I Was 100% Certain Of A Crash 2 Years Ago

[theChuz]

Everyone seems to be missing the point. I think we all agree that high inflation, high IRs and lower prices are far better for buyers.

But Without a paddle's point was that monthly costs were more affordable and that is all most people care about- therefore why will prices fall unless IRs rise?

I think people , well myself for one are factoring in the economic climate, chances are IR will rise and from a low start it only takes small increments to push it up.

Im not totally convinced with an affordability argument because things just seem to be getting much more expensive than inflation puts it.

but , that being said if people can borrow more then they will borrow more because people just dont seem to think much for themselves.

Still, its funny ol times , we shall see what happens

[wifeling-smi]

Ahh, you've missed my point. Read it again. People are currently paying a smaller proportion of their THP, that's all that drives prices.

You're right of course, if you're talking just about THP in relation to mortgage payments - however other costs of living have rocketed recently, such as Council Tax, Utlility Bills, Fuel, Personal Debt etc... these factors are inextricably linked in with home ownership are therefore, must be taken into the equation.

In the Times today - they were giving this exact argument as to why FTB's aren't getting on the mythical housing ladder anymore. Unemployment is also on the increase, trade is quickly moving away from Europe to Asia - to say that the percentage of THP going to mortgage repayments and interest rates are the only factors is simply incorrect.

Our country's housing market is walking on a knife edge and it's going to be a painful lesson to many poor souls who have mortgaged themselves up to the hilt during the past few years - I wouldn't buy now if I had the cash up front. The economics just do not add up.

Edited March 3, 2006 by wifeling-smi

[Jason]

I've just come back from the pub (i'm not an alcoholic, i'm a binge drinker!) and I was surprised at how few people were out drinking. So shocking, infact, all the peeps I went drinking with only took small amount of cash - we were supposed to go clubbing.

He's me, with me glad rags on... only to come home at 10:30.

I even tried all main pubs... either bird flu has struck, or people are tightening up their belts!

AND, I was advised to buy a house -again.

blah blah blah blah blah... blah...

Edited March 3, 2006 by Jason

[billy-g]

People are tightening there belts. You have the drinking/socialising, flashy car getting changed, good holidays, nice name clothes, shopping at the premium quality supermarkets etc etc to be cast off though before you even get to people not being able to afford morgage payments.

Worth remembering. The economy is fashioned so that the average punter thinks his house is not only his castle, but his pension fund, and he'll give up ANYTHING before he lets that go.

[wifeling-smi]

People are tightening there belts. You have the drinking/socialising, flashy car getting changed, good holidays, nice name clothes, shopping at the premium quality supermarkets etc etc to be cast off though before you even get to people not being able to afford morgage payments.

Worth remembering. The economy is fashioned so that the average punter thinks his house is not only his castle, but his pension fund, and he'll give up ANYTHING before he lets that go.

Perhaps - but how much of this high-life spending has been done on credit??? So - when people are up to their credit limits, it's not just a case of people slowing down on spending - they have their debt to pay back as well as the mortgage and all the associated costs.

We're going into economic meltdown - not sure when, but we're at the top of an icy blackrun with no way of either slowing down or stopping...

[Karen]

Everyone's giving me reasons why prices might fall!!

But you're missing the original point, which was that the current level of prices now is more affordable than ever before, therefore it is not surprising that they are this high.

IR go up and they go down.

Home prices are not more affordable. We bought in 1993. We paid 98K and at 7.5% our payment was $685 (P & I only). If that house was to go up for sale today asking would be around 300K or a payment of $1817. More than double.

If you figure inflaton at 2.5% a year and start with our payment of $685...I get a payment of $944.28. (I couldn't remember the formula, and did it the long way)

You also have to figure in down payments (something I didn't do above) Coming up with 20K (for 20% down) or even 25K is very different from the 60K you would need for 20% down on 300K. With a median household income this side of the pond at about 50K, your talking about saving a ton & at $1817 a month, (or 1454 with 60K down) by the time you add in insurance & taxes...almost 1/2 your income going to housing. (I get 4,166.666 per month at 50K a year)

[BandWagon]

Everyone's giving me reasons why prices might fall!!

But you're missing the original point, which was that the current level of prices now is more affordable than ever before, therefore it is not surprising that they are this high.

No they're not

In '96 you could buy a 2 bed flat in Putney for £80k. That same flat will now cost you £250k.

It's reasonable to assert that prices have tripled in 10 years, and in even less up North.

What this means is that the interest burden has remained almost constant, fair enough.

