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Without_a_Paddle

House Price Crash Coming Soon... (not)

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Here's some FTB calculations to compare 2006, 1989 and 1988 (before the crash)

Some bears may not agree with my conclusions BUT BEARS DON'T HAVE TO AGREE.

It's FTBers and BTLs who buy houses.

Read the figures and decide for yourself. Note the similarity between the mortgage/income/disposable income ratios in early 1988 and today. It took a hike in rates from 8% to 15% in 1989 and a big reduction in MIRAS relief for joint incomes to kick off the crash last time.

Year 2006

Salary 1 £25k

Salary 2 £17k

(big) Mortgage £160k (Nationwide average house Price)

Long term fixed (5yrs? 10yrs?) at 4.7%

Monthly repayment £900

Combined take home pay £2500pm

Car loan £5000 4yrs 6% = £115pm

Net disposable income before bills £1485pm

In 2006 this is affordable. This is why people are out there buying houses today NOW.

i.e. 115,000 mortgage approvals last month.

If rates hit 8% in 5 years then their mortgage will go up by £300pm.

But you could argue that their wages would rise by more than 3.5% if there were higher rates/inflation/promotions.

(Don't forget, not ALL couples have to be able to buy, in order to sustain the market)

How far do interest rates have to go before you can stop couples like this from buying?

Compare this to the same couple trying to FTB in 1989 (when there really was a crash...)

Year 1989

Salary 1 £12.5k

Salary 2 £8.5k

Mortgage £62k (Nationwide average house Price)

IR at 15%

Monthly repayment £800 before MIRAS

MIRAS (reduced to single income post 1988) £90 therefore Mortgage £710pm

Combined take home pay £1250pm

Mortgage £710pm

Car loan £5000 4yrs 15% =£140pm (cars cost the SAME in £££ in 1989 as they do today. Computers cost MORE)

Net disposable income before bills £400pm

OUCH! Wonder why it crashed like this....?

Here's why. Go back a year.

Year 1988

Salary 1 £11.5k

Salary 2 £7.5k

Mortgage £62k (Nationwide average house Price)

IR at 8%

Monthly repayment £480 before MIRAS

MIRAS (joint mortgage) £180 therefore Mortgage £300pm

Combined take home pay £1150pm

Mortgage £300pm

Car loan £5000 4yrs 8% =£120pm

Net disposable income before bills £730pm

In 1988 this was affordable and explains why people were buying houses in the late 1980s.

Their disposable income is nearly DOUBLE what it would become a year later. Quite a shock to the system inside a year!

Where is a similar interest rate shock (don't forget the MIRAS shock too) for a HPC (one which causes large nominal falls in £££) coming from in 2006? I don't see it happening (at least not this side of the next election)

Edited by Without_a_Paddle

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So single men will end up renting or living with thier mothers forever, joy, probably best to get the f*ck outta dodge really aint it.

EDITED:

Oh can you do a comparrison going back 6 years instead of 1988

Edited by theChuz

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What's wrong with your example is that you have neglected to include all of the other outgoings such as council tax, utility bills, pension contributions etc, etc.

The cost of living is high today and you can heavily reduce that disposable income figure very easily.

The simple fact is that a terraced house bought in 1999 for £40k is now £160k and there is no legitimate economic argument for this.

Edited by Culpability Brown

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It's FTBers and BTLs who buy houses.

errrr....................no

FTBs used to buy houses but don't anymore (wonder why that is? stamp duty? dead popes?)

BTLs might still but make a massive loss on cashflow if they do and prices of 2 bed apartments certainly ain't going up

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What's wrong with your example is that you have neglected to include all of the other outgoings such as council tax, utility bills, pension contributions etc, etc.

The cost of living is high today and you can heavily reduce that disposable income figure very easily.

The simple fact is that a terraced house bought in 1999 for £40k is now £160k and there is no legitimate economic argument for this.

I would argue that the higher utility bills of today are offset by the lower cost of imported goods today.

Cars, washing machines, televisions, computers, kitchenware etc etc have hardly gone up in price.

