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Charlie Don't Surf

If Prices Start Dropping They'll Go Straight Up As Buyers Dive In!

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'If prices start dropping they'll go straight up as buyers dive in!' as the old bull mantra goes. Can't see it happening myself.

Why because there are so many recent BTL landlords out there that they are going to get their fingers burnt that they certainly won't be buying.

Neither will any other amateur LLs as they will see the pasting these come late BTLers are getting and be thinking 'Hmm, they bought 2 years before the peak and have been stuffed, maybe we should wait a couple of years'

As for the pros, they are probably selling up now or bought so long ago the yields are great. They won't be rushing in to support prices.

But what about the FTBs? They haven't been a significant force in the market for a while now. If they can't afford at the moment, then the credit tightening that results from a drop in prices will mean they are out for a good while longer.

So looks like it's up to the STRs - any of you lot planning to pile in when we have seen 10% reductions?!!

Please let me know which obvious points I have missed out and why this bull argument is watertight ;)

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Guest Cletus VanDamme

Isn't this what happened in 2005 - prices fell a bit, everyone piled in and prices rose again, as we have seen.

Of course, the rate cut helped ;)

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Replying to If Prices Start Dropping They'll Go Straight Up As Buyers Dive In!

not possible, banks are withdrawing 100% no money down mortgages.

the big prime banks have already lowered from 95% to 90%.

so to buy an average London home is going to cost you 40k after stamp duty, other fees, and 10% deposit

i don’t know many FTB or BTL that have many multiplies of 40k laying around

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'If prices start dropping they'll go straight up as buyers dive in!' as the old bull mantra goes.

Please let me know which obvious points I have missed out and why this bull argument is watertight ;)

You only need to look back at history, did buyers come in and save the market in the previous two crashes? Nobody buys in a falling market.

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Okay it is in America, but just as relevant here I think:

"During the boom, lenders threw caution to the wind, and whatever it took to make a mortgage work got done," said analyst McCabe, who is managing partner of McCabe Consulting & Research in Deerfield Beach. "It got to the point where anyone who could fog a mirror could get a mortgage."

That has changed in the wake of what has come to be known as "the subprime mess."

"Lenders have tightened standards. I am probably losing two buyers because of it," West Palm Beach Realtor Randy Bianchi said. "We had them all set with a credit score of 702. Then it dropped to 698, and those four little points made a big difference."

The financing disappeared, he said. "The program was no longer available to them."

"Just four points," Bianchi said, his voice trailing off in disbelief. "Unbelievable."

http://www.palmbeachpost.com/business/cont...rices_0514.html

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Guest grumpy-old-man
'If prices start dropping they'll go straight up as buyers dive in!' as the old bull mantra goes. Can't see it happening myself.

Why because there are so many recent BTL landlords out there that they are going to get their fingers burnt that they certainly won't be buying.

Neither will any other amateur LLs as they will see the pasting these come late BTLers are getting and be thinking 'Hmm, they bought 2 years before the peak and have been stuffed, maybe we should wait a couple of years'

As for the pros, they are probably selling up now or bought so long ago the yields are great. They won't be rushing in to support prices.

But what about the FTBs? They haven't been a significant force in the market for a while now. If they can't afford at the moment, then the credit tightening that results from a drop in prices will mean they are out for a good while longer.

So looks like it's up to the STRs - any of you lot planning to pile in when we have seen 10% reductions?!!

Please let me know which obvious points I have missed out and why this bull argument is watertight ;)

yeah, of course they will, just like in the 90's crash & the current one in the states. :rolleyes:

Edited by grumpy-old-man

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The point about credit tightening is... there's less money around, so if you want to borrow some you have to pay more.

If/when a credit crunch comes we could easily see a BOE base rate of 5%, but a SVR mortgage rate of 10% or more with borrowers having to outbid each other to get the scarce cash. It's entitly feasible for house prices to fall and "affordability" to fall as well. In fact I think it's the more likely scenario. We could even enter a situation when you go to a bank to borrow some money and they say, "no, we haven't got any to lend you, and what little money we have we lend at 50% LTV to insulate ourselves from risk in a falling market."

