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Ignore Housing's Doom-mongers

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If someone here wrote a parody of cornucopian thinking on house prices, this would be the result.

So own up - which one of you is Kate Hughes?

Independent on Sunday

-----------------

Ignore housing's doom-mongers – the sky isn't falling in

By Kate Hughes

Sunday, 6 July 2008

Another week, another collective panic. The "Blairs in negative equity" headlines have kicked up more house price fuss as the market slips further. Average estimates from mortgage brokers such as Savills suggest that prices have another 10 to 15 per cent to fall by the end of 2009 – a return to house values of 2004. And Morgan Stanley suggests that a 20 per cent fall would result in two million people, or one in six borrowers, in negative equity.

On the surface, you could be forgiven for panicking. But you'd be wrong: not all homeowners bought their properties at the top of the market; not everyone did it by way of a 100 per cent loan; and not everyone needs to move again imminently.

As things stand, a typical homeowner who bought as recently as 2004 has an average "equity cushion" of 48 per cent of the value of their property, according to research from GE Money Home Lending. House prices would need to fall by almost half before the value of the loan exceeded the value of the property. And based on today's prices, the average home bought in 2000 with an average deposit of £27,000 still has a 58 per cent buffer.

A homeowner from Wales who bought their property in 2000 has an equity cushion equal to more than half the value of the home, and an average London property purchased in 1995 would need to depreciate by three-quarters for the owner to encounter negative equity. And that's only on paper. The crucial thing to remember is that you will only really feel the effect of negative equity – when you owe the bank more than your home is worth – if you realise that loss by selling up.

The market will carry on falling – "readjusting", if you will – in the short term. But long term, house prices rise. Homeowners only feel the need to move between five and seven times in an entire lifetime, the property website Rightmove.com suggests. So if you borrowed 125 per cent of the value of your house at the top of the market last summer, then just sit tight. Don't start perusing the estate agent windows again until your numbers break even.

Yes, there will be some who get trapped as the market falls, and that is not a nice place to be. But the number of people who bought recently and who are forced to move in the near future – and I mean through some fundamental life-changing event, not because they want a bigger garden – and who happen to have borrowed over 95 or 100 per cent of the value of the property, is likely to be a tiny proportion of the homeowning population.

And for the rest of us who just fancy moving – who have decided after a year or two that this house really isn't for us – the question must be asked: should we be blaming the scaremongering media or should we have thought a little harder about that purchase in the first place?

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Hmmmm and that is sound economic advise

It doesnt matter if you have 2Million in Equity, if you cannot afford Gordon Browns sky high interest rates that are set to go way above 10% early spring 2009, against increasing taxes and massive inflation in the purchase of essential goods such as fuel and food, then you are stuffed.

We dont all get MP's Salaries, and nobody gets MP's perks such as free Pergoda's for the garden at 20k each, and free food allowance of £5,500pa. And our wives dont fly first class at taxpayers expense either Mr Speaker/Sponger.

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There's an unemployment thread somewhere on this site - mortgage journos like Kate Hughes have nothing to say unless they can talk life back into the market, which of course they can't.

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Well done Kate, I reckon you have just made everyone feel so much better.

So if you have a 100% mortgage ( or worse) and are sh iitng yourself just sit tight and it will all go away!

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Ah yes, the independent; newspaper of financial illiteracy and non-stop apologism for the Socialist state and all it's f**k-ups. Last thing I read in the Indy about House prices can be paraphrased as the following:

If you wait to buy a house for 6 months renting at 1000pcm, and the price doesn't fall by more than 6000, then you have lost out.

With 'advice' like this, the Indy only belongs in the bin.

Edited by marko

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Unusually for the housing market, most industry insiders are united in their predictions sombre but not doom-laden. Martin Ellis, chief economist at the Halifax, the UK's biggest mortgage lender, expects the sector to begin in the new year as it ended 2008 in a sluggish state. "House price growth will be flat during 2008, underpinned by the continuing shortage of supply of housing. We expect the Bank of England to cut the base rate at least twice in 2008 to 5 per cent or below."

http://www.independent.co.uk/money/mortgag...iff-767365.html

Bad call, from a fence sitting idiot, even more fence sitting than Assetz. Perhaps Kate Hughes should offer some advice rather than quoting everyone and offering no conclusion or insight.

