House Value Crash V House Price Crash

[Mr Yogi]

Prices are set at the margin. You don't need a large number of sellers to bring down prices substantially

This is exactly my point.

Values are set at the margin.

Every time a vendor is forced to sell for whatever reason the impact is felt locally in that the values of all similar houses become worth about the same.

It matters not a jot whether the sale is a private one, at auction, or whatever. The Land Registry figures make no distinction.

So valuations will collapse. It will be impossible to sell a house at levels above these valuations.

Equally though, it will be impossible to buy a house at these valuations because no-one will sell you one.

The only hope will be to find a distressed seller to buy from. Then you may get a bargain.

In the general scheme of things however, we are looking at several years of complete stalemate, whereby potential sellers are looking for a high price and potentrial buyers are looking for a low one. Until the sellers become distressesed sellers nothing much will change.

Unfortunately, all of you out there hoping to buy into a cheap market in the next year or so are going to be disappointed!

Most people who own houses do not need to sell them

So they won't!!

[cartimandua51]

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

UM

1985 1,743

1986 1,801

1987 1,937

1988 2,148

1989 1,580

1990 1,398

1991 1,306

1992 1,136

1993 1,196

1994 1,274

1995 1,135

1996 1,242

1997 1,440

source:

http://www.communities.gov.uk/housing/hous...ket/livetables/

more statistics on this site than you can shake a stick at!

[MSWHPC]

When the market stagnates, as it is doing, people wait a while and are then persuaded to drop the price a little. The property may still hang around. Then the neighbours market theirs - at a slightly lower price to bag the sale.

It is a gradual process.

Then a couple of years down the line as this continues, people who haven't been watching the market every day like us, decide to move. They are told the current prices, by now say 25% lower. They don't care what the price was 2 years ago. They just want to move now and hey presto there is somewhere with an equally realistic price that they want.

[Ursa Minor]

1985 1,743

1986 1,801

1987 1,937

1988 2,148

1989 1,580

1990 1,398

1991 1,306

1992 1,136

1993 1,196

1994 1,274

1995 1,135

1996 1,242

1997 1,440

source:

http://www.communities.gov.uk/housing/hous...ket/livetables/

more statistics on this site than you can shake a stick at!

Cool, thanks for that.

UM

[Jonnybegood]

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.

A couple of points here, firstly it does not matter if you need to borrow less following a crash as the example points out, if you have no bank to lend you that kind of money your going nowhere.

Your post crash example shows no equity, that would mean a 100% mortgage, where would you get that from?

Even if you had £50k in the bank, it would take a brave person to make that move using their own cash at a time when employment etc was looking dire.

The person you are buying the property from could also be in neg or very little equity territory, it goes on.

There is also the feel good factor, when moneys easy and property is going up in value YOY borrowing £50k seems normal and a safe bet, borrowing £10k in a downturn can be a different thing altogether.

Plus this time many with equity have mewed, this will mean they cannot move and will probably stay put until equity is restored, that could be 5-10 years after the bottoming of the market.

When the market stagnates, as it is doing, people wait a while and are then persuaded to drop the price a little. The property may still hang around. Then the neighbours market theirs - at a slightly lower price to bag the sale.

It is a gradual process.

This only happens if the next person in the chain drops as well, why would anyone unless forced knock £20k off their property and only manage £5k discount on their next purchase.

Unlike previously there are these days very rarely 2 houses the same, even next door to each other.

Looking at LR data does not tell the full story of, Attic conversions, extensions , Conservatories. New Boilers , Double glazing etc.

Its suprising how much these items can add to the value of a property and that is without the actual state of the place being taken into account, deco , kitchen , bathroom.

I have seen similar houses being sold in the same street at the same time and the one £22k more selling first because it was more attractive and basically had everything new.

It can be difficult sometimes to put a true value on a property.

[Nicholas Cage]

A couple of points here, firstly it does not matter if you need to borrow less following a crash as the example points out, if you have no bank to lend you that kind of money your going nowhere.

Your post crash example shows no equity, that would mean a 100% mortgage, where would you get that from?

Even if you had £50k in the bank, it would take a brave person to make that move using their own cash at a time when employment etc was looking dire.

The person you are buying the property from could also be in neg or very little equity territory, it goes on.

It's an example, it uses 50% and 100K because it's easy to work with those numbers. Half of all household wealth is in property equity so zero equity after a 20% fall is not going to happen.

