Prediction Of 50% Price Falls... No Not Realistbear, The Guardian!

[SleepyHead]

Its interesting how mainstream journos can only predict small falls initially. Not so long ago, talking of a 5-10% drop was "doom-mongerish". Now prices have fallen around 6% or so, perceived mainstream wisdom is now predicting 20 to 30% falls. We're moving to the point where journos feel confident uttering 50% as a possibility.

50% is the bare miniumum us FTBers really need. Not in order for us to get a bargin. It's just literally what we could afford. A bargin would require 70% falls.

An earlier post said "this is going to be biblical!", and I absolutely agree.

[NeilP]

If we get a price correction of 40-50% over the next few years, I for one will be very, very happy.

There is a nice 3 bedroomed semi up the road from me that has been on the market for about 6 months or so now - £225k.

It would be fantastic that these sort of properties might be in the reach for us with still having money to live.

There are still an aweful lot of the 'they won't reduce a great deal' brigade around though, regardless of what the media say.

I think they might be in for a shock......

....especially the stupid bint I work with who remortgaged to have a new kitchen and conservatory fitted because she thinks she's 'posh'

Edited June 9, 2008 by NeilP

[Justice]

Start brewing your own Beer.

And puttting a little food by just incase

[Leonard Hatred]

Oh dear. This will make a friend of my parents choke on his corn flakes - he's a Guardian reader and he's just bought a £300,000 property as an investment

[notthereyet]

Here we go here we go here we go....!!!!!

http://www.guardian.co.uk/business/2008/ju...ket.houseprices

NEVER thought I would read this in a broadsheet!!!

This apartment in recent auction almost at 50% of its August 2006 price, bought 220k 2006, NOW available at 115k.

Lot 503

http://www.auction.co.uk/jumpauctionResult...D=542&aTY=r

Our property

2006-08-14 17 Apartment, Ladybower Lodge, Ashopton Road, Bamford, Hope Valley, Derbyshire, S33 0BY £220,000

Edited June 9, 2008 by TIMSY

[Justice]

I found the answer i think

Fiat money is based on paper and is worthless and we can not go back to Gold as their is no egnought of the stuff so what about a currency based on Oil ?????????????????????

With great delight i bring you The new Oil based currency

[fluffy666]

Start brewing your own Beer.

Guess what I got for my Birthday yesterday..

[0q0]

Does this mean that prices will merely drop back to 2005 levels for areas such as London ?

Doesn't sound very much like a crash then if REAL falls only mean 25% off by 2011 and the rest inflationary.

I'd thought London was tremendously over-valued by 2005, to hear we're only going back to 2005 or thereabouts sounds pretty much a damp squib.

[time 2 raise interest rates]

I found the answer i think

Fiat money is based on paper and is worthless and we can not go back to Gold as their is no egnought of the stuff so what about a currency based on Oil ?????????????????????

With great delight i bring you The new Oil based currency

What about a currency based on debt, oh hang on a minute we already have that.

[Variously]

This seems like a big moment to me. Up til now the media's worst predictions have been falls of maybe 20%. I would fear to publicly admit that I believe 50% falls are likely because most people just don't believe it's possible. But a story like this in two newspapers puts that 50% figure in peoples mind, and I think we'll hear more of it.

A return to 3.5 x salary will mean 50% drops. But even I find it hard to really conceive of bigger than 50% drops, but looking at the prices of some stuff out there, I don't see how it won't happen. Loads of flats in Hackney, Thamesmead and the like would still be over 100k even at 50% off, and who's going to pay that? That silly Hammersmith place with the "mezzanine bedroom" would be about 135k at half price, still way overpriced. And seeing 50% drops predicted in the papers just makes more more convinced.

Edited June 9, 2008 by Variously

[@contradevian]

Does this mean that prices will merely drop back to 2005 levels for areas such as London ?

Doesn't sound very much like a crash then if REAL falls only mean 25% off by 2011 and the rest inflationary.

I'd thought London was tremendously over-valued by 2005, to hear we're only going back to 2005 or thereabouts sounds pretty much a damp squib.

I agree, the falls are going to be a lot bigger. I reckon back to 2001/2 where I was starting to get priced out then on a decent salary. Where I live now, if property fell by 50% in real terms it would still be unaffordable

[0q0]

Kind of takes me back to the stocks and shares crash with the old dotcoms. Initial predictions of 50% crash turned out to be very optimistic as 90% was wiped off a good few and of course many shares that were about ten quid today trade in the range 15p to 25p, although some did have a "recovery" to 75p a couple of years ago.

