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JoeDavola

Sticky On The Way Down...

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The past few days have been the most significant in the many years that this site has been around; I don't think anyone can deny that. It's amazing to see how quickly the media can turn, and the mass panic has also been interesting viewing.

However one thing that does concern me is the arrogance of people, who all assume that their houses are worth massive amounts of money. That they are owed this massive tax free profit for doing nothing. In alot of cases they fail to comprehend that there is no way they could afford to buy it in todays market (my parents being an example - house 'worth' over £300K and yet they have the cheek to complain about their £300 a month mortgage). My parents do not believe that prices will drop much. They think it's normal that the house they paid £80K for 7 years ago should now be worth 4 times that.

My point is, I just wonder whether people will accept that their house is worth less, or will they just not sell? Could things be very sticky on the way down? People who bought a few years ago, especially in Northern Ireland, could see price drops of 50% and still not be in negative equity, but they probably won't look at it that way.

And, as much as I would like to see falls, this mentality could point to an outcome of prices staying the same for a long period (say 10 years) - which would mean falls in real terms, but not of the kind I would like to have seen, and not happening as quickly as I would have liked.

What's everyone's opinion on this?

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My point is, I just wonder whether people will accept that their house is worth less, or will they just not sell?

Inflation covers falls. It is also a tiger, and once loosed is hard to cage.

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My point is, I just wonder whether people will accept that their house is worth less, or will they just not sell? Could things be very sticky on the way down? People who bought a few years ago, especially in Northern Ireland, could see price drops of 50% and still not be in negative equity, but they probably won't look at it that way.

In this respect, the situation is certainly little different from any other housing market peak, and people's behaviour is likely to be along the same lines.

I have heard several anecdotes recently from people who have put their houses on the market, seen little interest, perhaps received some lowball bids which they've described as "joke offers", and eventually take them back off the market after a month or so because "it doesn't seem to be a very good time to be selling a house". And presumably it costs them money in agency fees each month, let alone the hassle of keeping the place spotlessly tidy and showing people around.

But the same people who acted as a herd on the way up will do the same on the way down. The real driver for price reductions will be forced sales - repossessions foremost among them. People who have bought recently who get into difficulties with their mortgage payments will end up having their houses sold out from underneath them by nervous banks. These properties then go to auction and will be sold for less than the "market price". It's true to say that not many people are (yet) in serious financial trouble - but it doesn't take a lot of people to get the ball rolling!

When the bubble was inflating, someone would achieve a record sale price on their 3-bed terraced house, and all of a sudden every similar house on that road would be worth that much - at least in the minds of the people living there. The exact same thing will be true on the way down. Some poor soul will be forced into selling their £300,000 house for £275,000, or £250,000, and all of a sudden the rest of the people in the street will be panicking.

Plenty of people will stay put to avoid "making a loss" on their property "investment", but it's the people who do sell their houses, not the people who don't, who set the price.

Edit: typo

Edited by benj

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Yes, some people can just hold out for the price they want and not sell.

Unemployment/moving for work can force liquidity into the housing market. Everyone can't sit in their houses forever.

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The past few days have been the most significant in the many years that this site has been around; I don't think anyone can deny that. It's amazing to see how quickly the media can turn, and the mass panic has also been interesting viewing.

However one thing that does concern me is the arrogance of people, who all assume that their houses are worth massive amounts of money. That they are owed this massive tax free profit for doing nothing. In alot of cases they fail to comprehend that there is no way they could afford to buy it in todays market (my parents being an example - house 'worth' over £300K and yet they have the cheek to complain about their £300 a month mortgage). My parents do not believe that prices will drop much. They think it's normal that the house they paid £80K for 7 years ago should now be worth 4 times that.

My point is, I just wonder whether people will accept that their house is worth less, or will they just not sell? Could things be very sticky on the way down? People who bought a few years ago, especially in Northern Ireland, could see price drops of 50% and still not be in negative equity, but they probably won't look at it that way.

And, as much as I would like to see falls, this mentality could point to an outcome of prices staying the same for a long period (say 10 years) - which would mean falls in real terms, but not of the kind I would like to have seen, and not happening as quickly as I would have liked.

What's everyone's opinion on this?

You're right to a certain extent. People will find it hard to accept. However, prices will still drop because of the owners out there who HAVE to sell. These sales figures will turn up in the news and show the population, including those who refuse to believe, that prices are dropping.

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Unemployment/moving for work can force liquidity into the housing market.

As can death, debts and divorce.

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You are all almost certainly right.

Inflation will certainly help the real situation.

