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Sell Your House Now Or Face 80% Falls, What Is Your Prediction?


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This is a copy of my thread from the MSE forums, it got quite a big response so I thought it might be good here too.

I strongly believe that between price falls and currency falls houses will drop by 80% on average in real value over 10 years just like the Japanese housing crash of the 90s. I usually post in HPC etc but thought I'd sign up here because hopefully some people on a money savings forum may know what their talking about rather than label me as a troll.

My father and brother recently bought a house together and I warned them both about the falls but they said to me "Well prices will keep going up again when the economy bounces back soon"- Now these are both very intelligent people, so if they think that then there is a good chance even a lot of people on this forum also believe it.

I want to know what YOUR prediction is on house prices and how you take currency falls into the equation? If you don't then you are being naive.

Please can people reading this post make the distinction between house prices and house values, thanks!

Just going to quote crashmonitor as he explained it a little better than I could:

A halving of house prices and a doubling of inflation over a long period would get us there,-75% that is.

Then just add a little more to the equation and you get 80% falls which is my prediction :D

Edited by Saberu
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57% to make them an 'investment'

(Based on rents not changing)

57% in price? Thats a lot :P I think you missed my point somewhat I didn't mean 80% price falls but 50% price falls and 50% currency falls, or perhaps slightly more to bring us to that magic 80% figure!

Edited by Saberu
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If we do get a 80% average drop in house prices, I doubt we would even care. Things like clean water and food would be higher up the list of things than property prices.

It wont happen, but that is not to say that certain properties wont drop 80%. Some will drop by >100%, due to ongoing costs of ownership.

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I had a chuckle at your thread on MSE. You simply cannot go into the Church of the True believers and say that God doesn't exist, sheer blasphemy.

As for your hypothesis I am inclined to agree, but cannot give a figure as we do not know yet what the actual utility value of a house is due to the obfuscation and market distortions caused by excessive cheap credit and irresponsible lending.

I also think that values will vary depending on a number of factors, including: size of property, location, ease of access for public transport, energy efficiency, and availability of credit.

I think that credit is primarily built on optimism and trust, without those we will have to resort to saving. The optimism is based on ever increasing productivity and the trust based on the fact that people believe that this situation will continue forever.

Since we live on a finite planet we cannot have infinite growth, much to the chagrin of capitalists and classical economists everywhere. At some point we are going to reach the limit of economic growth, and by that I mean real wealth, tangible assets, not fiat money, of which there can be an infinite amount.

In the long term the value of houses will decrease, either as a proportion of the fiat money, or simply in relation to the value of other tangibles.

The biggest driver will be energy costs, as they increase, the value of your property is liable to go down, although small fuel efficient property will probably retain more value.

Within your lifetime you are likely to see houses become more like cars, they will depreciate as they age. According to Government statistics (are they ever reliable) houses depreciate in value by approx 2% per annum, although this is currently hidden by the increase in land values and speculation led by excessive money supply.

I always use Detroit as an example, but it is a city in which property is practically without value, this wasn't always the case, if you asked someone living in Detroit in the boom years after WW1 what would happen to property prices, they would answer that they only ever go up.

Property located near wealth creation will retain more value than those without any visible means of support. Basically people are going to have to get used to the fact that property will have very little investment value. I don't think anyone is ready for that reality.

People have to believe in something, property is the new God.

Edited by SMAC67
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I suppose that 80% depends on what cost-base you are using. Let's assume that a typical FTB propertiy, which to my mind means a standard utilitarian Bryant / Beazer / Barratt / Bovis 2-bedroomed modern 'rabbit-hutch' terraced house, falls to a price level of 3.5 x salary + 10% deposit.

In the Midlands that would mean prices falling by 40% to 50%. In the Thames Valley you'd be looking at drops of 60%+, bearing in mind that average salaries down there are greater. On the south coast, assuming that all the second-home owners bailing out leads to more onerous general market drops, prices would fall even further.

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Guest The_Oldie
If we do get a 80% average drop in house prices, I doubt we would even care. Things like clean water and food would be higher up the list of things than property prices.

It wont happen, but that is not to say that certain properties wont drop 80%. Some will drop by >100%, due to ongoing costs of ownership.

Didn't house prices go up about 300% between 1997 and 2007? Please correct me if I'm wrong on this as I can't be bothered to look it up.

An increase of 300% would be wiped out by a fall of only 75% (100 + 300% = 400 ... 400 - 75% = 100) so I can't see that being beyond the realms of possibility.

Why is it that people can easily accept an increase of 300% over 10 years but not a decrease of 75% over a similar time?

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Didn't house prices go up about 300% between 1997 and 2007? Please correct me if I'm wrong on this as I can't be bothered to look it up.

An increase of 300% would be wiped out by a fall of only 75% (100 + 300% = 400 ... 400 - 75% = 100) so I can't see that being beyond the realms of possibility.

Why is it that people can easily accept an increase of 300% over 10 years but not a decrease of 75% over a similar time?

A halving of house prices and a doubling of inflation over a long period would get us there,-75% that is.

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Didn't house prices go up about 300% between 1997 and 2007? Please correct me if I'm wrong on this as I can't be bothered to look it up.

180% rise wasn't it? Nearly tripled.

Take inflation into account and we'll need about a 40-50% drop to get houses back down to pre-crash levels.

80% falls would be a bit crazy.

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This is a copy of my thread from the MSE forums, it got quite a big response so I thought it might be good here too.

