Housing Market Is On The Brink Of A Slump As Prices Drop Again

[TwentyOneEleven]

http://business.timesonline.co.uk/tol/busi...icle3463473.ece

From The Times

March 1, 2008

Housing market is on the brink of a slump as prices drop again

Grainne Gilmore and Lorna Blackwood

The average home has lost £6,000 in value over the past six months in the latest sign that the housing market is on the brink of a major decline.

The number of new buyers being approved for a mortgage has fallen by nearly a half since this time last year amid fears that curbs on new home loans could drag down property prices even further. Prices have fallen for four consecutive months.

Figures published yesterday by Nationwide, the second-biggest mortgage lender, showed that house prices fell by 0.5 per cent in February, causing annual house-price growth to dip sharply to 2.7 per cent, down from 4.2 per cent in January. The value of the average house has fallen by more than £6,000 since September, Nationwide figures showed.

The Bank of England said yesterday that mortgages approved for new buyers had dropped by 40 per cent in January compared with January 2007. Just 74,000 loans were approved for buyers, the second-lowest figure in more than 12 years.

Experts sounded alarm that the tighter lending practices could exacerbate house-price falls as first-time buyers failed to get funds. Ray Boulger, of John Charcol, the mortgage broker, said: “The speed at which lenders are tightening their criteria and raising prices is frightening. Once it becomes impossible for most people to get a mortgage without a 10 per cent deposit, the first-time buyer market will freeze up, which will have a dangerous impact on the whole housing market and the wider economy.”

Howard Archer, of Global Insight, the economic analyst, said: “It seems highly likely that house market activity and prices will continue to be dampened markedly by the combination of stretched affordability and tighter lending practices.”

Many lenders are refusing to lend to buyers who do not have hefty deposits, as they strive to protect their margins in the wake of the credit crunch and struggle to obtain funding from the credit markets. Instead, they are cherrypicking only the most risk-free borrowers.

Yesterday, Cheltenham & Gloucester, a mortgage-lending arm of Lloyds TSB, said it would not offer home loan deals to buyers who did not have a 10 per cent deposit or who had not built up 10 per cent equity in their home. Alliance & Leicester and Britannia Building Society operate a similar policy. From Tuesday, Halifax, the biggest mortgage lender, will not lend to buyers who have not saved a 5 per cent deposit. Lenders are also increasing their mortgage rates. Halifax and Abbey will both announce new, higher mortgage rates next week.

Seema Shah, a property economist from Capital Economics, said: “It is clear that house price growth on all the main measures is on a steady downward trend. In our view, it is only a matter of time before house prices start falling year-on-year.”

Some estate agents sounded a gloomy note about the current housing market conditions.

Peter Wetherell, of Wetherells, a London estate agent, said: “The value is there but the volume isn’t. There is not a lot out there and there are also not a lot of people looking. In 2007 you could sell a secondary property for primary price but you can’t get away with it this year. Agents need to learn to sell again.”

There is evidence that homeowners’ worries about the housing market are already taking their toll. Consumer confidence plunged to a 13-year low last month, with many more people reporting serious concern about the economic conditions in the coming year, a survey by Gfk/NOP found.

Some economists said that while house prices could decrease, the current economic conditions did not suggest falls of a similar level to those in the early 1990s. During that period, house prices tumbled by 30 per cent after interest rates reached 15 per cent, leaving many homeowners in negative equity and causing hundreds of thousands to lose their homes.

[Bloo Loo]

I am just wondering what effect, if any, this news around the meeja will have on people who have recently agreed purchases, say In January and March?

Will it cause buyers to gazunder, or just pull out.

Will it have the effect of further reducing Banks LTV requirements.

The louder the shout the faster the crash IMO

[Optobear]

http://business.timesonline.co.uk/tol/busi...icle3463473.ece

Doesn't Anne Ashworth work for the Times? Has anyone got a spare slice of humble pie for her to eat?

[Sinking Feeling]

Some economists said that while house prices could decrease, the current economic conditions did not suggest falls of a similar level to those in the early 1990s. During that period, house prices tumbled by 30 per cent after interest rates reached 15 per cent, leaving many homeowners in negative equity and causing hundreds of thousands to lose their homes.

As far as I remember the economic outlook wasn't all that bad in March 1990, over the next few year things got far worse.

[Mr Blobby]

Some economists said that while house prices could decrease, the current economic conditions did not suggest falls of a similar level to those in the early 1990s. During that period, house prices tumbled by 30 per cent after interest rates reached 15 per cent, leaving many homeowners in negative equity and causing hundreds of thousands to lose their homes.