Then you're into a cash-is-king situation. Only cash buyers enter the marketplace while the SVR is soaring and owners, especially BTL, are desparate to sell.

This melt-down scenario would obviously include massive job losses, and the government running out of money (IMF anyone?) and clamping down on all discretionary spending.

Tranditionally the "out" would be inflation. Make those debts seem smaller with a wave of the wand. This time however we would have price inflation without wage inflation because we live in a globalised world and wages are decided into India, China and the like.

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It will only happen when yields return to 6%+ after voids, insurance and depreciation. In 2005 prices started to fall but the lending criteria was unchanged. That's not the case now.

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Isn't this what happened in 2005 - prices fell a bit, everyone piled in and prices rose again, as we have seen.

Of course, the rate cut helped ;)

It was the rate cut wot done it. Nothing else.

It will only happen when yields return to 6%+ after voids, insurance and depreciation. In 2005 prices started to fall but the lending criteria was unchanged. That's not the case now.

Yes, and IIRC, lending criteria have loosened even more since then.

Prices will keep falling.

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Prices arent going to fall to zero are they? So prices will rise again at some point wont they? After all as the ol' bear mantra goes - its all cyclical. Yep things move slowly, it took years last time and prices didnt really fall as much as people want to remember. But common sense says that yes at some point property will make a good investment once again, I think you'll find (smart) people will begin to buy back in when those yields are starting to look strong again - and thats not a big a fall as some would like!

It will be interesting to see what happens, I wouldnt be foolish enough to make a prediction myself! But I wonder if the City keeps doing well then what affect will the London money have on maintaining the momentum. Are we going to see a bigger divide between the SE and the rest of the UK? Are we going to see low wage earners even further left behind as those of us who work and save continue to find property affordable (yep if I bought affordably then others are too! Im neither rich nor special!).

And who knows if, when and how much prices will fall anyway... ;)!

GL to all - its fun watching it pan out. Meanwhile im gonna fall back on plan B, now wheres that lottery ticket ;)!

Edited by Orbital

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Prices arent going to fall to zero are they? So prices will rise again at some point wont they? After all as the ol' bear mantra goes - its all cyclical. Yep things move slowly, it took years last time and prices didnt really fall as much as people want to remember. But common sense says that yes at some point property will make a good investment once again, I think you'll find (smart) people will begin to buy back in when those yields are starting to look strong again - and thats not a big a fall as some would like!

It will be interesting to see what happens, I wouldnt be foolish enough to make a prediction myself! But I wonder if the City keeps doing well then what affect will the London money have on maintaining the momentum. Are we going to see a bigger divide between the SE and the rest of the UK? Are we going to see low wage earners even further left behind as those of us who work and save continue to find property affordable (yep if I bought affordably then others are too! Im neither rich nor special!).

And who knows if, when and how much prices will fall anyway... ;)!

GL to all - its fun watching it pan out. Meanwhile im gonna fall back on plan B, now wheres that lottery ticket ;)!

I don't know why you waste your time

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If/when the phrase "propery market collapse" starts getting bandied around in the media and enters the mainstream public consiousness, nobody will be in a hurry to buy. If people suddenly start to think that there's a strong chance of them losing money on a house just as quickly as people have made money on them over the past decade, I imagine most buyers would prefer to wait and see just how far things tumble.

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Guest Cletus VanDamme
It was the rate cut wot done it. Nothing else.

Yes, and IIRC, lending criteria have loosened even more since then.

Prices will keep falling.

OK, so a tiny 0.25% rate cut brought the punters flooding back into a falling market, and prices rose.

So why won't this happen again the next time they cut rates?

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Prices arent going to fall to zero are they?

They might. In the 90s crash some places in bad areas couldn't be given away, and I've read that some places in Calgary in Canada were sold for $1 in their last crash. If a house isn't even worth one year's upkeep, then why bother to keep it?

So prices will rise again at some point wont they?

