evidence to the contrary."

 

 

 

 

Edited by Belfast Boy
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