It also means that people are able to shoulder a debt burden that is 3 times higher than they managed 10 years ago.

Sadly this misses the point of what a house actually costs.

Low interest rates point to low inflation, ie little erosion of the debt burden.

And many people now are simply incapable of repaying their mortgages during their lifetimes.

And when the next economic shock hits this country, they will go bankrupt.

[billy-g]

I would think that 90%+ of people pull back and get sensible WELL before the credit limit is reached.

After that it is minimum payment or consolidation or sell the flash car/economise etc like I mentioned above.

All I can say, and its anecdotal so take it as you will, is that my wife is an IFA and a partner in that company. She and her staff administer pension funds for some fairly significant numbers of people. She also offers a financial review every year to help them save/invest. I tell her about the gloom I read on here - she just laughs, and tells me very, very few of her clients are in any where near the dire straights people on here like to post that the general populus are in. Less than 1% was her guess. Of those 1%, she has never had a case she could not help. Certainly none are losing there homes over debt.

Some are in the UK in the shit, but the numbers, compared to the other tens of millions of population, is damned, damned small.

Edited to say post is for Wifeling-SMI.

Edited March 3, 2006 by billy-g

[Mr Blek]

I would think that 90%+ of people pull back and get sensible WELL before the credit limit is reached.

After that it is minimum payment or consolidation or sell the flash car/economise etc like I mentioned above.

All I can say, and its anecdotal so take it as you will, is that my wife is an IFA and a partner in that company. She and her staff administer pension funds for some fairly significant numbers of people. She also offers a financial review every year to help them save/invest. I tell her about the gloom I read on here - she just laughs, and tells me very, very few of her clients are in any where near the dire straights people on here like to post that the general populus are in. Less than 1% was her guess. Of those 1%, she has never had a case she could not help. Certainly none are losing there homes over debt.

Some are in the UK in the shit, but the numbers, compared to the other tens of millions of population, is damned, damned small.

Edited to say post is for Wifeling-SMI.

Her porfolio must be of extremely wealthy clients. I work for a lender and it is doom and gloom.

As for people not losing their homes over debt - are you for real? Have you not seen the latest stats on house reposessions? Get your head out of the sand.

[Blackholeshine]

Two years ago i thought that a property crash was a certainty, today i am not sure, i would probably have to go 60/40 in favour of a crash, but those odds have been getting worse by the month.

Did i make a big mistake two years ago when i could have bought quite a substantial property, today i would get a lot less for my money, even though i am on even better money than i was two years ago.

Is there really something different this time, what i thought was going to cripple the housing market 2 years ago is now worse, namely high consumer debt, but still the machine keeps chugging away.

I still think the money we are borrowing to get our own property is crazy, but if thats the way it is, and if thats the way it is going to continue in my lifetime i need to maybe reconsider my lifeplan.

Sorry Guys, and i know i am not the only one thinking these thoughts, but i am starting to suspect i might have called this one wrong.

I am really pissed off, and very unsure at the moment, help me out Guys.

Sam

During the last crash '89 to '94 one million properties were repossessed. If you think one million properties will be repossessed over the next five years then you have your answer about a crash.

No one is going to sell their house at a greatly reduced price unless they are forced to by a bank or building society seeking repossession. People will only default on payments if the economy is bad and there are massive job losses or interest rates rocket. There's not much sign of either. If there are massive job losses some people waiting for a crash will find they cannot buy after the crash because they no longer have a job.

If prices do drift down btlers will simply step into the market to pick up relative bargains and thus stopping a

further fall.

In the 1980s a financial expert on LBC kept saying year after year there would be a property price crash. Almost no one believed him because no one had ever known property prices to fall. When he kept saying it year after year he began to look ridiculous. The odd person did follow his advice for example, one sold his house and put the money into the stock market. The stock market crashed before the housing market. Almost no one held back from buying to take advantage of the crash. Maybe there will not be a crash this time because many people are holding back from buying and are thus dampening excesses. Without this excess there will be no crash.

It is like events in history are too big for individuals to manipulate their personal course away from the bad events and toward the good events. An individual does something and only later discovers whether they had done something good or something bad.

[billy-g]

Mr Blek, my head is not in the sand. I could retort and ask you to remove your blinkers perhaps? Maybe some time away from your lenders office would help restore some balance.

As for the wealthy clients; yes, she has a good few extremely (by my standards anyways) wealthy clients, but she also deals with those through from the pension schemes earning 18k graduate level upwards.

I'm sorry if you don't find what I said palatable, but it is accurate.

[a j]

I would think that 90%+ of people pull back and get sensible WELL before the credit limit is reached.