50-100% falls yes, but that's baked beans and gold teritory

[MSWHPC]

This only happens if the next person in the chain drops as well, why would anyone unless forced knock £20k off their property and only manage £5k discount on their next purchase.

Unlike previously there are these days very rarely 2 houses the same, even next door to each other.

Looking at LR data does not tell the full story of, Attic conversions, extensions , Conservatories. New Boilers , Double glazing etc.

Its suprising how much these items can add to the value of a property and that is without the actual state of the place being taken into account, deco , kitchen , bathroom.

I have seen similar houses being sold in the same street at the same time and the one £22k more selling first because it was more attractive and basically had everything new.

It can be difficult sometimes to put a true value on a property.

Having lived through a crash i have seen what i described. prices do come down precisely because nobody will pay over the odds.

Agreed the true value of a property is difficult to find. But it is, in the long run, what someone will pay for it, no more no less. Finding that price is a matter of testing the market, as i said, lowering the price until a buyer is found.

True you will not find replica houses. But buyers will know what they prefer and accept your price if competitive or reject if not.

And if your house has got cheaper through these market forces, so will others that you wish to buy.

[Mr Yogi]

Half of all household wealth is in property equity so zero equity after a 20% fall is not going to happen.

Zero equity after a 20% fall in prices will happen to a lot of people!

eg

Almost any first time buyer of the last couple of years.

People who have MEWed heavily to fund lifestyle/pay off credit cards etc

Highly geared serial amateur live-in property developers - of which there are plenty!

Buyers of new builds who received a kick-back from the developer

And on and on

[kagiso]

This is exactly my point.

Values are set at the margin.

Every time a vendor is forced to sell for whatever reason the impact is felt locally in that the values of all similar houses become worth about the same.

It matters not a jot whether the sale is a private one, at auction, or whatever. The Land Registry figures make no distinction.

So valuations will collapse. It will be impossible to sell a house at levels above these valuations.

Equally though, it will be impossible to buy a house at these valuations because no-one will sell you one.

The only hope will be to find a distressed seller to buy from. Then you may get a bargain.

In the general scheme of things however, we are looking at several years of complete stalemate, whereby potential sellers are looking for a high price and potentrial buyers are looking for a low one. Until the sellers become distressesed sellers nothing much will change.

Unfortunately, all of you out there hoping to buy into a cheap market in the next year or so are going to be disappointed!

Most people who own houses do not need to sell them

So they won't!!

While I can see your logic, it doesn't square with the experience of the last crash.

At one point in the early 90s the government was considering changing legislation to limit the number of for sale boards because there were so many that they were becoming a major visual intrusion.

I think you underestimate the number of distressed / forced sales there will be. My mother passed away last year, which set me to thinking.

Assume that everybody in the UK lives to 75. That means that 1.3% of the population dies every year.

With 55 million pop, that would means over 700,000 deaths / movements to long term care homes each year.

Assume all elderly people live as couples, so for every two deaths a home is left empty. So that is 350,000 homes a year are vacated.

OO's are about 70% of the market, so that is roughly 250,000 private forced sales per year from deaths alone. And I can assure you all the next of kin want to do in such a situation is get rid of the property ASAP so they can sort out the estate and move on. (Even more so in a falling market).

And that's just deaths.

Add in the BTLs, repossessions of those that lose their jobs - or are simply overstretched, acrimonious divorces, people who are forced to move and swathes of new-build over-supply, and I suspect you could be around 3/4 to a million plus forced sales a year as the recession kicks in.

And no buyers.

As inventories pile up the sellers will be desperate, and will drop prices rapidly.

[Mr Yogi]

While I can see your logic, it doesn't square with the experience of the last crash.

At one point in the early 90s the government was considering changing legislation to limit the number of for sale boards because there were so many that they were becoming a major visual intrusion.

I think you underestimate the number of distressed / forced sales there will be. My mother passed away last year, which set me to thinking.

Assume that everybody in the UK lives to 75. That means that 1.3% of the population dies every year.

With 55 million pop, that would means over 700,000 deaths / movements to long term care homes each year.

Assume all elderly people live as couples, so for every two deaths a home is left empty. So that is 350,000 homes a year are vacated.

