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Little Professor

How Far Down Will Prices Go

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I'm as bearish as the next guy, but looking back at some old posts on this site when people were predicting a crash as far back as 2004, makes uncomfortable reading.

Do those who STR back in 2003/2004 really believe prices will fall back down to those levels again, let alone fall beyond that?

The poll above uses the Nationwide RPI-adjusted "real" house prices. For reference, the current average house price is £185k.

How low do you think prices will go in the next 5 years?

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2003 (£145k)

And I think it will be quicker than five years.

Funnily enough, 145 is my target price. The specific properties I am looking at are currently asking around £320k.

Does 55% off sound a bit much? Thing is, I know for a fact that not one has ever completed a sale at a value in excess of £200k. There is a lot of misplaced optimisim out there...

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Really awkward poll, that. Given that "Part 1" of the boom* happened at different times in different places, it's very, very hard to pick a year. Went for '02 myself, although the caveat on that is "earlier for the South East, later for the rest".

* That which would have been knocked back had we had the slowdown in '01 that we, arguably, should have had.

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is this inflation adjusted? compounding has had a significant effect even with low wage inflation since 00

Using 'averages' on such illiquid and fickle assets that depend themselves on many other markets (although this is self-evident, the idea of properties being financed by often greater-than-face value (of the underlying asset) options punted into the avasphere) is looney-tunes.

'Averages' serve only the spin doctors. They are meaningless. And even if they were not, the 'averages' that enter the public consciousness could be described as 'fraudulent' (were our 'systems' really interested in the common good and appropriately managed such things).

People believe things about property that are simply codswallop.

People think of a mortgage as something kind of permanent and solid. They don't know that their mortgage is a constantly moving thing until it slips up their hind quarters and offers a dose of the mega runs.

The property market has been brain-dead for long enough and soon its heart will stop beating. It will be a big, jaggy, bloodbath; you need a microscope to gauge the price, not a sausage machine.

People will resist so stalwartly, this reality, that actual averages will detach totally from any semblance of reality. Averages are simply not capable of containing any useful information about 'real' prices (outside of spotting dimwits who will bark small numbers at the tidal wave). When the lemmings finally take off the price will ooze like warm shit over broken glass. There will be no orderly average that takes this year's price inflation back down to double figures.

The voices of those who claim such things will become increasing shrill; as will the voices of the central bankers who find themselves standing with a broken tap in their hands.

The money is no longer flowing for it never really existed in the first place. The main thing is that the people at the bottom get to foot the bill.

That'll teach 'em.

My guess is that prices will drop between 0% and 100%. I expect that means 50% if you're horney for numbers without meaning.

I couldn't give a fart how far it falls. But I'd guess it will affect me adversely; even though I wasn't able to enter the ladder in a mad tizzy; no matter how hard I tried. The greed of others will hurt us all.

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2003 (£145k)

As another poster said, yes - average prices of 145 are credible in the near future. The thing is, however, I think that - in 5 years time - the prices will still be dropping.

I think that 2003 prices are credible in 2 years. The 2003 prices were the most recent at which I considered buying.

I *really* don't think there will be a bottom at that price point - though I won't be waiting for the bottom to buy.

I knew a few people who desperately want to buy... and are seriously considering throwing real money already earned at this... but they all earn at least three times the national average... and people like this represent a relatively small proportion of the population. They might be tempted at 2003 prices... *and* be able to finance 2003 prices... but there aren't many of them... *really* they are the exception to the rule. Almost everyone's wealth (both current and future) is already tied up in property.

My criteria to buy are simple. I need to be able to easily afford to pay for the place. This means that I need to KNOW *EXACTLY* how I'll clear any mortgage. (Yes, I realise, very, very few people know the answer to this when they take out a mortgage.) I want a detached 3 or 4 bedroom house (bedroom here assumes adequate room - not a room the size of a bed!) with at least 2 (preferably 3) reception rooms and a kitchen that I can turn into a gourmet's paradise... with a double garage and loads of parking... It should be surrounded by land - preferably land not owned by me - since I prefer just to look at space rather than take care of it... and it should not be within earshot of continuous traffic - for example, from a motorway, dual carriageway or main road. The entry level asking prices on such places are between 350 and 450 today. I can currently afford about 250 (with small mortgage I'd plan to pay off within 3-5 years.) I don't care how I achieve this... I'm happy to renovate; build-my-own (though I'd likely need plenty of professional assistance) - or just buy an existing place. Both the price and the place, however, must be right. I don't buy into any of this "housing ladder" nonsense... it is a dead housing ladder, I tell you, dead, dead, dead as a parrot.

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If history repeats itself and according to the chart on the home page of this website the bottom of the forthcoming slump will be at approximately 01 prices adjusted for inflation and this will occur after 2014 assuming that the top was 07 (ha ha). I didn't go to the bother of extending the chart out to accurately predict the bottom but a worthwhile exercise for those palnning to buy. Either way its a long drawn out process the last slump was seven years in the making and it looks like the cycles are getting longer as well.