Maybe, maybe not. If Britain's population goes into a long-term decline, then prices could drop for decades to come.

But common sense says that yes at some point property will make a good investment once again

Common sense says the Earth is flat. When the global economy is changing as rapidly as it currently is, who's to say what will be a good investment and what won't?

I think you'll find (smart) people will begin to buy back in when those yields are starting to look strong again - and thats not a big a fall as some would like!

Who's going to buy a house that's dropping in value by 20,000 pounds a year? Banks won't lend the money to buy it and people who have money probably didn't make it by buying declining assets.

Edited by MarkG

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It was the rate cut wot done it. Nothing else.

Yes, and IIRC, lending criteria have loosened even more since then.

Prices will keep falling.

The HPI witnessed before 2005 had many people expecting a peak in IR higher than 4.75%. That autumn prices started to slide. The cut the following August had a very strong psychological effect, the peak had been reached and there was much talk of lowering IR further. Very naive.

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If/when the phrase "propery market collapse" starts getting bandied around in the media and enters the mainstream public consiousness, nobody will be in a hurry to buy. If people suddenly start to think that there's a strong chance of them losing money on a house just as quickly as people have made money on them over the past decade, I imagine most buyers would prefer to wait and see just how far things tumble.

Couldn't agree more.

OK, so a tiny 0.25% rate cut brought the punters flooding back into a falling market, and prices rose.

So why won't this happen again the next time they cut rates?

Can they cut rates again though?

Last time, CPI was a lot lower and currencies weren't so volatile. IRs are going to need to keep going up.

BOJ throwing a spanner in the works of the carry trade now! Watch the stock markets carefully in the next few days...

The HPI witnessed before 2005 had many people expecting a peak in IR higher than 4.75%. That autumn prices started to slide. The cut the following August had a very strong psychological effect, the peak had been reached and there was much talk of lowering IR further. Very naive.

And now people expect further rises to come. Another strong psychological effect, negative this time!

:ph34r:

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This is exactly what is happening in the US right now but prices over there are still falling:

"U.S. Median Home Price Tumbles to 2-Year Low in Slump (Update2)

By Kathleen M. Howley

May 15 (Bloomberg) -- The U.S. median home price tumbled to a two-year low in the first quarter as prices fell in almost half of U.S. cities, the National Association of Realtors said.

The median price for houses and condominiums slid 1.8 percent to $212,300 in the first three months of this year, the lowest since the first quarter of 2005 when it was $199,700, the Chicago- based real estate trade group said. The median price for a single- family home fell in 62 of the 145 metropolitan areas the group studied.

Tumbling prices sparked an increase in sales as bargain shoppers snapped up the cheaper properties. Seasonally adjusted, home sales rose 2.4 percent to an annualized 6.41 million from 6.26 million in the fourth quarter, the association said. Compared with a year earlier, the number of sales fell 6.6 percent.

The first quarter's sales will probably be the highest of the year, the realtors said. Purchases of previously owned homes likely will fall 3.5 percent in the second quarter to an annualized pace of 6.19 million, increasing to 6.34 million by the end of 2007, the group said in a May 8 forecast.

Median prices probably will slide in the second and third quarters and be flat in the final three months of the year, the realtors said. Prices will begin to rise in 2008, though at less than a percentage point every quarter, the group forecast.

Slump Persists

Declining prices, coupled with a report today that shows foreclosures are continuing to rise, demonstrate that the year- long housing slump isn't abating.

U.S. homebuilders have already said that the spring selling season for new houses was a disappointment after earlier this year forecasting the beginning of a housing recovery. Tighter lending standards and the collapse of several subprime mortgage companies have made it more difficult for buyers to get home loans.

U.S. foreclosure filings jumped 62 percent in April from a year earlier and the number of households falling behind on mortgages probably will climb further this year as home prices fall and lending standards rise, RealtyTrac Inc. said.

California, Florida and Ohio led the U.S. in filings. There were 147,708 default notices, auction sale letters and bank repossessions last month as declining prices made it harder to refinance, particularly for borrowers with poor or limited credit, the Irvine, California-based seller of foreclosure data said today. April's total compares with 91,168 filings a year earlier.