(Same with beer :) )

Also, weren't there local 'rates' to pay in 1988? people still contributed to pensions in 1988 AFAIK.

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Fewer people are getting married. And if they do they might want kids. And I know of no two-beds for 160K - in fact I know of very few 1 beds for that much either.

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I would argue that the higher utility bills of today are offset by the lower cost of imported goods today.

Cars, washing machines, televisions, computers, kitchenware etc etc have hardly gone up in price.

(Same with beer :) )

Also, weren't there local 'rates' to pay in 1988? people still contributed to pensions in 1988 AFAIK.

I wouldn't.

You don't buy these goods very often. You didn't back then and you don't now so they're largely irrelevant.

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I would argue that the higher utility bills of today are offset by the lower cost of imported goods today.

Cars, washing machines, televisions, computers, kitchenware etc etc have hardly gone up in price.

(Same with beer :) )

Also, weren't there local 'rates' to pay in 1988? people still contributed to pensions in 1988 AFAIK.

FFS WaP - Change the record!!!

We have been through this, me and you, and there are things I agree with and things I dont. Do you just want us all to say "Yeah... your right. Lets all buy a house?"

In the interest of drawing a conclusion. This is the final thing I shal say.

The house they bought in 1988 for £62,000 would equate to a house thats £250,000 plus today!

Work it out on this house (£250,000) and I will talk. A house thats £160K today was probably £36k or so in 1988. I know the part of the country you are in differs but dont forget in this time the NORTH has closed the GAP on the south so these figures I give you may not add up.

My biggest gripe is not just the prices and affordability. What you get for this price is absolute shite imho. Find me a house thats £160K, that I can honestly say I would be happy living in, and I will buy it! (If I could).

Your figures of wages in MY AREA are fairly accurate for 2006 - joint of £42? I think its probably £38,500 in Liverpool. The 1988 figures are a little high for NW £19K joint? Would say it would have been £16K to be fair. The point I am making is you cant generalise this arguement. The North has caught up to the south in HP's but it certainly hasnt in wages. These figures of £30K plus absolutely BLOW ME AWAY. Its normal 'dawn souff' but its alien to me :blink:

You arguement is quite strong but its far too simplistic. Good luck with converting us all.

TB

Edited by teddyboy

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I would argue that the higher utility bills of today are offset by the lower cost of imported goods today.

Cars, washing machines, televisions, computers, kitchenware etc etc have hardly gone up in price.

(Same with beer :) )

Also, weren't there local 'rates' to pay in 1988? people still contributed to pensions in 1988 AFAIK.

This is what gets me with the inflation figures:

How often does Joe Public buy a new TV or car? Once every 5 years, perhaps?

And how often does he pay council tax, utility bills and travel expenses (petrol or public transport) all of which have suffered rampant inflation recently?

Grrr...what a fix!

:angry:

Edited by red

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This way of approaching the issue is intriguing and powerful, but deceptively simple. It is very much a bubble-based view point - the only thing that matters is getting on the ladder, everything else can go hang, including trivial details like i) do you have a job? and ii) is the economy doing any good?

Theoretically people could spend about 90% of their disposable income on housing. Baked beans and washing in cold water would help families muddle through. Of course, we'd end up in a recession pretty quickly as no other services or products would be consumed.

The question then is - at what point does the drive for property ownership become a drain on the economy rather than a stimulus? This problem is particularly acute when inflation isn't removing debt. At the moment it is the young who are shouldering the burden of HPI, but they will grow older only to find that still they are struggling, and that family-sized house is still out of reach.

Plus, of course, there are wider economic considerations that many bulls just dismiss as doommongering, e.g. the dollar problem, energy problems, terrorism problems, demographic problems etc etc.

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This is what gets me with the inflation figures:

How often does Joe Public buy a new TV or car? Once every 5 years, perhaps?

And how often does he pay council tax, utility bills and travel expenses (petrol or public transport) all of which have suffered rampant inflation recently?

Grrr...what a fix!

:angry:

A four year car loan is for FOUR YEARS BTW.

The household items I listed are all items a young FTB couple would often have to buy on credit either today or in 1989.