People don't need shares like they need shelter, of course, but still makes me wonder...

[Guest Winnie]

Does this mean that prices will merely drop back to 2005 levels for areas such as London ?

Doesn't sound very much like a crash then if REAL falls only mean 25% off by 2011 and the rest inflationary.

I'd thought London was tremendously over-valued by 2005, to hear we're only going back to 2005 or thereabouts sounds pretty much a damp squib.

No - the effect of a 50% reduction from peak will take prices EVERYWHERE back to about 2001......or earlier. Do the maths....... 50% off the groeth is not like a binary subtraction of growth percentage minus drop percentage - it is proportionally much greater.

[0q0]

I agree, the falls are going to be a lot bigger. I reckon back to 2001/2 where I was starting to get priced out then on a decent salary. Where I live now, if property fell by 50% in real terms it would still be unaffordable

Yes, I can recall talking with neighbours about how silly London prices were and it was only late 2004 !! We'd seen nothin' yet !

[0q0]

No - the effect of a 50% reduction from peak will take prices EVERYWHERE back to about 2001......or earlier. Do the maths....... 50% off the groeth is not like a binary subtraction of growth percentage minus drop percentage - it is proportionally much greater.

Winnie, maths has never been my strength, but I just love it when you talk dirty like this, "binary subtraction...minus drop percentage", it sounds good to me

[Mikhail Liebenstein]

I'm not sure what to make of this report in terms of a re-entry strategy (sounds a bit Apollo 11).

The way article reads is that we will get an initial dive in nominal prices for 2 years, followed by nominal price stagnation, during which period the real price will get eroded by inflation. This does seem to line up with the last crash and so what do people think the re-entry strategy is?

It could be buy in 2011, and then sit on your hands not expecting prices to rise for sometime in which case you will have paid the lowest nominal price, though perhaps you'd perhaps be slightly worse off in real terms. For instance I have a largish STR fund and the cost for buying in 2011 as opposed to later would be the loss of interest from 2011 onward. If prices are nominally flat for 3 years after 2011 and I am getting interest, then I am better off.

Or it could be that you go for a purchase in 2014, when prices are absolutely minimum in real terms. That way you'd get 3 years more interest and potentially you'd have another 3 years of the lower cost of renting. The danger here is that sentiment may have improved by 2014 and whilst not missing the HPI boat, we might start to see a bit of competitive bidding so you may not get you first choice of property. Whereas in 2011, everyone will say "don't touch property with a barge pole and sellers will fall on their knees as seeing a rare buyer."

Edited June 9, 2008 by mikelivingstone

[Venger]

A return to 3.5 x salary will mean 50% drops. But even I find it hard to really conceive of bigger than 50% drops, but looking at the prices of some stuff out there, I don't see how it won't happen.

Salaries don't necessarily have to stay stable or rise. News articles I'm reading are now signalling the credit crunch is likely to move on to hurt architects, accountants, lawyers and the like.

Hearing any stories of people are being asked to work less hours, pay-cuts or redundancy? Any likelihood we'll start to see any big jumps in unemployment which the US is now seeing? Know the percentage working in the public sector under Labour compared to when Conservatives were last in power. Why can't the Treasury increase the £16,227 pay for soldiers?

I don't buy in to any widespread wage inflation theory and think the pressures above will push down harder on house prices.

[deus ex machina]

The report suggests a cycle of 7 years or so following which prices will return gradually to present levels.

I cannot quite see this unless the Tories change their philosophy and embrace inflation allowing the average annual income to rise to 40,000 GBP or when the banking industry suffers a collective bout of amnesia and starts lending thousands of pounds/dollars to supermarket shelf stackers again.

In either case this is as likely as the Tories losing the next election.

Houses as miracle pots of gold realisable every 10 years are a thing of the past.

Monetarism rules, ok?

[@contradevian]

No - the effect of a 50% reduction from peak will take prices EVERYWHERE back to about 2001......or earlier. Do the maths....... 50% off the groeth is not like a binary subtraction of growth percentage minus drop percentage - it is proportionally much greater.

Well back in 2001 there were no lending problems that I was aware of. There was plenty of money available for mortgages.

Well there are very acute lending problems now with providers withdrawing daily. I doubt they will not get the MBS market up and running for quite some time so money is going to contrained for property and more reliant on deposits (perhaps anyway the MBS market requires a continual bull market in property?).

So I tend to see a return to 2001 pricing as the "least bearish" result.