In theory and all things being equal the next best time to buy a house in the UK will be on or about 2014.

If you are considering selling then better hurry up.

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If history repeats itself and according to the chart on the home page of this website the bottom of the forthcoming slump will be at approximately 01 prices adjusted for inflation and this will occur after 2014 assuming that the top was 07 (ha ha). I didn't go to the bother of extending the chart out to accurately predict the bottom but a worthwhile exercise for those palnning to buy. Either way its a long drawn out process the last slump was seven years in the making and it looks like the cycles are getting longer as well.

In theory and all things being equal the next best time to buy a house in the UK will be on or about 2014.

If you are considering selling then better hurry up.

When prompted to make a prediction six months ago I took a similar approach to yours of following previous downward trends as a starting point. I suggested the following changes in nominal prices:

From Nov 2007 to end Oct 2008 minus 10-15%

and for each following year:

To end Oct 2009 minus 8-12%

To end of Oct 2010 minus 5-10%

To end of Oct 2011 minus 3-8%

To end of Oct 2012 minus 1-5%

To end of Oct 2013 +or- 1% ie "green shoots of recovery" might start to appear believable to the few people left interested in the property market.

2014 looks like the time to start looking to buy again. Mrs STA and I will be mortgage free in less than a year's time and will have six years' savings behind us to pick up a bargain in cash.

However, predicting the future is difficult and the past seldom repeats itself. The following are significant unknowns:

a) Whether we experience significant inflation/deflation over this period

B) Changes in public sentiment regarding home ownership, propensity to consume/save, attitudes to debt etc

c) The regional dimension. Will London and South East recover first in the next upturn? Or will it come from the regions?

d) Wider political/social changes impacting on housing demand.

...and many more.

Interesting times indeed.

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To end of Oct 2013 +or- 1% ie "green shoots of recovery" might start to appear believable to the few people left interested in the property market.

2014 looks like the time to start looking to buy again. Mrs STA and I will be mortgage free in less than a year's time and will have six years' savings behind us to pick up a bargain in cash.

This is also the point in the cycle where investment yields should be attractive enough for investors to re-enter the market on cash flow +ve or neutral buy and hold anticipating capital growth on the underlying asset. Similarly first time buyers will find that buying a house makes sense as it stacks up compared to paying rent.

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However, predicting the future is difficult and the past seldom repeats itself. The following are significant unknowns:

"Reports that say that something hasn't happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don't know we don't know." Defense Secretary Donald Rumsfeld :lol:

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I can't imagine a lower limit myself. Houses will become financial millstones in the years to come as our oil-based economic paradigm collapses back to a realistic pre-oil system. Cheap oil has fueled the world economy and I don't believe hydrogen power or bio-fuel or any other means of powering our economies will ever be more than expensive oil-based novelties. We have had 30 years to make all these alternatives self-sufficient but we have failed. Take away the cheap oil and the wheels fall of everything. The only reason we have expanded our economies as far as we have was by borrowing against a non-existent bright future. We had to borrow because we could not generate the wealth, we have been growing ever poorer in real terms since the 1960's. Well it looks like the party is over now, there is nothing left to reinflate the global economy. No more economic growth, just ever increasing economic contraction until we flush all the debt and reach equilibrium with the remaining reserves. The primary reason house prices have appreciated over the last 60 years was inflation and speculation. Now we will see a new paradigm, ever falling prices as people move into all those vacant bedrooms and then double up in those bedrooms. Prices will fall but banks will insist on their payments, as will governments.

We have seen this all before in history but we deny it until we're actually living through it. Only a handful in January 1929 even considered that the world could fall into a depression. 3 years later the masses were lining up to get handouts of bread and soup.

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This is also the point in the cycle where investment yields should be attractive enough for investors to re-enter the market on cash flow +ve or neutral buy and hold anticipating capital growth on the underlying asset. Similarly first time buyers will find that buying a house makes sense as it stacks up compared to paying rent.

Agreed. However, that process takes time to unfold. Property investment in 2013/14 will probably appear to be very risky and there will be "dire warnings" from many who got burned during this downturn. Study of yields will enable a more sophisticated investor to measure risk, but don't expect a horde of amateur landlords to get involved until a few years have passed.

Just a point to note in passing regarding predicting the future and the issue of history repeating itself. On the news today it appears that the Conservatives (if elected) will not be promising any tax cuts till their second term. Assuming an election in 2010 then the second term looks like starting in 2014/15 - this means that those taxes will be priming consumer confidence (and the next round of HPI, no doubt) which seems bang on cue!

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The primary reason house prices have appreciated over the last 60 years was inflation and speculation. Now we will see a new paradigm, ever falling prices as people move into all those vacant bedrooms and then double up in those bedrooms. Prices will fall but banks will insist on their payments, as will governments.

For a bear cave forum that this place is I have been surprised that no one has brought this up before. If you look at property growth pre-55 its very different from what it has been since then. If you went back further and recalibrated the red trend line on the chart here it would be a lot flatter than it is.