After that it is minimum payment or consolidation or sell the flash car/economise etc like I mentioned above.

All I can say, and its anecdotal so take it as you will, is that my wife is an IFA and a partner in that company. She and her staff administer pension funds for some fairly significant numbers of people. She also offers a financial review every year to help them save/invest. I tell her about the gloom I read on here - she just laughs, and tells me very, very few of her clients are in any where near the dire straights people on here like to post that the general populus are in. Less than 1% was her guess. Of those 1%, she has never had a case she could not help. Certainly none are losing there homes over debt.

Some are in the UK in the shit, but the numbers, compared to the other tens of millions of population, is damned, damned small.

Edited to say post is for Wifeling-SMI.

I notice how few people in the company I work for opt to take the pension scheme (with employer matched contributions). I suspect that the sample of people your wife sees is not representative as they have some committment to saving.

[Mr Blek]

Mr Blek, my head is not in the sand. I could retort and ask you to remove your blinkers perhaps? Maybe some time away from your lenders office would help restore some balance.

As for the wealthy clients; yes, she has a good few extremely (by my standards anyways) wealthy clients, but she also deals with those through from the pension schemes earning 18k graduate level upwards.

I'm sorry if you don't find what I said palatable, but it is accurate.

My blinkers were removed along time ago. The only balance that needs restoring is the economy. Its idiotic bulls like you who have got the economy in this mess, so don't cry when people like me start giving home truths. I don't find what you said palatable because I believe its ********. Do a search on this site to see the reports on reposessions. I think you'll find you're the blinkered one

BTW, you're wife's a VI. Think about it for a sec before you reply.

[billy-g]

Two points. She sees all those who are in the pension scheme. Even if they don't put there own money in, the company do, they put in 5%. So she, or her staff, see the entire company.

As for Mr Blek, if your last post is the honest best you can come up with, I wouldn't even waste my time dignifying it with an answer. Some free advice; when you have to resort to swearing, your either overstretching your intellect, or you struggle somewhat with words.

Bit of both is it?

Edited March 4, 2006 by billy-g

[Michael]

I've just come back from the pub (i'm not an alcoholic, i'm a binge drinker!) and I was surprised at how few people were out drinking. So shocking, infact, all the peeps I went drinking with only took small amount of cash - we were supposed to go clubbing.

He's me, with me glad rags on... only to come home at 10:30.

I even tried all main pubs... either bird flu has struck, or people are tightening up their belts!

AND, I was advised to buy a house -again.

blah blah blah blah blah... blah...

Friday nights have been very quiet for a year or so......................

[BandWagon]

During the last crash '89 to '94 one million properties were repossessed. If you think one million properties will be repossessed over the next five years then you have your answer about a crash.

No one is going to sell their house at a greatly reduced price unless they are forced to by a bank or building society seeking repossession. People will only default on payments if the economy is bad and there are massive job losses or interest rates rocket. There's not much sign of either.

It's typical for unemployment to rise at the end of a housing boom.This is now happening in the UK, as it has happened before

http://www.statistics.gov.uk/CCI/nugget.asp?ID=12

http://news.bbc.co.uk/1/hi/business/4715446.stm

Edited March 4, 2006 by BandWagon

[SeenItAllBefore]

People are tightening there belts. You have the drinking/socialising, flashy car getting changed, good holidays, nice name clothes, shopping at the premium quality supermarkets etc etc to be cast off though before you even get to people not being able to afford morgage payments.

Worth remembering. The economy is fashioned so that the average punter thinks his house is not only his castle, but his pension fund, and he'll give up ANYTHING before he lets that go.

Problem is that by giving up a lot of discretionary spending one Joe Mortgage-Payer just causes another Joe Mortgage-Payer to lose his job and become Joe Can't-Pay-His-Mortgage followed by Joe Repossesion-And-Forced-Sale. That's what causes crashes in house prices - it's done it before and it will do it again.

On another note, why is it so easy for some of us to understand that an economy supported by unsustainable rises in the rate of consumer borrowing MUST eventually slip into recession and so difficult for others?

[Mr Blek]

As for Mr Blek, if your last post is the honest best you can come up with, I wouldn't even waste my time dignifying it with an answer. Some free advice; when you have to resort to swearing, your either overstretching your intellect, or you struggle somewhat with words.

Bit of both is it?

I gave your VI spun post the answer it deserved. If you can't take it, don't cry like a bitch.

Some free advice: if you can't handle it in the fire, don't get close.

