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Mr Yogi

House Value Crash V House Price Crash

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Well, it looks like its here at last.

House prices rises have ground to a halt and we are now teetering on the edge of the cliff. It is only a matter of time before those prices start sliding and the falls of 30-40% confidently predicted by many of us here become reality.

Or will they?

Certainly house values have only one way to go. With the death of the 100% mortgage the first-time buyer is now an extinct species, completely pulling the rug from under the whole market.

So will the current owners of typical starter homes slash their prices to the levels at which FTBers will be able to buy?

Err... probably not!

They'll tighten their belts, work extra hours, curse the injustice of the world, and stay put.

Those with massive credit card bills in addition to big mortgages will go bankrupt and have the unsecured debts written off, but stay in their house because it is worth less than the mortgage which they can now afford because they don't have to pay their other creditors! So they too, will stay put.

And so it goes right up the ladder.

Sure, there are going to be quite a few forced sellers and auctions of repossessions at realistic prices; but all these will do is set the valuations of everyone else's house. House values will plummet.

But house prices?

For a value to become a price requires a sale. My suspicion is that we will just see a totally frozen market for several years. A crash in prices rather than values will only come when general economic conditions force huge numbers of people to sell at whatever price they can get. Given the British public's obsession with owning their home though, this is going to take a recession of catastrophic proportions.

A likely outcome, I fear, is that values of houses fall by 30-40% over the next few years, but you won't be able to buy one, because at that price no bugger's selling!

On the bright side though, estate agents will be toast!

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Ranger Smith here.

Put that picnic hamper down and move back from the cliff.

You know the subprime nonsense is slowly fading and that with a spring bounce everything will be fine.

Why dont you go home to Cindy and have a threesome with that midget friend of yours Bo Bo.

That will take your mind of such nonsense.

Edited by expatowner

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Ranger Smith here.

Put that picnic hamper down and move back from the cliff.

You know the subprime nonsense is slowly fading and that with a spring bounce everything will be fine.

Why dont you go home to Cindy and have a threesome with that midget friend of yours Bo Bo.

That will take your mind of such nonsense.

So what about the one million forced sellers then?

You ddnt consider them did you eh? ;)

Or all the reposessees?

Edited by mbga9pgf

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The overall housing market is much bigger than the BTL and madness of the last few years.

Most houses were last sold years ago. The people in these houses will have made a huge gain (in nominal terms) even after a 40% crash. They will be happy to sell, not realising that in real terms they may have made a loss.

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I think lower prices will stimulate sales. Look at it this way...

Suppose your house is worth £200k and you want to upgrade to a £300k house... then you have to find an extra £100k.

Suppose the market crashes 50% and your house is now only worth £100k. Initially you are gutted that you've lost £100k, but you quickly realise that the £300k house that you wanted has also lost 50% of its value and is now only worth £150k, so you now only have to find £50k to make a step that would have cost you £100k before the crash. Obviously it will take some time for everyone to wake up to this, but when they do we will see a very buoyant market, I feel.

Also, there will be many people who have no choice but to sell, for example...

Overstretched shop staff on low wages losing their jobs:

Goverment fiddles CPI figures, CPI stays low, interest rates stay low, real inflation stays high, unavoidable living costs soar, consumers cut back even more on non-essentials, sellers of non-essentials have to lay-off more and more staff to facilitate the price cuts that they'll have to impliment to keep the punters coming through the door, redundant staff can't afford mortgage repayments, house has to be sold or is repossessed, speculators have left the market so it's up to people who want a home to buy houses, people who want a home are on ordinary wages so can only pay 50% of the prices that speculators could afford.

Edited by Bingley Bloke

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I think lower prices will stimulate sales. Look at it this way...

Suppose your house is worth £200k and you want to upgrade to a £300k house... then you have to find an extra £100k.

Suppose the market crashes 50% and your house is now only worth £100k. Initially you are gutted that you've lost £100k, but you quickly realise that the £300k house that you wanted has also lost 50% of its value and is now only worth £150k, so you now only have to find £50k to make a step that would have cost you £100k before the crash. Obviously it will take some time for everyone to wake up to this, but when they do we will see a very buoyant market, I feel.

Also, there will be many people who have no choice but to sell, for example...

Overstretched shop staff on low wages losing their jobs:

Goverment fiddles CPI figures, CPI stays low, interest rates stay low, real inflation stays high, unavoidable living costs soar, consumers cut back even more on non-essentials, sellers of non-essentials have to lay-off more and more staff to facilitate the price cuts that they'll have to impliment to keep the punters coming through the door, redundant staff can't afford mortgage repayments, house has to be sold or is repossessed, speculators have left the market so it's up to people who want a home to buy houses, people who want a home are on ordinary wages so can only pay 50% of the prices that speculators could afford.

…Exactly. I get the impression that there are hell of a lot of homeowners who have bought the “must get onto the ladder at any cost” propaganda and are currently stretched tighter than a g-string on a sumo wrestler. It won’t take much for this to go ping and, boy is this going to be nasty.