OO's are about 70% of the market, so that is roughly 250,000 private forced sales per year from deaths alone. And I can assure you all the next of kin want to do in such a situation is get rid of the property ASAP so they can sort out the estate and move on. (Even more so in a falling market).

And that's just deaths.

Add in the BTLs, repossessions of those that lose their jobs - or are simply overstretched, acrimonious divorces, people who are forced to move and swathes of new-build over-supply, and I suspect you could be around 3/4 to a million plus forced sales a year as the recession kicks in.

And no buyers.

As inventories pile up the sellers will be desperate, and will drop prices rapidly.

I actually think we are in agreement.

I have been saying for ages that prices will only fall when there are sufficient distressed sellers to force prices down.

Too many people on this forum seem to think that house prices are suddenly going to fall by 30-40% enabling them to buy the house that they have had their eyes on for years.

My motive in starting this thread was to try and illustrate the mechanism by which a house price crash will unfold. Yes, I think that prices will fall - eventually.

The thing is though, it is going to happen very slowly. People will only sell their house at a lower price than they could have got for it last year if they really have to. Most people will see the value of their house fall and do precisely nothing except carry on paying the mortgage.

Inner city BTL flats are a different story however. At the first hint of negative equity the 'owners' of these will be posting the keys back to their lenders. After all, they have nothing to lose. In most cases, they didn't even pay a deposit as the 15% kick-back from the developer covered the shortfall on the 85% BTL mortgage they took out.

It will be interesting to see whether the inevitable collapse in prices of these flats has any impact on the values of proper FTB houses in surrounding areas.

[kagiso]

I actually think we are in agreement.

I have been saying for ages that prices will only fall when there are sufficient distressed sellers to force prices down.

Too many people on this forum seem to think that house prices are suddenly going to fall by 30-40% enabling them to buy the house that they have had their eyes on for years.

My motive in starting this thread was to try and illustrate the mechanism by which a house price crash will unfold. Yes, I think that prices will fall - eventually.

The thing is though, it is going to happen very slowly. People will only sell their house at a lower price than they could have got for it last year if they really have to. Most people will see the value of their house fall and do precisely nothing except carry on paying the mortgage.

Inner city BTL flats are a different story however. At the first hint of negative equity the 'owners' of these will be posting the keys back to their lenders. After all, they have nothing to lose. In most cases, they didn't even pay a deposit as the 15% kick-back from the developer covered the shortfall on the 85% BTL mortgage they took out.

It will be interesting to see whether the inevitable collapse in prices of these flats has any impact on the values of proper FTB houses in surrounding areas.

By my calcs in the previous post, there will be 20,000 properties coming on to the market each month through bereavements, and I think that is an underestimate. That is an awful lot of properties. If you can point out a mistake in my maths then please do.

These will definitely be distress sales, the sellers will price for rapid sale - most of the properies will have zero or negligible mortgages, they won't have an emotional attachment, and they won't want the hassle. I couldn't get anybody to even insure my mother's property because I couldn't call in regularly to check on it. I was very keen to sell a property, 200 miles from where I lived, which if burnt down by some vandals would leave me without a penny for it.

These properties will be mixed, but very few will be small flats, most will be family homes, bungalows or small cottages. Most will be very desireable properties indeed.

Add to that, that for every four or five BTL flats that are repossesed you will have also have the home of a middle aged amateur BTL investor repossessed. Also look at the City boys who have mortgaged up to the hilt and are now losing their jobs. I think there are going to be an awful lot of very nice properties out there, much nicer than the last crash.

It is also not possible to segment off new build flats. Housing is a continuum. If 2 bed flats drop to £100k, is somebody really going to pay £200k for a two bed terrace with no garden? If two bed terraces drop to £110k, is somebody really going to pay £200k for a two bed terrace with small garden? If two bed terraces with gardens fall to £120k is somebody really going to pay £200k for a two bed semi? etc....... People will pay an extra £10k-£20k for a garden or a box room, but not £100k.

There was a paper on this site a year ago that agreed with part of what you are saying. People who bought recently are very reluctant to sell below purchase price, and if they are in NE then obviously it will be difficult even if they want to. However, despite the hysteria of the last few years, most people have long standing mortgages much lower than the value of their houses. If they aren't in NE, they will be happy to sell at a lower price providing the next step up the ladder has also dropped.

As I said before, the main flaw in your argument is history. In the early nineties there were huge numbers of houses available, of all types and character, at low, low prices.