Eg a car, a TV or a washing machine, cooker, microwave, computer, hifi, CDs, fridgefreezer....

In 1989 rates for loans were 15% today they are 4.5%. Prices for the above items have hardly changed.

Go figure...

Typical WaP!!

Read the last 3 posts and left the building!!!

Says it all!

TB

I went upstairs to have a shower!

If there are any example threads you can provide to show that I'm a runaway, then I'm quite happy to revisit these threads and give a good reply.

Edited by Without_a_Paddle

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FTBs used to buy houses but don't anymore (wonder why that is? stamp duty? dead popes?)

They aren't buying because there is an r in the month. Just wait 'till May and then you'll see house prices rocket again.

Billy Shears

A four year car loan is for FOUR YEARS BTW.

The household items I listed are all items a young FTB couple would often have to buy on credit either today or in 1989.

Eg a car, a TV or a washing machine, cooker, microwave, computer, hifi, CDs, fridgefreezer....

In 1989 rates for loans were 15% today they are 4.5%. Prices for the above items have hardly changed.

Go figure...

A reasonable TV costs 150 quid. CDs have to be bought on credit? Even a decent fridgefreezer is only 250 quid or so. If young FTB couples have to buy these things on credit then where is the cash for the 100K mortgage going to come from?

Billy Shears

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Guest Winners and Losers

I went upstairs to have a shower!

Ooohh, icky - too much info. :huh:

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Back then we didn't have home Pc's, broadband, digital tv, mobile phones, digital cameras, playstations or dvd's either.

Go figure!

Maybe some people have an issue with priorites then.

Besides, how is this helping your argument? People can afford cheap electronic tat in 2006. I thought I'd already covered this. People buy this junk on credit cards (because credit is cheap in 2006 and so are electronic gadgets)

A reasonable TV costs 150 quid. CDs have to be bought on credit? Even a decent fridgefreezer is only 250 quid or so. If young FTB couples have to buy these things on credit then where is the cash for the 100K mortgage going to come from?

Billy Shears

Good point (in 2006). Now go back and look at the figure I quoted for 1989 monthly disposable income for the couple, add 15% IRs and the fact a telly cost more than £150 back then...

Edited by Without_a_Paddle

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The problem I have with these comparisons is you take the extreme top of the market. Ok, interest rates got to 14.88% (06 Oct 1989) but does that mean housing wasn't crashing at 11 months before at 12.88% (25 Nov 1988)? Did that 200bp rise finish off the market? Which was less than a 16% [debt servicing cost] increase?

But didn't the market peak in Q3 1988 at £62,781? Yes it did according to the Nationwide. Interest rates were at 11.88% for the majority of the third quarter. Why don't you run the calculations with those figures?

Also, many bears, including myself, expect interest rates to go up. Ok, it won't go up alot, but I think 5% seems about right. This is not impossible as the markets are pricing this in (almost). Why don't you run the figures on that?

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FFS WaP - Change the record!!!

We have been through this, me and you, and there are things I agree with and things I dont. Do you just want us all to say "Yeah... your right. Lets all buy a house?"

In the interest of drawing a conclusion. This is the final thing I shal say.

The house they bought in 1988 for £62,000 would equate to a house thats £250,000 plus today!

Work it out on this house (£250,000) and I will talk. A house thats £160K today was probably £36k or so in 1988. I know the part of the country you are in differs but dont forget in this time the NORTH has closed the GAP on the south so these figures I give you may not add up.

My biggest gripe is not just the prices and affordability. What you get for this price is absolute shite imho. Find me a house thats £160K, that I can honestly say I would be happy living in, and I will buy it! (If I could).

Your figures of wages in MY AREA are fairly accurate for 2006 - joint of £42? I think its probably £38,500 in Liverpool. The 1988 figures are a little high for NW £19K joint? Would say it would have been £16K to be fair. The point I am making is you cant generalise this arguement. The North has caught up to the south in HP's but it certainly hasnt in wages. These figures of £30K plus absolutely BLOW ME AWAY. Its normal 'dawn souff' but its alien to me :blink:

You arguement is quite strong but its far too simplistic. Good luck with converting us all.