"Meanwhile, consider other ways of boosting the value of your property perhaps an extension such as a loft conversion, or an upgrade to the kitchen."

Yeah , thanks Kate.

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COme on you reporters who cant add up, and thats most of you.

Its really simple.

If you got £10 in your pocket and you want a hifi costing £100 RRP, and you cant borrow £90, either the hifi remains unsold or you find you can borrow £45 so you offer £55 as your final offer. The dealer either accepts the new offer of £55 or the Hifi remains on the shelf.

Now, thats OK if only one customer is in that position.

Think then, If the lenders CANT lend ANYONE any money unless the deal is virually risk free, so the average loan now is halved for example.

The Hifis are either sold to cash buyers, who are few and far between, or you drop the price.

If you dont sell many you go bust. What do you do? you sell for what you can.

Imagine then how much houses would cost if there were ONLY cash buyers and NO mortgages at all.

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As things stand, a typical homeowner who bought as recently as 2004 has an average "equity cushion" of 48 per cent of the value of their property, according to research from GE Money Home Lending. House prices would need to fall by almost half before the value of the loan exceeded the value of the property. And based on today's prices, the average home bought in 2000 with an average deposit of £27,000 still has a 58 per cent buffer.

What was NI's fall last quarter? 18%?

Kate, the word is "TIMBER"!

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COme on you reporters who cant add up, and thats most of you.

Its really simple.

If you got £10 in your pocket and you want a hifi costing £100 RRP, and you cant borrow £90, either the hifi remains unsold or you find you can borrow £45 so you offer £55 as your final offer. The dealer either accepts the new offer of £55 or the Hifi remains on the shelf.

Now, thats OK if only one customer is in that position.

Think then, If the lenders CANT lend ANYONE any money unless the deal is virually risk free, so the average loan now is halved for example.

The Hifis are either sold to cash buyers, who are few and far between, or you drop the price.

If you dont sell many you go bust. What do you do? you sell for what you can.

Imagine then how much houses would cost if there were ONLY cash buyers and NO mortgages at all.

That is the crux of the present situation. You have stated it in a nutshell. Journalists only have to recognise that lending is merely reverting back to normal criteria and that the last few years were the dream and we are presently back to reality. If they also realised that combined with lack of credit the level of savings is at an all time low amongst the UK population as a whole they could avoid such mindless optimism about the future of house prices.

On your final point I would guess that with only cash available you would be looking at house prices at about 12-20% of their present values, but I don't expect any journalists to actually publish that.

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So if you borrowed 125 per cent of the value of your house at the top of the market last summer, then just sit tight. Don't start perusing the estate agent windows again until your numbers break even.

This is fine...

...except that in the last crash a property purchased in the summer of 1989 would not have recovered to the same price level until around 1998. That's nominal; in real terms it would have been around 2000.

If you have a repayment mortgage then at least you would be paying off some of the capital by that time. Unfortunately most people seem to have interest only mortgages this time round!

You could 'sit tight' for twelve years and still have no equity with which to move house!

Edited by Mr Yogi

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Surely the number of people with a large 'equity cushion' is reduced from all the MEWing that has been done over the last few years. Fair enough buying a house cheap but if you have already withdrawn all the equity from it then you wouldnt need to wait for a 50% house crash to be in negative equity

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The market will carry on falling – "readjusting", if you will – in the short term. But long term, house prices rise.

Actually, if you examine the really long term, house prices rise just about in line with salaries and inflation. What is exceptional about the current bubble is that there is an unprecedented mismatch in the ratio between capital cost and disposable income which has been hidden by the illusion of cheap loans and income multiples. And that ratio has NEVER been sustainable, nor in the long term will it ever be. What this article fails to address, with the tedious regularity of similar articles, is whether the increased proportion of disposable income spent on housing is a desirable thing. Of course it isn't. The only yardstick of true wealth growth is that all or at least most goods and services become progressively more affordable as a proportion of household incomes.

