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Anatomy Of A House Price Crash

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Anatomy of a house price crash in the late 80s (they said it could never happen)

I experienced the last house price crash and this is what I remember (backed up with some retrospective fact-finding):

STAGE 1: 1984-1987

Emerging from recession economy picks up, era of the yuppie, feel good factor abounds and house prices start rising fast.

STAGE 2: 1987-88

House prices spiral as people clamber to get ‘on the ladder’. The rush to buy increases as many couples seek to secure a mortgage before double MIRAS relief is abolished. Property is the talk of every dinner party.

STAGE 3: 1989-1991

The market stalls as house prices have become unaffordable. Interest rate rises push people into debt, repossessions and bankruptcies rise. Those who have bought sit tight. The market dries up. People no longer talk about house prices. People take a more relaxed approach to life.

STAGE 4: 1992 – 1993

Interest rates rise as the Chancellor attempts to hold up the value of Sterling. House prices, already drifting down fall rapidly. Many FTBs who bought in the late 80s are in negative equity. Keys are handed into building societies as those in arrears walk away. In less than 2 years prices drop 13% on average across the country. Some areas fall up to 25%.

STAGE 5: 1993 to 1995

Prices bump along the bottom for the next three years then gradually start to pick up again.

Where are we now? We are well into stage 3. Interest rates are on the increase. They are lower than the 11% average over the period at that time then but the average mortgage then was 3 times average salary. Today it is substantially higher. A small increase in interest rates is all it will take to put us into stage 4. Then prices will drop rapidly. The large BTL community will exacerbate the problems as many will be unable to cover the cost of borrowing with the rent received and the market will become flooded with properties. The introduction of HIPs will put many more properties on the market next year as people seek to sell before they become compulsory.

Net result? Prices falls of 10, 20, 30% over the next 12 months to two years, followed by an indeterminate period of stagnant prices.

Comments?

Edited by othello

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History is a good teacher and the economic cycle is predictable--its goes up AND down. House prices are cyclical and they have been going up since about 1996. All of the fundamentals point to the down cycle:

1. IR increases.

2. Affordability stretched too far.

3. Investors no longer interested due to faling nets and better returns on savings accounts.

4. Employment softening, wages failing to keep up with HPI.

5. Speculative nature of buying in recent years--IO loans etc.

Nothing lasts forever and despite what the VIs have been telling people, house prices do go down.

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Guest Winners and Losers

All you have to do is look at what the papers were saying last time. The whole story is laid out in front of us (just about). ;)

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Anatomy of a house price crash in the late 80s (they said it could never happen)

I experienced the last house price crash and this is what I remember (backed up with some retrospective fact-finding):

STAGE 1: 1984-1987

Emerging from recession economy picks up, era of the yuppie, feel good factor abounds and house prices start rising fast.

STAGE 2: 1987-88

House prices spiral as people clamber to get ‘on the ladder’. The rush to buy increases as many couples seek to secure a mortgage before double MIRAS relief is abolished. Property is the talk of every dinner party.

STAGE 3: 1989-1991

The market stalls as house prices have become unaffordable. Interest rate rises push people into debt, repossessions and bankruptcies rise. Those who have bought sit tight. The market dries up. People no longer talk about house prices. People take a more relaxed approach to life.

STAGE 4: 1992 – 1993

Interest rates rise as the Chancellor attempts to hold up the value of Sterling. House prices, already drifting down fall rapidly. Many FTBs who bought in the late 80s are in negative equity. Keys are handed into building societies as those in arrears walk away. In less than 2 years prices drop 13% on average across the country. Some areas fall up to 25%.

STAGE 5: 1993 to 1995

Prices bump along the bottom for the next three years then gradually start to pick up again.

Where are we now? We are well into stage 3. Interest rates are on the increase. They are lower than the 11% average over the period at that time then but the average mortgage then was 3 times average salary. Today it is substantially higher. A small increase in interest rates is all it will take to put us into stage 4. Then prices will drop rapidly. The large BTL community will exacerbate the problems as many will be unable to cover the cost of borrowing with the rent received and the market will become flooded with properties. The introduction of HIPs will put many more properties on the market next year as people seek to sell before they become compulsory.

Net result? Prices falls of 10, 20, 0% over the next 12 months to two years, followed by an indeterminate period of stagnant prices.

Comments?

Past performance is no guide to the future ....

I've been seeing posts like this for a long while, and this Crash bloke is still no where to be seen.

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Past performance is no guide to the future ....

I've been seeing posts like this for a long while, and this Crash bloke is still no where to be seen.

:o What an offensive avatar.

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Good analysis othello.

Have you noticed that each of the stages has been longer this time round (maybe twice as much). I wonder if it is all happening in slow motion because of low inflation?

frugalista

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Actually I think it is quite tasteful.