Here's something for you to think about. The whole pension system is in disarray. The Government admits it, but your wife's company says everything is hunky dory? I hope that doesn't overstretch your one brain cell too much.

[Guest]

If there are massive job losses some people waiting for a crash will find they cannot buy after the crash because they no longer have a job.

Jesus wept. Why do I have to hear people rattle this one off time and time again?

So what does an FTB do now? Buy a house?

Please explain how this observation is supposed to help an FTB make a decision NOW.

[SCUMBAG]

I would think that 90%+ of people pull back and get sensible WELL before the credit limit is reached.

After that it is minimum payment or consolidation or sell the flash car/economise etc like I mentioned above.

All I can say, and its anecdotal so take it as you will, is that my wife is an IFA and a partner in that company. She and her staff administer pension funds for some fairly significant numbers of people. She also offers a financial review every year to help them save/invest. I tell her about the gloom I read on here - she just laughs, and tells me very, very few of her clients are in any where near the dire straights people on here like to post that the general populus are in. Less than 1% was her guess. Of those 1%, she has never had a case she could not help. Certainly none are losing there homes over debt.

Some are in the UK in the shit, but the numbers, compared to the other tens of millions of population, is damned, damned small.

Edited to say post is for Wifeling-SMI.

Surely if you are the sort of person that goes to see a financial advisor then you are the sort of person that likes to have their finances in order?

[Blackholeshine]

Jesus wept. Why do I have to hear people rattle this one off time and time again?

So what does an FTB do now? Buy a house?

Please explain how this observation is supposed to help an FTB make a decision NOW.

Society is extremely mean to young peeople in general and first time buyers. But many ftbs cherish the notion that at sometime in the future society is going to get generous to them. They will be allowed to buy a nice house, etc. It isn't going to happen. In the future 1, 2, 5, 10 years society will be just as mean to you as it is now. If you think a housing crash is going to be a gift you better open its mouth and you'll see rotten teeth. You'll also find your gift horse will have brittle bones and many other aliments. The only time anything "good" comes my way is when there is something seriously wrong with it and I think this will also be true with some or many of those who are waiting for the housing crash.

[Guest]

Padiham

If we're facing recession then I could rent and lose my job. Or I could buy a house and still lose my job.

Do you now see why your statement about "people waiting for a crash could lose their job" doesn't help to make any decisions now.

[killerbee]

If prices do drift down btlers will simply step into the market to pick up relative bargains and thus stopping a

further fall.

Hi all,

"Simply step in" nah IMHO when the market falls (as it is around about nowish give or take a year or two) alot of new, inexperienced btlers are going to be faced with negative equity (nothing simple about that!). The wise and well placed Btl investor/speculator will watch from the sidelines in a falling market, some may 'step in' on the way down but this will not make prices suddenly stablize again.

Killerbee

up the bees

Edited March 5, 2006 by killerbee

[Casual Observer]

No they're not

In '96 you could buy a 2 bed flat in Putney for £80k. That same flat will now cost you £250k.

It's reasonable to assert that prices have tripled in 10 years, and in even less up North.

What this means is that the interest burden has remained almost constant, fair enough.

It also means that people are able to shoulder a debt burden that is 3 times higher than they managed 10 years ago.

Sadly this misses the point of what a house actually costs.

Low interest rates point to low inflation, ie little erosion of the debt burden.

And many people now are simply incapable of repaying their mortgages during their lifetimes.

And when the next economic shock hits this country, they will go bankrupt.

The first part of your reply absolutely agrees with what I'm saying i.e. repayments are no more burdensome in this high price low IR environment.

Your second point (absence of a whittling-away inflation) is NOT taken into account by 99% of buyers, and so is irrelevant to WHY prices are currently so high

[FreeTrader]

Wasn't there a thread some months ago that proved that affordability is better than ever at the moment, due to low IRs?

It could be that a slow, gradual rise in IRs over the next 3 years, combined with price stagnation, will take us back to normal (less) affordablility.

I can't agree with your various comments on the affordability issue CO. I believe Without A Paddle's argument is misleading.

Certainly the interest payment burden is significantly less than it was in the last HP boom, but what counts is debt servicing costs (i.e. including capital repayments) as a percentage of income. When you take this into account, we're currently very close to (perhaps even beyond) the extreme of 22% that was reached in 1991.

The problem is highlighted if you look at Chart 7 on page 5 of this consumer report:

UK Consumer Monthly - October 2005

Despite a small drop in interest rates, this burden continues to rise as households are still taking on debt at double digit rates. Any rise in interest rates would now take us into record territory.

Edited March 5, 2006 by FreeTrader