The "golden mean" of housing costs as a proportion of wages has always hovered between 25% and 33%. If it creeps up to beyond 50% then for the vast majority this is NOT an indicator of wealth but an indicator of poverty. The fact that a significant number of houseowners manage to be in the right place at the right time to exploit this (at the expense of OTHERS) still doesn't make it a desirable or good thing. As with many housing cost issues, these kinds of press articles always fail to look at the fundamental truths of housing economics: If housing becomes too expensive to buy in terms of the CAPITAL sum needed to own outright, then the only way any "profit" can be made from it is to shift wealth distribution from those entering the market to those already established. This is where the "pyramid" structure of house prices fails to be spotted by such complacency. Eventually the pyramid becomes top heavy and has to start collapsing from the top third.

What this article conveniently leaves out is a recognition that there is NO real long term profit if you assess the total distribution of wealth within its system. The profit is entirely illusiory and is really just a shift, literally, of cash from those at the bottom (the majority) to those at the top (the few). Housing bubbles can only be temporarily sustained by those on the bottom "rung" being persuaded that if they are willing to hand over all their taxed earnings, as a GIFT, to those at the top of the pyramid, then one day they too will magically benefit from a climb to the top. So the system even at the lowest level exists on the PROMISE of wealth even though in fact entrance to the market is an act of impoverishment. But the system relies on only a small proportion actually gaining any profit at all, and those are the ones at the top of the pyramid. Everyone below that level is simply giving money away.

The other illusion implied by these articles is that there will always be a "shortage" to drive values. As we have discovered through research and readily available data on this website, there is in fact NO overall shortage, but if anything a glut of available housing. So the shortage is another illusion created by those who wish to frighten people into action when no action is needed. All that needs to be done is to wait patiently until those who have been stupendously greedy and profligate, or for those naively entering into a market they cannot afford, to come crashing down.

What the BoE and the government needs to do is to design a policy which stops the relentless and ever increasing peaks and troughs in housing costs. But they won't, because built in to the structure of national economics is the false promise of automatic, tax free, unearned income from an illusion of profit. THERE IS NO REAL overall profit in housing. There is just a flow of cash from the deluded to the established. And now the tables are turned the flow reverses back until it temporarily equalises, and then the cycle begins again. The whole thing is bonkers and a complete waste of time and energy.

VP

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Surely the number of people with a large 'equity cushion' is reduced from all the MEWing that has been done over the last few years. Fair enough buying a house cheap but if you have already withdrawn all the equity from it then you wouldnt need to wait for a 50% house crash to be in negative equity

YES fossildog (nice name). No-one mentions this basic fact. Neg Eq is far far more widespread if you factor this in.

Third post and it's a good one.

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The "golden mean" of housing costs as a proportion of wages has always hovered between 25% and 33%. If it creeps up to beyond 50% then for the vast majority this is NOT an indicator of wealth but an indicator of poverty. VP

Bang on the money. The illusion of the miracle economy was all a big fat lie.

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I hate this "negative equity is only a problem if you sell" myth.

If you buy a house with a mortgage for 30%+ above what you could get it for a year or two later, you are going to pay tens, maybe even hundreds of thousands of pounds more of your future income back to the bank over the lifetime of that mortgage.

It's a disastrous move financially to buy at the top of a bubble.

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I hate this "negative equity is only a problem if you sell" myth.

If you buy a house with a mortgage for 30%+ above what you could get it for a year or two later, you are going to pay tens, maybe even hundreds of thousands of pounds more of your future income back to the bank over the lifetime of that mortgage.

It's a disastrous move financially to buy at the top of a bubble.

Yes - its a very spurious argument.

It also limits peoples' mobility.

For example, I know of a couple from Scotland who moved to Northern Ireland 2 years ago for work reasons (they both work for the same company). It was the height of the boom in NI, which made the boom times in most of GB seem modest by comparison i.e. high price rises of 48% per annum at their peak. They got caught up in the hype and eventually purchased, with a 95% mortgage, a 2 bedroom terraced house in a fairly undesirable area for £290k at the peak of the boom in NI last summer. Even by NI's boom standards, this was an outrageous price for this property - they truly did get carried away.