Another classy member then. :rolleyes:

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:o What an offensive avatar.

Draw your own conclusions!

Good analysis othello.

Have you noticed that each of the stages has been longer this time round (maybe twice as much). I wonder if it is all happening in slow motion because of low inflation?

frugalista

You could be right, it's all happening more slowly (including the upwave) but has reached a much greater height, so the fall may happen much more rapidly?

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Anatomy of a house price crash in the late 80s (they said it could never happen)

I experienced the last house price crash and this is what I remember (backed up with some retrospective fact-finding):

STAGE 1: 1984-1987

Emerging from recession economy picks up, era of the yuppie, feel good factor abounds and house prices start rising fast.

STAGE 2: 1987-88

House prices spiral as people clamber to get ‘on the ladder’. The rush to buy increases as many couples seek to secure a mortgage before double MIRAS relief is abolished. Property is the talk of every dinner party.

STAGE 3: 1989-1991

The market stalls as house prices have become unaffordable. Interest rate rises push people into debt, repossessions and bankruptcies rise. Those who have bought sit tight. The market dries up. People no longer talk about house prices. People take a more relaxed approach to life.

STAGE 4: 1992 – 1993

Interest rates rise as the Chancellor attempts to hold up the value of Sterling. House prices, already drifting down fall rapidly. Many FTBs who bought in the late 80s are in negative equity. Keys are handed into building societies as those in arrears walk away. In less than 2 years prices drop 13% on average across the country. Some areas fall up to 25%.

STAGE 5: 1993 to 1995

Prices bump along the bottom for the next three years then gradually start to pick up again.

Where are we now? We are well into stage 3. Interest rates are on the increase. They are lower than the 11% average over the period at that time then but the average mortgage then was 3 times average salary. Today it is substantially higher. A small increase in interest rates is all it will take to put us into stage 4. Then prices will drop rapidly. The large BTL community will exacerbate the problems as many will be unable to cover the cost of borrowing with the rent received and the market will become flooded with properties. The introduction of HIPs will put many more properties on the market next year as people seek to sell before they become compulsory.

Net result? Prices falls of 10, 20, 30% over the next 12 months to two years, followed by an indeterminate period of stagnant prices.

Comments?

Good post and IMHO quite accurate

Good analysis othello.

Have you noticed that each of the stages has been longer this time round (maybe twice as much). I wonder if it is all happening in slow motion because of low inflation?

frugalista

Firangi Posted Today, 07:20 PM

Yes

This is very worrying

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Another classy member then. :rolleyes:

Hear hear WAL - and speaking of classy members - maybe one of us should retaliate by having a classy member as our avatar! :ph34r: I'm too attached to my bear up a tree and I should imagine that you're rather attached to old slap-head crooner girl but we'll have to try to persuade someone else! Where's Libitina - there's a woman who likes a fast turnover of avatars. Must look up some nice looking cocks on the net and ping her a pm... :lol:

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Hear hear WAL - and speaking of classy members - maybe one of us should retaliate by having a classy member as our avatar! :ph34r: I'm too attached to my bear up a tree and I should imagine that you're rather attached to old slap-head crooner girl but we'll have to try to persuade someone else! Where's Libitina - there's a woman who likes a fast turnover of avatars. Must look up some nice looking cocks on the net and ping her a pm... :lol:

Yeah, already been on that case NLRG. I thought I would change my avatar to a nice hard ****. Give us girls something to salivate over. :rolleyes: I did suggest it a while ago and someone posted a nice selection of men in underwear. But, what the heck, lets dispense with the underwear and let it all hang out. Problem is that most of the HPC men will end up with an inferiority complex (except TTRTR of course). :lol::lol:

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Yeah, already been on that case NLRG. I thought I would change my avatar to a nice hard ****. Give us girls something to salivate over. :rolleyes: I did suggest it a while ago and someone posted a nice selection of men in underwear. But, what the heck, lets dispense with the underwear and let it all hang out. Problem is that most of the HPC men will end up with an inferiority complex (except TTRTR of course). :lol::lol:

:lol: Hey, come to think of it, TTRT is completely without shame - perhaps he wouldn't mind putting a nice big ***** on his posts and then everyone would be happy!

edit: Still fascinated by what is deemed offensive on this board. I mentioned the twit/twit thing a while ago but how come ****'s ok when ***** isn't?

Edited by North London Rent Girl

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Yeah, already been on that case NLRG. I thought I would change my avatar to a nice hard ****. Give us girls something to salivate over. :rolleyes: I did suggest it a while ago and someone posted a nice selection of men in underwear. But, what the heck, lets dispense with the underwear and let it all hang out. Problem is that most of the HPC men will end up with an inferiority complex (except TTRTR of course). :lol::lol:

heres a nice big hard ****....