Foreclosures are being ``fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation,'' said James Saccacio, chief executive officer of RealtyTrac, in a statement.

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net .

Last Updated: May 15, 2007 11:16 EDT"

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'If prices start dropping they'll go straight up as buyers dive in!' as the old bull mantra goes. Can't see it happening myself.

It will but there is only so much cash around in that niche situation (not an infinite supply). People who are borderline on buying and watching the market for their moment and sure they will snap up property when it starts to take a dip (because in their heart of hearts they must have their property and they are about to get a bargin as it is worth less now then yesterday so their human impulses will take over in the decision process).

But at some point the rate at which new property enters the market (for sale) and the rate at which the people in the above situation will snap them up will be in favor of the buyer (too much property for sale).

If BTL is more widespread than last time (1989) then there will be more properties going up for sale simply because they are not OO and have no attachment to their assert in order to try to keep it (even through financial hardship) and as an investment its not working out so they cut their losses.

To also think that there is enough foreign money willing to invest in the UK property market while its on its way down is redicilous (a thought I read in other threads). No foreign investor who is truly "an investor" is going to buy knowing the price has not bottomed out yet and the rental market is not strong. When it does bottom out there is no garuntee that "the collective worlds" confidence in the UK as a place to invest is still sound (talking 3 years after tipping point and we have not reached tipping point yet).

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Okay it is in America, but just as relevant here I think:

"During the boom, lenders threw caution to the wind, and whatever it took to make a mortgage work got done," said analyst McCabe, who is managing partner of McCabe Consulting & Research in Deerfield Beach. "It got to the point where anyone who could fog a mirror could get a mortgage."

That has changed in the wake of what has come to be known as "the subprime mess."

"Lenders have tightened standards. I am probably losing two buyers because of it," West Palm Beach Realtor Randy Bianchi said. "We had them all set with a credit score of 702. Then it dropped to 698, and those four little points made a big difference."

The financing disappeared, he said. "The program was no longer available to them."

"Just four points," Bianchi said, his voice trailing off in disbelief. "Unbelievable."

http://www.palmbeachpost.com/business/cont...rices_0514.html

Just £250,000 for a 1 bedroom new build flat in York. THAT'S unbelievable. Welcome to the real world McCabe where debt has to be paid (at some point).

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It will but there is only so much cash around in that niche situation (not an infinite supply). People who are borderline on buying and watching the market for their moment and sure they will snap up property when it starts to take a dip (because in their heart of hearts they must have their property and they are about to get a bargin as it is worth less now then yesterday so their human impulses will take over in the decision process).

But at some point the rate at which new property enters the market (for sale) and the rate at which the people in the above situation will snap them up will be in favor of the buyer (too much property for sale).

Fair enough. There will always be a few who 'have' to buy (getting married, having children, nesting instinct etc). BUT I actually think that most people who have been waiting in the wings will suddenly (at the sight of real price drops) get a bit canny and wait a while longer. Fear of being priced out forever will be replaced by fear of buying a still-falling asset. As supply builds up, as you say, this will get even worse. If there's nothing to lose and everything to gain by waiting, why buy now? It will be a vicious circle.

If BTL is more widespread than last time (1989) then there will be more properties going up for sale simply because they are not OO and have no attachment to their assert in order to try to keep it (even through financial hardship) and as an investment its not working out so they cut their losses.

Yes, yes, yes. I have said this till I'm blue in the face. People will fight tooth and nail to hang onto their home but their 'investment' properties will be dumped onto the market at the first sign of trouble.

To also think that there is enough foreign money willing to invest in the UK property market while its on its way down is redicilous (a thought I read in other threads). No foreign investor who is truly "an investor" is going to buy knowing the price has not bottomed out yet and the rental market is not strong. When it does bottom out there is no garuntee that "the collective worlds" confidence in the UK as a place to invest is still sound (talking 3 years after tipping point and we have not reached tipping point yet).

Another good point. Thanks for your very articulate post.

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