[Bosh]

I'm not sure what to make of this report in terms of a re-entry strategy (sounds a bit Apollo 11).

The way article reads is that we will get an initial dive in nominal prices for 2 years, followed by nominal price stagnation, during which period the real price will get eroded by inflation. This does seem to line up with the last crash and so what do people think the re-entry strategy is?

It could be buy in 2011, and then sit on your hands not expecting prices to rise for sometime in which case you will have paid the lowest nominal price, though perhaps you'd perhaps be slightly worse off in real terms. For instance I have a largish STR fund and the cost for buying in 2011 as opposed to later would be the loss of interest from 2011 onward. If prices are nominally flat for 3 years after 2011 and I am getting interest, then I am better off.

Or it could be that you go for a purchase in 2014, when prices are absolutely minimum in real terms. That way you'd get 3 years more interest and potentially you'd have another 3 years of the lower cost of renting. The danger here is that sentiment may have improved by 2014 and whilst not missing the HPI boat, we might start to see a bit of competitive bidding so you may not get you first choice of property. Whereas in 2011, everyone will say "don't touch property with a barge pole and sellers will fall on their knees as seeing a rare buyer."

I see your point Mike, I suppose it depends on what you want from life, If we hit a long slow flat bottom in 2011 and you are in position to purchase ` The house` then some of us will go for it. I too have a healthy STR fund and for every year stashed away, the rewards are immense and another 2-3 years growth from 2011 will be incredible but the desire to live in our target area and be settled will be very strong by then, saying that I may consider continuing to rent but in the area we want to be in.

It`s like everything, just going to have to see where the wind takes us for now and make the call nearer the time.

By the way, Well done and thanks for all the research you post.

Bosh

[council dweller]

Guess what I got for my Birthday yesterday..

...a pair of socks?

[red]

We must be past the denial phase where sellers refuse to reduce prices and well into the fear phase now to be seeing so many sellers reducing their prices.

It does indicate that the consensus with most people now must be that house prices are coming down. It also indicates that people don't think it is a temporary thing and that they think the credit markets will get better otherwise they would hold on. I'm actually surprised, I thought people would be more stuborn about reducing

We certainly are in the fear phase.

And with mortgage lending criteria BACK TO NORMAL - ie: having to actually have a deposit of some kind and borrowing a sensible amount according to income - prices will come down hard & fast.

[evictee]

''By the end of this year prices will be down by 10% and by a further 10.5% in 2009, according to the index. Prices will keep dropping through 2010 and cut values by 23.5% when they hit rock bottom in 2011. House prices will then begin a slow climb back to current market values over a period of about six years.''

How do they equate 23.5% (nominal) with 50% real terms? Agreed RPI would have to be over 7% with commensurate pay rises compounded. This is still a soft landing scenario. Do Guardian reporters get 7%pa pay rises?, I would suggest with real inflation above the mentioned 7% and real pay rises for real people at max of 3% (and thats bolstered by a few w*ankers at the top) with many getting b*gger all, then the ability and desire to buy houses in 2010 will be far far less than this reporter believes. I suggest his scenario would work out only if unemployment doesn't increase and real inflation calms down considerably.

Isn't 23.5% just the 2010 through to 2011 fall, after 2008's 10% and 2009's 10.5%?

[pablopatito]

I'm not sure what to make of this report in terms of a re-entry strategy (sounds a bit Apollo 11).

LOL! You make it sound so scientific. The only certainty is that no-one can predict house price inflation, ever. Its impossible. Even in the short term its impossible to predict, never mind the medium term. Therefore your strategy should be to re-enter when you feel the probabilty of losing money is low enough to be acceptable to you.

[Warwick-Watcher]

I see your point Mike, I suppose it depends on what you want from life, If we hit a long slow flat bottom in 2011 and you are in position to purchase ` The house` then some of us will go for it. I too have a healthy STR fund and for every year stashed away, the rewards are immense and another 2-3 years growth from 2011 will be incredible but the desire to live in our target area and be settled will be very strong by then, saying that I may consider continuing to rent but in the area we want to be in.

It`s like everything, just going to have to see where the wind takes us for now and make the call nearer the time.

By the way, Well done and thanks for all the research you post.

Bosh

There will be competition for these "incredibly cheap" houses. Many people have STR or inherited money from relatives. If I have say 100k cash and g/f house sells for 200k then we can afford a 500k house with a 200k mortgage. If that 500k house falls to 400k we would only have a 140k mortgage (even hers falls 20% too). This is so easily affordable as to clearly put a floor on house prices.