Therefore sitting back, tightening belts and working extra hours may not be an option for some. For an unprecedented HPI bubble there surely must be a proportional HPC and there will be significant forced selling (just look at the US for example)

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I think lower prices will stimulate sales. Look at it this way...

Suppose your house is worth £200k and you want to upgrade to a £300k house... then you have to find an extra £100k.

Suppose the market crashes 50% and your house is now only worth £100k. Initially you are gutted that you've lost £100k, but you quickly realise that the £300k house that you wanted has also lost 50% of its value and is now only worth £150k, so you now only have to find £50k to

Nice in theory, but what if you've got a mortgage of £100k?

Pre crash, you've got £100k equity to put towards your new house.

Post crash, you've got nowt!

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Prices are set at the margin. You don't need a large number of sellers to bring down prices substantially (although I'm quite looking forward to the impact of a flood of BTL muppets and repos all hitting the market at once), just the regular flow of sales will do the job. Not everyone can stay put.

The process which inflated prices so quickly on the way up will work just as effetcively on the way down.

Geronimooooo :lol:

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Nice in theory, but what if you've got a mortgage of £100k?

Pre crash, you've got £100k equity to put towards your new house.

Post crash, you've got nowt!

But you saved 150K on the new house which would have taken all your equity, your mortgage moved across and 100K in additional lending. Unless you want to buy the new house and then sell it and move out of property all ogether, like emmigrating then it saves you money.

new home Pre crash price 300K, 100K equity , 200K mortgage

new home Post crash price 150K, 150K mortgage.

Edited by maxwell

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…Exactly. I get the impression that there are hell of a lot of homeowners who have bought the “must get onto the ladder at any cost” propaganda and are currently stretched tighter than a g-string on a sumo wrestler.

Indeed, and I feel there could be another bunch of people who are among the first to fall - Low-paid shop-workers who bought at the bottom of the market ten years ago. A bouyant high-street enabled them to scrape together £50k for a nice semi. The borrowing-fuelled high-street boom gave them security, if not a particularly decent wage, for ten years, but now their job is gone. In ten years most of what you've paid is interest, so they still owe a very large chunk of money which they can no longer afford to repay. They might even have MEWed!

Nice in theory, but what if you've got a mortgage of £100k?

Pre crash, you've got £100k equity to put towards your new house.

Post crash, you've got nowt!

Okay...

Pre-crash your house is worth £200k - You want a £300k house - You have £100k in equity so you have to raise £200k in finance.

Post crash your house is worth £100k - You want a £150k house - You have no equity so you have to raise £150k in finance.

Post-crash you still have to find £50k less, whatever.

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A likely outcome, I fear, is that values of houses fall by 30-40% over the next few years, but you won't be able to buy one, because at that price no bugger's selling!

Crippling, unaffordable repayments and negative equity for a decade.

Hmmmmm.

Keep paying the bank interest watching your debts increase or just walk away?

People will only kepp up punitive repayments if it is in their financial interest to do so.

The buggers selling will be the banks.

I think your outcome is unlikely.

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Okay...

Pre-crash your house is worth £200k - You want a £300k house - You have £100k in equity so you have to raise £200k in finance.

Post crash your house is worth £100k - You want a £150k house - You have no equity so you have to raise £150k in finance.

Post-crash you still have to find £50k less, whatever.

Pre-crash you have £100k mortgage on your £200k house. Now you borrow £150k to trade up. Nominally you are £50k better off, in terms of wealth, but in truth you are paying 50% more to service a bigger mortgage. Unless you have the income to support that extra £50k in mortgage payments you aren't going anywhere, whatever the "equity" you might or might not have.

This is the big picture - it's a question of solvency, NOT nominal wealth. This is why house prices will crash; because we don't earn enough to support current levels of debt. That's why our collective debt (mortgage/consumer debt) is still rising at 10% pa. Business Finance 101 - you might make a fortune on that deal, but not if you go bust because of cash-flow problems first.

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Pre-crash you have £100k mortgage on your £200k house. Now you borrow £150k to trade up. Nominally you are £50k better off, in terms of wealth, but in truth you are paying 50% more to service a bigger mortgage. Unless you have the income to support that extra £50k in mortgage payments you aren't going anywhere, whatever the "equity" you might or might not have.

This is the big picture - it's a question of solvency, NOT nominal wealth. This is why house prices will crash; because we don't earn enough to support current levels of debt. That's why our collective debt (mortgage/consumer debt) is still rising at 10% pa. Business Finance 101 - you might make a fortune on that deal, but not if you go bust because of cash-flow problems first.

The mortgage goes from 100K to 150K instead of 100K to 200K, you've combined pre and post crash in the same timeline. If they did nothing instead they would still lose 100K equity because the mortgage wouldn't readjust just grow to 100% LTV.

Edited by maxwell

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Why on earth will the lenders want to continue having this low yield, high risk debt on their books once the volume and the rate of increase in this kind of lending swoons? There will be far more profitable and far less risky places to invest their capital as the mania subsides and the recession deepens.