In addition, back in the 90's it took interest rates to get to those kind of levels of 10-15 percent before people got into difficulties with their repayments. The difference this time is, because the size of people's mortgages is so much larger in proportion to their incomes, people are getting into similar levels of difficulties when they are put on the Standard Variable Rate of 7 or 8 percent !! This is the crux of the matter, not the interest rate itself.

[HovelinHove]

This whole LTV thing is really going to bite, it also signals that the banks and building societies totally expect prices to fall by at least 10%, that is one of the reasons they want a 10% deposit as they don't want to be lumbered with the negative equity. As the falls accelerate...which this policy of theirs will insure, they will demand bigger deposits, as once again they will want to avoid being lumbered with repossessed houses worth less than the debts on them...this will accelerate the falls further. I really can see 30-40% falls, (greater in some areas like central Manchester, Brighton and Hove etc) within 2 years, and when we reach the bottom ,w ith the YOY still reading -15%, the banks will still be demanding 20% depositis, even when the MOM prices stabalise...no one will be able to buy, and people with large cash depositis will be pick off the best properties at auction.

[davidg]

There is no point Ray Boulger imploring mortgage lenders to wave 10 to 25% deposit requirements. They see house prices weakening and don't want to be left with security that is not worth the loan values. In fact it would be irresponsible for them to offer 100% loans in the current market.

And this is why soft landings are not possible after such a bubble has built up, the same forces driving the boom will drive the bust on the way down. No point thinking it will be isolated to city center executive hovels in leeds as old tinsel tits tries to make out. Those canned housing projects and negative equitity BTLets will poison the general economy.

Anyways life is always tough for first time buyers whether houses are at 200k or 100k. The conditions that create the bust are the very conditions that make it hard to buy a house. However lower house prices are really good if you want to move up as the difference becomes a lot more manageable.

Edited March 1, 2008 by davidg

[Bearfacts]

I was just thinking what a great article and headline this would make to go and stick in your local EAs window.

[debtfree]

im finding the complete opposite.

2 houses in our street just got into a bidding war as we know one of the people bidding. they both sold above asking price.

the last 2 viewings we had, the agent phoned hours before to say they have now accepted an offer.

so, we are not seeing any house price crisis at all. if anything, it seems to be getting worse.

[bobthe~]

I was just thinking what a great article and headline this would make to go and stick in your local EAs window.

Mate, I think they already know.

As far as I remember the economic outlook wasn't all that bad in March 1990, over the next few year things got far worse.

And 1990 was 18 months into GC1. HPI pretty much stopped dead in June 1988 when double MIRAS for unmarried couples disappeared.

I don't think the recession will hit for another 9-12 months*, and then IRs for houses will really go up as money becomes tighter, and maybe inflation, maybe deflation.

*I have no scientific basis for this, just think that maybe these things take time and we are ahead of the curve on this site. Oh, and Norma Lamont and Vinny cable said 09 would be the problem year on Newsnight a few weeks back

[babesagainstmachines]

im finding the complete opposite.

2 houses in our street just got into a bidding war as we know one of the people bidding. they both sold above asking price.

the last 2 viewings we had, the agent phoned hours before to say they have now accepted an offer.

so, we are not seeing any house price crisis at all. if anything, it seems to be getting worse.

Don't lose heart, have patience. One swallow doesn't make a summer, and all that...

[kagiso]

As far as I remember the economic outlook wasn't all that bad in March 1990, over the next few year things got far worse.

My memory also.

The 'do recessions cause HPC's or vice versa' debate misses the point. They feed off each other. A plateauing (nationally) of house prices is already stopping new build starts and MEWing. This will feed into construction and retail employment, so bringing on poorer economic conditions and less house purchases. The HPC feeds the recession, the recession drives the HPC.

[sossij]

Oh, and Norma Lamont and Vinny cable said 09 would be the problem year on Newsnight a few weeks back

Heh heh, I'm trying to prepare as best I can: saving like a bast@rd, switched energy suppliers* (saved 33%), switched to Virgin mobile (£10 pm), no car, got gold, got beans, got rechargables... what more can I do!

*BTW just checked my so-called carbon footprint online and found "Your emissions are 91.3% below average household emissions registered on this service" - not good enough, must try harder!!!

[crashmonitor]

I am just wondering what effect, if any, this news around the meeja will have on people who have recently agreed purchases, say In January and March?

Will it cause buyers to gazunder, or just pull out.

Will it have the effect of further reducing Banks LTV requirements.

The louder the shout the faster the crash IMO

Well if they gazunder they need to not only factor in the 7K slump in prices since they agreed the deal last Autumn but also should be allowing for further falls,possibly until 2014.Better still just bloody pull out while you still can.