I also think that the estate agents will be more inclined to manage peoples expectations. They learn't the lesson in the last crash that they don't make any money when houses aren't selling. They will have to "sell" lower house prices to the masses.

Yes you are getting £25K less than 3 months ago but those 4 bedroom detached your after are now down £35000. etc

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There is also the issue that the market, for the first time since the last crash, will now be undercut from below.

The fastest moving aspect of all this is the pace with which new mortgages will dry up. This will affect the bottom of chains first. Then you have the added factors of negative sentiment and a slowing economy. That's the end of FTBs for a while.

I would be suprised if monthly drops over the next two years are over 1% a month. That's still an almost unprecedented 'crash' speed when inflation is taken into account but could be achieved despite reluctant sellers because no new money is going to be coming into the market.

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The past few days have been the most significant in the many years that this site has been around; I don't think anyone can deny that. It's amazing to see how quickly the media can turn, and the mass panic has also been interesting viewing.

However one thing that does concern me is the arrogance of people, who all assume that their houses are worth massive amounts of money. That they are owed this massive tax free profit for doing nothing. In alot of cases they fail to comprehend that there is no way they could afford to buy it in todays market (my parents being an example - house 'worth' over £300K and yet they have the cheek to complain about their £300 a month mortgage). My parents do not believe that prices will drop much. They think it's normal that the house they paid £80K for 7 years ago should now be worth 4 times that.

My point is, I just wonder whether people will accept that their house is worth less, or will they just not sell? Could things be very sticky on the way down? People who bought a few years ago, especially in Northern Ireland, could see price drops of 50% and still not be in negative equity, but they probably won't look at it that way.

And, as much as I would like to see falls, this mentality could point to an outcome of prices staying the same for a long period (say 10 years) - which would mean falls in real terms, but not of the kind I would like to have seen, and not happening as quickly as I would have liked.

What's everyone's opinion on this?

The key to this crash will be the BTL crowd. They are not OO and will be reading headlines like "houses going down 200 pounds a day" and panic. This will see the sharpest, swiftest crash in UK houses the UK has ever seen.

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As can death, debts and divorce.

And lets no forget the late amateur BTL'ers and highly geared BTL'ers who, if they have any sense will get out ASAP, at whatever loss. And if they don't they'll be forced to from defaulting eventually.

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Last time it stuck for 2 / 3 years as people put houses on and took them back off when they got no offers.

Eventually the news from the actual transactions that went through - necessary sales (moving) and forced sales (unable to pay the mortgage) - made people realise that prices ahd genuinely dropped and were only going to keep falling.

Then they sold at whatever price they could.

This time the BTL effect will be interesting - will it be less "sticky" and more of an efficient market or will their be a longer static time before a fall off a cliff? We shall see.

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Guest muttley

If you tell a home owner that their house has gone up 30% in value they believe you instantly. If you tell them it has fallen in value by 10% they think you are a liar, an idiot or both.

The last crash went unnoticed by many home owners. People just stopped talking about house prices as it was no longer an interesting topic. It was only the forced sellers that had to face up to the reality of the market. I was probably one of them.

We bought a house for 130k back in 1992. At the time we thought we'd got a bargain as the asking price had been 145k. In 1996 we decided to remortgage, which meant having the house revalued. We had updated the decor and added a 10k conservatory. The valuation came back at 122k. I was puzzled at first and annoyed later. I discovered that under the terms of the new mortgage we would have to pay an extra insurance premium (about £10 a month) because the equity in the house was less than 25% of the value. I assumed at the time that the surveyor and the bank were in cahoots to force us to pay the extra £10 a month. At no point did I think that the house had fallen in value. I knew that house prices were not going up, and that many people were putting their houses on the market at unrealistic prices, but I assumed that because I had got my house at what I considered "BMV" that I was being conned.

It's not nice being told that you have lost money on something.

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Last time it stuck for 2 / 3 years as people put houses on and took them back off when they got no offers.

Eventually the news from the actual transactions that went through - necessary sales (moving) and forced sales (unable to pay the mortgage) - made people realise that prices ahd genuinely dropped and were only going to keep falling.

Then they sold at whatever price they could.

This time the BTL effect will be interesting - will it be less "sticky" and more of an efficient market or will their be a longer static time before a fall off a cliff? We shall see.

Look next for government bailouts of BTL investors to stem falling house prices. This could include: tax incentives and rent also rent top-ups. They will say they are helping tenants stay on their rented houses of course.

The whole world is a stage.

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Guest muttley
Look next for government bailouts of BTL investors to stem falling house prices. This could include: tax incentives and rent also rent top-ups. They will say they are helping tenants stay on their rented houses of course.