TB

Got to agree with this. The figures I hear quoted for 'average wage' and some of the incomes I have heard mentioned on here are not happening in the north. If you said to someone in my area that the average wage was over £20K they would think you were from the moon.

BUT house prices have crept up and are now similar to parts of London...how is this? What is sustaining it? It isn't first time buyers. It is foreign investment that flooded into BTL in city centre Manchester and Liverpool and pulled up local house prices with it. I see flats selling..I see flats selling for £250K - more than the price of a three bed house in the same area. This keeps the 'average house prices' up.

Why is it that 2 bed flats over looking a graveyard can sell for £250K but you can;t sell a 3 bed semi in the same area for £180K?....and still the vendors keep asking higher and higher prices £200K £210K £220K...get over it - you won't sell at that pirce because the only people buying houses are BTL and they don't want a 3 bed semi in a residential area (even if it is 'zoned' for XXXX school)

When all this money gets pulled out the price of houses in the north will crash.

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Got to agree with this. The figures I hear quoted for 'average wage' and some of the incomes I have heard mentioned on here are not happening in the north. If you said to someone in my area that the average wage was over £20K they would think you were from the moon.

BUT house prices have crept up and are now similar to parts of London...how is this? What is sustaining it? It isn't first time buyers. It is foreign investment that flooded into BTL in city centre Manchester and Liverpool and pulled up local house prices with it. I see flats selling..I see flats selling for £250K - more than the price of a three bed house in the same area. This keeps the 'average house prices' up.

Why is it that 2 bed flats over looking a graveyard can sell for £250K but you can;t sell a 3 bed semi in the same area for £180K?....and still the vendors keep asking higher and higher prices £200K £210K £220K...get over it - you won't sell at that pirce because the only people buying houses are BTL and they don't want a 3 bed semi in a residential area (even if it is 'zoned' for XXXX school)

When all this money gets pulled out the price of houses in the north will crash.

The figures I quoted are UK average. Please look them up on nationwide. 62k vs 160k.

Nationwide also provide data for former owner occupier sales (to avoid muddying the stats with council RTB properties) the price ratio UK average is the same.

You may well be right that the north may see a bigger correction.

last time in the north prices hardly fell in nominal terms (£££) during the 1990s.

They doubled up to the 1980s crash, hardly fell during the 1990s and then tripled in price since.

So you have a point that prices are 'higher' wrt the pre 1980s boom in the north compared to the UK average.

The point of my thread was to show that it is going to take a big hike in rates to get the same degree of shock as last time.

I could go on to mention the fact that our joining the ERM in 1990 made the last recession/HPC deepen and drag on more that it should, but that can wait for another day...

just leaving the building Jumping in the shower ;)

BBL

TB

:lol: Sorry WaP couldn't resist it :)

You won't be laughing when we boot you out of the FA cup.

(Revenge is better than xmas)

But didn't the market peak in Q3 1988 at £62,781? Yes it did according to the Nationwide. Interest rates were at 11.88% for the majority of the third quarter. Why don't you run the calculations with those figures?

I was trying to be kind with the 1988 figures. Look at the real price in 1988 and it was more like £55k with 8% rates (£62k didn't happen until 1989).

This just makes my argument stronger!

Edited by Without_a_Paddle

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I am a BTL buyer - I buy a 150k house with a 50k deposit, I have a mortgage of 100k.

Presently, housing is rising about 5% per annum. My mortgage is fixed at 6%.

There are bank accounts, ISA wrappers, trackers and share funds that are returning far in excessof this without having a 100k debt.

The hassle of managing properties is also way above that of running an ISA or buying and selling shares for example).

Finally they are much more liquid.

Why the hell would anyone be in BTL?

This simple 'GI Joe' logic is all that is needed to realise that soon the BTL brigade will pull out of the market.

Some will get stuck with their 2 bed new builds in Stoke On Trent and subsidise the NuLabour social housing scam forever.

BTW - before you snigger at my simple logic, dont forget it was this logic that got people into BTL in the first place. Sometimes I think people over-analyse things on here....

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  • 301 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%



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