****.jpg

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Guest Winners and Losers

heres a nice big hard ****....

****.jpg

Somebody feeling inferior??

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Anatomy of a house price crash in the late 80s (they said it could never happen)

I experienced the last house price crash and this is what I remember (backed up with some retrospective fact-finding):

STAGE 1: 1984-1987

Emerging from recession economy picks up, era of the yuppie, feel good factor abounds and house prices start rising fast.

STAGE 2: 1987-88

House prices spiral as people clamber to get ‘on the ladder’. The rush to buy increases as many couples seek to secure a mortgage before double MIRAS relief is abolished. Property is the talk of every dinner party.

STAGE 3: 1989-1991

The market stalls as house prices have become unaffordable. Interest rate rises push people into debt, repossessions and bankruptcies rise. Those who have bought sit tight. The market dries up. People no longer talk about house prices. People take a more relaxed approach to life.

STAGE 4: 1992 – 1993

Interest rates rise as the Chancellor attempts to hold up the value of Sterling. House prices, already drifting down fall rapidly. Many FTBs who bought in the late 80s are in negative equity. Keys are handed into building societies as those in arrears walk away. In less than 2 years prices drop 13% on average across the country. Some areas fall up to 25%.

STAGE 5: 1993 to 1995

Prices bump along the bottom for the next three years then gradually start to pick up again.

Where are we now? We are well into stage 3. Interest rates are on the increase. They are lower than the 11% average over the period at that time then but the average mortgage then was 3 times average salary. Today it is substantially higher. A small increase in interest rates is all it will take to put us into stage 4. Then prices will drop rapidly. The large BTL community will exacerbate the problems as many will be unable to cover the cost of borrowing with the rent received and the market will become flooded with properties. The introduction of HIPs will put many more properties on the market next year as people seek to sell before they become compulsory.

Net result? Prices falls of 10, 20, 30% over the next 12 months to two years, followed by an indeterminate period of stagnant prices.

Comments?

Sounds remarkably like the U.S. In fact, it's identical!! We are now into Stage 4 over here.

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I think that you can draw many similarities with the last HPC, and people on this board are totally right to draw them - but there are many differences with last time as well.

The main difference is that we're talking about a lot more debt tied up in property than ever before, and a LOT more sentiment towards investment in property than ever before. There is also a lot more organised VI and media hype than there ever was before.

Because of all this financial investment by so many people, sentiment is hard to break because people who have made these commitments have to tell it to themselves they've made a good decision and property is only ever win-win. And this sentiment is transferred all the time from the Baby boomers who are telling their kids every day now to jump on the ladder before it's too late, and at any cost.

This sentiment is proving very hard to break, which is why house prices are not falling in any great way, and especially not at the FTB end of the market.

I think it will take a major shock and/or a snowball effect to develop to change the momentum of the market and to make people turn away from property.

In 1989/1990 the bubble was relatively brief. This time it has been the mother of all bubbles.

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Past performance is no guide to the future ....

I've been seeing posts like this for a long while, and this Crash bloke is still no where to be seen.

i.e. this time its different.

What northy? You didn't think anyone would say this? :blink:

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thats what they say. :lol::lol:

Oh yeah, you are soooo naughty. If only they knew. Maybe its about time I set the record straight?

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I think that you can draw many similarities with the last HPC, and people on this board are totally right to draw them - but there are many differences with last time as well.

The main difference is that we're talking about a lot more debt tied up in property than ever before, and a LOT more sentiment towards investment in property than ever before. There is also a lot more organised VI and media hype than there ever was before.

Because of all this financial investment by so many people, sentiment is hard to break because people who have made these commitments have to tell it to themselves they've made a good decision and property is only ever win-win. And this sentiment is transferred all the time from the Baby boomers who are telling their kids every day now to jump on the ladder before it's too late, and at any cost.

This sentiment is proving very hard to break, which is why house prices are not falling in any great way, and especially not at the FTB end of the market.

I think it will take a major shock and/or a snowball effect to develop to change the momentum of the market and to make people turn away from property.

In 1989/1990 the bubble was relatively brief. This time it has been the mother of all bubbles.

Agree with all you said WL

I see it like a wightlifter holding a bar above his head his trainer (the VI) tells him if he doesn't hold it he'll never be the best but if he does he'll be the champion

He believes he is the best and wants to prove himself right for spending all that time training so he holds on

All the time the pain is getting greater

The trainer tells him if he hold it high for longer hell be in the records books as the greatest of all time

He knows the trainer cannot feel the pain - he also knows he cannot hold it forever - does he put it down now or try a bit longer but run the risk of dropping it and injuring himself

The longer he holds it up the more danger he is in either from injury or from the damage from the crash when it drops

Simple analagy

The longer prices stay high the mopre precarious the whole thing becomes

CS

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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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