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Jonnybegood

If Its A Slow Decline Over The Next 5 Years

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There are many different opinions on here as to which way the market is going to be heading over the next decade and at what level IR are going to peak etc etc etc.

Some will say that prices will bottom out quickly others saying it will be over the next 10 years, some will tell you they predict prices to fall slightly then recover.

Say things get far worse than what they are now and prices take around 5 years to decline to the bottom, sit there for around another 5 years then start rising again.

An average nominal fall in that period of 20% and real fall of around 50%.

Now I was speaking to friends over the weekend and their daughter has just bought a property (FTB) with her partner for £160,000, They have a mortgage of around £130,000 fixed for 10 years.

In that fixed period they may see the property lose 20% of its nominal value making it around £128,000 roughly the same as their mortgage.

Who would buy that property in a falling market? Why would they sell in those conditions? They have probably maxed out like many on the mortgage so could not afford to move up the ladder for a good few years.

This is just a one off example and everyones circumstances are different, however with so many FTB and families who have moves up the ladder in recent years now stretched on their mortgages albeit on long term fixed rates the next decade will see fewer and fewer quality homes coming to market as many will either be to nervous to move or simply cannot afford to do so.

Those looking to downsize will have nobody wanting or simply unable to move up, So where do these people downsize to?

BTL, Apartments and those in the less desirable areas will probably be filling the EA windows.

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You ask "who would buy this house in a falling market?"

Thing is, JBG, you're assuming a very high rate of inflation in your figures - I've had a couple of beers so I'm not confident of my maths but I think it would take 10% inflation approx to give 20% nominal but 50% real falls over 5 years.

And it is not unlikely that rents would have risen correspondingly. So the attraction of buying compared to renting might be considerably greater than now.

Also remember that there is no such thing as a falling (or rising) market except with hindsight. There is only a market which HAS fallen or HAS risen.

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Guest wrongmove
You ask "who would buy this house in a falling market?"

Thing is, JBG, you're assuming a very high rate of inflation in your figures - I've had a couple of beers so I'm not confident of my maths but I think it would take 10% inflation approx to give 20% nominal but 50% real falls over 5 years.

fallen or HAS risen.

It's more like 5% inflation - 10% compounded over 5 years is about 61%, combined with a 20% nominal drop would give - woops, about 50% real falls!!

Yes - beer or no beer, it does imply about 10% inflation.

Edited by wrongmove

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You ask "who would buy this house in a falling market?"

Thing is, JBG, you're assuming a very high rate of inflation in your figures - I've had a couple of beers so I'm not confident of my maths but I think it would take 10% inflation approx to give 20% nominal but 50% real falls over 5 years.And it is not unlikely that rents would have risen correspondingly. So the attraction of buying compared to renting might be considerably greater than now.

Also remember that there is no such thing as a falling (or rising) market except with hindsight. There is only a market which HAS fallen or HAS risen.

You arnt very old are you?

10% isnt an exceptionally high inflation rate, we got around that figure now and its going to get higher for sure, so the OP has actually got a workable senario that could well happen.

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You arnt very old are you?

10% isnt an exceptionally high inflation rate, we got around that figure now and its going to get higher for sure, so the OP has actually got a workable senario that could well happen.

Maybe in the Flat Bear inflation index.

My costs aren't spiralling like that.

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10% isnt an exceptionally high inflation rate, we got around that figure now and its going to get higher for sure, so the OP has actually got a workable senario that could well happen.

Sigh.

We may have around 10% _PRICE_ inflation, but we have more like 2% _WAGE_ inflation. WAGE inflation is what reduces the value of debts, price inflation makes them worse.

Or do you think the average British worker is going to see their wages increase 10% a year while jobs are outsourced to China at the top end and given to cheap immigrants at the bottom?

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You arnt very old are you?

10% isnt an exceptionally high inflation rate, we got around that figure now and its going to get higher for sure, so the OP has actually got a workable senario that could well happen.

I was quite tipsy last night, if sober I might have been smart enough to specify wage inflation, which, as MarkG points out, is what is relevant to calculating "real" house price movements.

I'm just proud that my maths came out OK in that condition!

;)

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Sigh.

We may have around 10% _PRICE_ inflation, but we have more like 2% _WAGE_ inflation. WAGE inflation is what reduces the value of debts, price inflation makes them worse.

Or do you think the average British worker is going to see their wages increase 10% a year while jobs are outsourced to China at the top end and given to cheap immigrants at the bottom?

We are just entering "the uncomfortable zone" do not adjust your spending habits.

Unfortunately inflation is out of the bag "globally" and very little MPC or Brown can do, which I know your are aware of as I agree with many of your assessments of the current situation and likely senarios. It will become impossible to continue borrowing, ad infinitum, and very soon people will have to go on a "pay as you go contract". Money will become more worthless (the more there is the more worthless it becomes) and during the next decade or so it will be a necessity for wages to outperform general inflation for a period. We are currently in the lag period which is remarkably similar to the early 70s and just after decimalisation was introduced. (used quite effectively to devalue earnings for quite some time) things were very tough then as well.

I realize you already know this, but for the benifit of all.

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Guest Marvin Bush
You ask "who would buy this house in a falling market?"

Thing is, JBG, you're assuming a very high rate of inflation in your figures - I've had a couple of beers so I'm not confident of my maths but I think it would take 10% inflation approx to give 20% nominal but 50% real falls over 5 years.

And it is not unlikely that rents would have risen correspondingly. So the attraction of buying compared to renting might be considerably greater than now.

Also remember that there is no such thing as a falling (or rising) market except with hindsight. There is only a market which HAS fallen or HAS risen.

A bit like oil and gas production and peak oil & gas...

The decline of oil and gas will be the main instigator of our undoing. And like Jefferson feared, we will wake up destitute and the banks will inherit everything.

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The property market could go into an even longer depression say 30 years!!!! If you notice to date the bigger and longer the boom the bigger and longer the busts, and the busts last longer than the booms, why should it be so different this time?

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