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I'm as bearish as the next guy, but looking back at some old posts on this site when people were predicting a crash as far back as 2004, makes uncomfortable reading.

Do those who STR back in 2003/2004 really believe prices will fall back down to those levels again, let alone fall beyond that?

The poll above uses the Nationwide RPI-adjusted "real" house prices. For reference, the current average house price is £185k.

How low do you think prices will go in the next 5 years?

This is a badly thought out poll. It is evident that what you are really want to find out is whether an STR who bailed out in 2003/2004 did the right thing (from an investment perspective). To answer this, you also need to know what did the STR do with the released equity in the mean time?

Personally, I don't care what date the prices go back to. I am keen to see prices at an affordable level. 3.5x income is about right.

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I am keen to see prices at an affordable level. 3.5x income is about right.

This old chestnut keeps getting trotted out.

3.5 x income was the norm at a time when interest rates were at 10% or above. As the important thing for housebuyers is the monthly payment, not the size of the mortgage, then it is inevitable and not unreasonable that with the low interest rates of the last decade these historical lending criteria should be relaxed a little.

Unfortunately they have been relaxed too much and there will be an almighty correction. Don't expect 3.5 x income again though, until interest rates too return to historical norms.

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This old chestnut keeps getting trotted out.

3.5 x income was the norm at a time when interest rates were at 10% or above. As the important thing for housebuyers is the monthly payment, not the size of the mortgage, then it is inevitable and not unreasonable that with the low interest rates of the last decade these historical lending criteria should be relaxed a little.

Unfortunately they have been relaxed too much and there will be an almighty correction. Don't expect 3.5 x income again though, until interest rates too return to historical norms.

Sadly its worse than that.

As well as low IR's, there are usually two incomes combined as well. So you have considerably more buying power. So 3.5 times is probably cloud cuckoo land.

As an STR at the turn of 2003/4 I'd love to think prices would return to 2001 levels... but I simply don't. With a bit of luck they might just get back to 2003/4 levels. As I am hoping to buy a wreck, demolish and rebuild I hope that I might get prices down 30% or so with the right motivated seller. But I wouldn't be a happy bear if I was planning to buy a nice house in a nice area.

I've long realised that my too early trade is a financial setback that won't go away, and I've calibrated my expectations accordingly. Those who haven't reached this state of acceptance need to get real... you'll sleep much better for it!

Edited by 2MeterBear

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This old chestnut keeps getting trotted out.

3.5 x income was the norm at a time when interest rates were at 10% or above. As the important thing for housebuyers is the monthly payment, not the size of the mortgage, then it is inevitable and not unreasonable that with the low interest rates of the last decade these historical lending criteria should be relaxed a little.

Unfortunately they have been relaxed too much and there will be an almighty correction. Don't expect 3.5 x income again though, until interest rates too return to historical norms.

The reason we are in a mess now is that people forgot the importance of tried and tested metrics like the 3.5X factor.

Many mortgages on offer today are close to your 10% interest rate figure and yet the thunderclouds of inflation havn't even reached us yet (not in official statistics anyway). Our disposable income has come under huge pressure. We are more highly taxed than at any time in our history. We are under intense competetive pressure from emerging economies and our prospects for income growth (apart from governement employees) is zero or negative. Since 60% of our GDP now relies on shopping any economic downturn is going to have a severe impact on unemployment.

What you don't seem to appreciate is that people have been buying properties for years at prices they could not afford. The government supported this with artificially low interest rates and permitting free for all lending. People were able to borrow cheap money on inflating assets and their debts were covered by the rising tide of house inflation.

Although we have not yet gone back to the 3.5x multiplier, lenders are skinning the cat a different way. They will lend on high multiples (as they have always done) providing you put up a big deposit. How many lenders are giving out 125% these days, or even 100% mortgages for that matter.

In response to 2Meterbear, I suggest you read posts more carefully. I did not say 3.5x one income for dual income households (it has never been thus).

Edited by dog

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Sadly its worse than that.

As well as low IR's, there are usually two incomes combined as well. So you have considerably more buying power. So 3.5 times is probably cloud cuckoo land.

I was hoping that someone would add this to my point.

I get the feeling that a lot of guys on here are sitting in their bedsits reasoning that if house prices are going to return to some imagined historical norm then they are going to be able to afford a nice 3-bedroomed semi on their 20 grand a year salary.

Sorry, but it's not going to happen - because it never was like that!

It has always been a struggle to buy one's first home. Even when prices were very low mortgages were expensive and difficult to get. As 2MeterBear says, until relatively recently the second person's income wasn't fully taken into account.

Additionally, falls in house prices generally precipitate a recession in the economy as a whole. Chances are that your 20 grand salary isn't going to be very secure.

I am a total bear. I really believe that house prices are going to fall between 40 and 50% over the next 5 years and that we will suffer a recession like no other in living memory.

I don't believe however, it is going to be any easier for the average person actually to buy a house! Not unless you are astute and/or lucky enough to spot the brief window of opportunity which will open in 7 or so years time and then close again as everyone piles in and prices take off again!

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  • 297 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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