Edited March 1, 2008 by crashmonitor

[tinecu]

Don't lose heart, have patience. One swallow doesn't make a summer, and all that...

Bit like a forest fire...small pockets smolder well after the main inferno is extinguished.

[marceau]

There is also the possibility of a double whammy to consider. As has been pointed out above, this disaster is unfolding despite historically low interest rates. Although I believe the government will follow the Fed's lead with monetary inflation and low base rates for the forseeable future, there is a distinct chance that someone will finally realise that this is not working (could take another few years IMOP) and pull a late in the day 'Volker', pushing interest rates up dramatically (over 15% would not be unrealistic) over the space of a few months.

This is the ultimate doomsday scenario for housing, as it will have already taken a sound beating by the point the central banks are forced to change their tune. The result could be a property market plumbing unimaginable depths, even by the standards of HPC regulars.

I'm a firm subscriber to the inflationary camp, and will be for a few years yet. But I'm sure that once the shit really hits the fan, the Fed, BOE and ECB will have to bring in someone to salvage their economic systems with truly revolting tasting medicine. A train wreck will ensue for housing, but it may be the only way to avoid total collapse.

Edited March 1, 2008 by marceau

[Carrington]

Well if they gazunder they need to not only factor in the 7K slump in prices since they agreed the deal last Autumn but also should be allowing for further falls,possibly until 2014.Better still just bloody pull out while you still can.

I have a strong feeling that gazzundering will become the norm in about 3 months time, just as gazzumping was the norm in a fast rising maket. The sellers WERE kings but now the buyers WILL be kings, and the greatest king of all later this year will be cash.

best regards

Carrington

[winkie]

I would like to think our interest rates will not be dragged down like they have in the USA, we need to hold our own and see it through to a balanced resolution, and back to normality....all good bad things must come to an end.

[Not Long Now]

I would like to think our interest rates will not be dragged down like they have in the USA, we need to hold our own and see it through to a balanced resolution, and back to normality....all good bad things must come to an end.

Even if interest rates do go down, that won't help the majority that need to find a 10% deposit to buy a house. The compelling aspect of the current situation is the lack of stomach banks have for lending (particularly to those "higher risk" groups = FTB / BTL's).

As an aside: has anyone else noticed an increase in friends / family / work colleagues etc trying to sell their houses to you??

I've had a brother, a friends brother and a work colleague all trying to sell me their houses in the last week.

They know I could easily afford all of the asking prices, and would have no trouble getting a mortgage.

I am accused of being "tight" when I put in offers of 60% of the asking price. When I state quite plainly that I would have to be mad to buy at the top of the market, and prices are falling and will continue to do so: they look sort of pale!

...just an observartion my end. Anyone else experienced this?

[winkie]

Even if interest rates do go down, that won't help the majority that need to find a 10% deposit to buy a house. The compelling aspect of the current situation is the lack of stomach banks have for lending (particularly to those "higher risk" groups = FTB / BTL's).

As an aside: has anyone else noticed an increase in friends / family / work colleagues etc trying to sell their houses to you??

I've had a brother, a friends brother and a work colleague all trying to sell me their houses in the last week.

They know I could easily afford all of the asking prices, and would have no trouble getting a mortgage.

I am accused of being "tight" when I put in offers of 60% of the asking price. When I state quite plainly that I would have to be mad to buy at the top of the market, and prices are falling and will continue to do so: they look sort of pale!

...just an observartion my end. Anyone else experienced this?

A property is only worth what you are prepared to buy it for...no more and no less.

In days gone by 100% mortgages did not exist, (when prices are declining they will not exist) and BTL mortgages did not exist...you had to have a decent deposit or YOU COULD NOT BUY....what goes around always comes around.

[miko]

In addition, back in the 90's it took interest rates to get to those kind of levels of 10-15 percent before people got into difficulties with their repayments. The difference this time is, because the size of people's mortgages is so much larger in proportion to their incomes, people are getting into similar levels of difficulties when they are put on the Standard Variable Rate of 7 or 8 percent !! This is the crux of the matter, not the interest rate itself.

yes totaly agree with you on that , also back in the 90's overstretched homeowneres were given some relief when interest rates started to fall quite rapidly and wadges moved ahead quite quickly making the killer 60-70 thousand mortgage quite managable a few years later, even if the house was in negative equity the repaments as part of salary diminished quite quickly. This time with low inflation low pay rises and intrest rates unlikly to fall as quickly as in the ninties the killer first time buyer mortgage 200 + thousand is going to be a big part of somones salary for a long time to come.