I strongly believe that between price falls and currency falls houses will drop by 80% on average in real value over 10 years just like the Japanese housing crash of the 90s. I usually post in HPC etc but thought I'd sign up here because hopefully some people on a money savings forum may know what their talking about rather than label me as a troll.

My father and brother recently bought a house together and I warned them both about the falls but they said to me "Well prices will keep going up again when the economy bounces back soon"- Now these are both very intelligent people, so if they think that then there is a good chance even a lot of people on this forum also believe it.

I want to know what YOUR prediction is on house prices and how you take currency falls into the equation? If you don't then you are being naive.

Please can people reading this post make the distinction between house prices and house values, thanks!

As you say a lot of intelligent people are getting dragged into the BTL bubble and a lot will get burnt,one of the reasons for these sort of people are getting sucked in is most looked at the way HPI was going and thought it will not last,then after it keep rising they got knocked of their common sence chair and decided HPI will go on forever then joined the club.

Was reading about a lady the other day who was a business consultant and had been sucked into buying 4 flats and is now in debt of a couple of hundred thousand pounds even if see can sell the flats, She found see could not rent out the flats at the price she was given to believe was a realistic rent.

As far as selling now, this time next year a lot of people will be saying " i wished we had accepted the offer we were offered last year".

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Guest The_Oldie
180% rise wasn't it? Nearly tripled.

Take inflation into account and we'll need about a 40-50% drop to get houses back down to pre-crash levels.

80% falls would be a bit crazy.

Well, we've had crazy rises so expect crazy falls.

Having said that, I'm expecting average nominal falls in the region of 40%, more on new build flats.

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I reckon with the data lag we are 10% off-peak already,the ratio is now 103/90 ,for allowing 3% inflation since August 2007.I reckon we are headed for 120/60 by 2012 or a 50% crash.

I calculate 10% currency crash and 5% price crash as of right now. Thats already a significant drop, just under 15%.

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I don't think property prices are likely to fall as much as 80% except in a few extreme cases. Undesirable properties, such as ones needing complete renovation or even rebuilding, might fall, in a slump, to almost zero value. Other than that, I don't see the market falling more than 50% absolute max.

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Exactly and I'm only proposing a 50% or slightly higher drop in house prices.

Was your prediction of house price falls based on the effect of the current credit crunch or does it take account of the impact of likely events in the future such as rising unemployment , a rise in UK interest rates in the next few years and falling real wages?

Overall I have no problem with nominal price falls of over 30% and real falls of 60% are not inconceivable.

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Guest mSparks

I found this when following the white rabbit on google trends debt:

http://www.home.co.uk/guides/house_prices_...&lastyear=1

-11% sold prices YoY in 3 months, AND south of the border, AND not including anything sold in the last 2 months...

whats that annualised?

makes 50% nominal falls look a tad optimistic.

Edited by mSparks
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I had a chuckle at your thread on MSE. You simply cannot go into the Church of the True believers and say that God doesn't exist, sheer blasphemy.

As for your hypothesis I am inclined to agree, but cannot give a figure as we do not know yet what the actual utility value of a house is due to the obfuscation and market distortions caused by excessive cheap credit and irresponsible lending.

I also think that values will vary depending on a number of factors, including: size of property, location, ease of access for public transport, energy efficiency, and availability of credit.

I think that credit is primarily built on optimism and trust, without those we will have to resort to saving. The optimism is based on ever increasing productivity and the trust based on the fact that people believe that this situation will continue forever.

Since we live on a finite planet we cannot have infinite growth, much to the chagrin of capitalists and classical economists everywhere. At some point we are going to reach the limit of economic growth, and by that I mean real wealth, tangible assets, not fiat money, of which there can be an infinite amount.

In the long term the value of houses will decrease, either as a proportion of the fiat money, or simply in relation to the value of other tangibles.

The biggest driver will be energy costs, as they increase, the value of your property is liable to go down, although small fuel efficient property will probably retain more value.

Within your lifetime you are likely to see houses become more like cars, they will depreciate as they age. According to Government statistics (are they ever reliable) houses depreciate in value by approx 2% per annum, although this is currently hidden by the increase in land values and speculation led by excessive money supply.

I always use Detroit as an example, but it is a city in which property is practically without value, this wasn't always the case, if you asked someone living in Detroit in the boom years after WW1 what would happen to property prices, they would answer that they only ever go up.

Property located near wealth creation will retain more value than those without any visible means of support. Basically people are going to have to get used to the fact that property will have very little investment value. I don't think anyone is ready for that reality.

People have to believe in something, property is the new God.

Great post

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A halving of house prices and a doubling of inflation over a long period would get us there,-75% that is.

Yes but there are 2 things to consider here.

A doubling of inflation (to 6%) over 'a long period' of say 5 years, would be reflected in higher wages. Using the flawed 3.5-4 x earnings/house price measure, this would limit the house price falls slightly on paper.

One also has to consider rental yields. Rents have gone up 10-15% in the past 8 months where I live (£1100 for a 3 bed flat now). It would not take long for declining house prices and higher rents to produce a 'worth considering' yield, especially given that HP rises come after falls and that the rise has to begin at some point.

Having said all of that, massive falls in the region of 50% are not beyond the realms of possibilty - but only in certain areas. Think large new build development sites of 2 bed flats in silly locations - ie next to large slums on the fringes of Leeds. Don't think period properties in the center of major economic driver cities such as London or you will be wasting your energy.

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