Look for SVR's to zoom, as this happens. And LTV's to crater back to historic norms. The last (and largest by borrowing) round of buyers (in every layer of the pyramid) won't get a choice in the matter. They'll be compelled to liquidate as their gearing moves against them.

"What's he asking for the jousting sticks?" ... "Tell him he's dreaming".

Edited by ParticleMan

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A likely outcome, I fear, is that values of houses fall by 30-40% over the next few years, but you won't be able to buy one, because at that price no bugger's selling!

You fail to take account of the investment buyers. We are now in a unique position; at the edge of a huge crash, and with a previously unseen number of people who own more than their own family dwelling. These people will be selling and getting whatever price they can when they realise the fun is over.. in their hundreds of thousands.

What about people who lose their jobs in the forthcoming recession and are forced to move?

What about the people who die?

The number of sales may decrease, but that's just as well, because the number of people able to get a mortgage is dropping like a stone ;)

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What about people who lose their jobs in the forthcoming recession and are forced to move?

What about the people who die?

... and what of the overhang in supply, which is already building?

http://www.ft.com/cms/s/0/defb2480-e59e-11...00779fd2ac.html

"The scale of the inventory build-up . . . is so huge that it would probably be wrong to ignore the risk that this year's consumer-led economic slowdown will be exacerbated by destocking," said Michael Saunders, economist at Citigroup.

... and what of product substitution, that thing that allows for CPI stability in an otherwise highly inflationary environment? Best discount wins - all you really need are four walls and a roof.

It's a race to the bottom.

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…Exactly. I get the impression that there are hell of a lot of homeowners who have bought the “must get onto the ladder at any cost” propaganda and are currently stretched tighter than a g-string on a sumo wrestler. It won’t take much for this to go ping and, boy is this going to be nasty.

Therefore sitting back, tightening belts and working extra hours may not be an option for some. For an unprecedented HPI bubble there surely must be a proportional HPC and there will be significant forced selling (just look at the US for example)

Yup -- well put. The World' Biggest Ever Pyramid Selling Scam - the "housing" market" - has run its course -- and the last ones suckered into the scam are the biggest losers - as always in a pyramid scam....

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You know the subprime nonsense is slowly fading and that with a spring bounce everything will be fine.

:lol::lol::lol: Brilliant!

You were joking, right? Most economists disagree with you.

Edited by Disillusioned

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The mortgage goes from 100K to 150K instead of 100K to 200K, you've combined pre and post crash in the same timeline. If they did nothing instead they would still lose 100K equity because the mortgage wouldn't readjust just grow to 100% LTV.

Yes, the mortgage does go from £100k to £150k rather than £100k to £200k; assuming you can cover the extra mortgage costs. This is the point. You aren't moving anywhere unless you have the ability to service an extra £50k in mortgage costs. So what if the house you want halves in price, if you haven't the income to support the mortgage on it? This is why solvency is the critical factor.

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Yes, the mortgage does go from £xk to £yk

You aren't moving anywhere because:

1. You lost all your equity and you cannot get 100% LTV cos of the credit crunch.

2. You lost all your equity and a little bit more, so you've got negative equity. And you cannot take that with you even if they new house you're buying is only £10.

3. The house you want to buy, the owner can't afford to sell as he has negative equity, so if he moves out he can't buy a new house.

4. You haven't got a job anyway.

Are you sure you want a crash?

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You aren't moving anywhere because:

1. You lost all your equity and you cannot get 100% LTV cos of the credit crunch.

2. You lost all your equity and a little bit more, so you've got negative equity. And you cannot take that with you even if they new house you're buying is only £10.

3. The house you want to buy, the owner can't afford to sell as he has negative equity, so if he moves out he can't buy a new house.

4. You haven't got a job anyway.

Are you sure you want a crash?

It is true this is a horrible situation to be in. There is nothing worse than spending all your disposable income on a poxy house thats falling in value every week. It just seems like there is no way out. Many will just hand in the keys to the lender. Others will sit tight and ride it out. There will be a culture of blame directed at the labour government. There will be mass discontent and the govt will fall. We've been here before and not very long ago, but this memory seemed to have been erased from the collective psyche.

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The overall housing market is much bigger than the BTL and madness of the last few years.

Believe that if you want, but I think exactly the opposite is true - BTL madness IS the housing market of the past few years.

And now it is over...

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Or, house prices stay flat or continue to rise in the single digits YOY as CPI takes off, the pound is trashed to parity against the Euro forcing us in, house prices align with other Western European nations, Britain's work force becomes more competitive due to lower wages, wage inflation explodes......

I predict a property boom in 2018

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Just a quick question - during the last crash, what happened to transaction volumes? I can't seem to find any figures.

UM

They dropped off a cliff (much as now) after the govt changed the tax rules for couples. This change to MIRAS was blamed for the crash, although it was only the trigger.

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  • 298 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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