What about those BTLs that haven't got tenants? There are plenty round here. I spoke to a FA who said he new of people who had bought new flats and didn't let them out because they didn't want the hassle of dealing with tenants!

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It's true to say that not many people are (yet) in serious financial trouble

:lol:

OK, OK, I'm just trying to give the country the benefit of the doubt. :lol:

To be fair, though, while a lot of people will struggle to pay their mortgages over the next few years, many of them will manage to keep their heads above water and avoid losing their houses.

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The key to this crash will be the BTL crowd. They are not OO and will be reading headlines like "houses going down 200 pounds a day" and panic. This will see the sharpest, swiftest crash in UK houses the UK has ever seen.

Absolutly agree. Remember if they have a £200k flat with a £150k mortgage thats £50k equity. Price falls 10% then flat worth £180k mortgage still £150k hence equity £30k. Therefore 10% fall in prices equals 40% fall in equity. Yes they will be selling and will feel frustrated that they cant because the tenant has say six months on his lease. WHATS THE GOVERNMENT GOING TO DO ABOUT IT

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Perhaps two reasons that are different this time and may mean the crash will be quicker than last time.

More BTL.

Few are in financial difficulty now but already a bank has had a run. Much worse banking problems are possible when prices fall producing a credit crunch, from what I remember of 1990, IR went up but people who could afford to could still borrow as easily as ever.

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Last time it stuck for 2 / 3 years as people put houses on and took them back off when they got no offers.

Eventually the news from the actual transactions that went through - necessary sales (moving) and forced sales (unable to pay the mortgage) - made people realise that prices ahd genuinely dropped and were only going to keep falling.

Then they sold at whatever price they could.

Nominal prices dropped by 9% in 1989/1990, then 5% the following year, then another 5% in the third year.

At that was pretty much that, the remainder of the price adjustment in the last crash was taken care of by inflation. I see no evidence for the assertion "then they sold at whatever price they could". Last time if they weren't distress sellers they didn't sell "at whatever price they could", and they won't this time either.

The key, as you correctly say, is BTL. There's 940,000 BTL mortgages out there, half taken in the last three years. That adds up to a lot of recent, inexperienced BTL landlords who assumed capital appreciation to make their numbers work. Many these will be forced to sell, or choose to get out while they can, and they will replace the repossessions that triggered the 1989/95 crash. But the flip side of that is we can expect the big, headline grabbing property falls to come from the two bedroomed flats so beloved by BTL landlords.

If you're a FTB without kids looking for a flat you'll hopefully be well pleased with the market development over the next few years. If however you're looking for that dream four bedroomed house with a big garden in a nice area, then you may be disapointed that even though reported prices are down these choice family properties mysteriously seem absent from estate agent's windows.

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Guest muttley
No, unfortunately not. What did he say? Also, what are the chances of him keeping his word?

He said that the only way to compete with emerging economies such as China and India was with a low wage economy. The TUC hated it.

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Nominal prices dropped by 9% in 1989/1990, then 5% the following year, then another 5% in the third year.

At that was pretty much that, the remainder of the price adjustment in the last crash was taken care of by inflation. I see no evidence for the assertion "then they sold at whatever price they could". Last time if they weren't distress sellers they didn't sell "at whatever price they could", and they won't this time either.

The key, as you correctly say, is BTL. There's 940,000 BTL mortgages out there, half taken in the last three years. That adds up to a lot of recent, inexperienced BTL landlords who assumed capital appreciation to make their numbers work. Many these will be forced to sell, or choose to get out while they can, and they will replace the repossessions that triggered the 1989/95 crash. But the flip side of that is we can expect the big, headline grabbing property falls to come from the two bedroomed flats so beloved by BTL landlords.

If you're a FTB without kids looking for a flat you'll hopefully be well pleased with the market development over the next few years. If however you're looking for that dream four bedroomed house with a big garden in a nice area, then you may be disapointed that even though reported prices are down these choice family properties mysteriously seem absent from estate agent's windows.

Agree In the last crash of 1989-1993 small 1 bed flats and particularly studios fell in South London from £55-£60k to £15k to £20k ie falls of 60%+ yet family homes fell by only 15% -20% again this for South London.

I think in a falling market Studios and small one bed flats will be based solely on rental income. I think it likely rents will rise as more sell to rent so a typical studio/1 bed say renting for £500 per month £6k per year might rise to £7 and will net £5.5k after expenses but before loan interest would be worth £70k tops as opposed to £120k now

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