They have no savings to fall back on (what savings they had made up their deposit) and they now want to move back to Scotland due to some family issues. However, if they are very lucky, their house would sell for £200k (I'd imagine that £150k is a more realistic figure though could be even lower) so they are looking at negative equity in the region of £75k to £100k ... and that in a falling market. Only now are they starting to realise that moving back to Scotland to spend time looking after a sick relative will not be so easy - and, boy, do they now regret their purchase :o

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As things stand, a typical homeowner who bought as recently as 2004 has an average "equity cushion" of 48 per cent of the value of their property, according to research from GE Money Home Lending. House prices would need to fall by almost half before the value of the loan exceeded the value of the property. And based on today's prices, the average home bought in 2000 with an average deposit of £27,000 still has a 58 per cent buffer.

What was NI's fall last quarter? 18%?

Kate, the word is "TIMBER"!

Lack of research fails to underpin her main thrust; GMAC are suggesting that in order to have this 'average 48% equity' you needed to have bought pre 2004 with 50K deposit....theory over and Kate relying on it to prove her main point is just plain amateurish.

Should those who bought pre 2004 be scared regarding tales of falling house prices?

Does this press release from GMAC read true? If homeowners bought in 2004 apparently rising prices have created an equity cushion of 48%, that's assuming they put in an average deposit of 50K. Was that the average deposit home buyers put down if buying in 2004? Surely that assumes (incorrectly) that they were 'trading up' and had a minimum 50K equity in their previous home? - Editors comment.

http://firstrung.co.uk/articles.asp?pageid...&cat=44-0-0

Edited by Converted Lurker

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On the surface, you could be forgiven for panicking. But you'd be wrong: not all homeowners bought their properties at the top of the market; not everyone did it by way of a 100 per cent loan; and not everyone needs to move again imminently.

But most of the Buy-to-Let brigade did and most did it in the last two years on cheap 2 year fixed rate

mortgages that are about to expire, that is why advertised rent are rising as most can't afford their

soaring mortgages as two & three year fixed rate mortgages have soared around 35% in the last few

months. This is also why the banks are tanking as the smart money Knows what's coming soaring

repossessions and defaults. The party has yet to begin, B&B tell you all you need to know.

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But most of the Buy-to-Let brigade did and most did it in the last two years on cheap 2 year fixed rate

mortgages that are about to expire, that is why advertised rent are rising as most can't afford their

soaring mortgages as two & three year fixed rate mortgages have soared around 35% in the last few

months. This is also why the banks are tanking as the smart money Knows what's coming soaring

repossessions and defaults. The party has yet to begin, B&B tell you all you need to know.

Not forgetting that the price of the asset is set at the margins.

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If someone here wrote a parody of cornucopian thinking on house prices, this would be the result.

So own up - which one of you is Kate Hughes?

Independent on Sunday

-----------------

Ignore housing's doom-mongers – the sky isn't falling in

By Kate Hughes

Sunday, 6 July 2008

Another week, another collective panic. The "Blairs in negative equity" headlines have kicked up more house price fuss as the market slips further. Average estimates from mortgage brokers such as Savills suggest that prices have another 10 to 15 per cent to fall by the end of 2009 – a return to house values of 2004. And Morgan Stanley suggests that a 20 per cent fall would result in two million people, or one in six borrowers, in negative equity.

On the surface, you could be forgiven for panicking. But you'd be wrong: not all homeowners bought their properties at the top of the market; not everyone did it by way of a 100 per cent loan; and not everyone needs to move again imminently.

As things stand, a typical homeowner who bought as recently as 2004 has an average "equity cushion" of 48 per cent of the value of their property, according to research from GE Money Home Lending. House prices would need to fall by almost half before the value of the loan exceeded the value of the property. And based on today's prices, the average home bought in 2000 with an average deposit of £27,000 still has a 58 per cent buffer.

A homeowner from Wales who bought their property in 2000 has an equity cushion equal to more than half the value of the home, and an average London property purchased in 1995 would need to depreciate by three-quarters for the owner to encounter negative equity. And that's only on paper. The crucial thing to remember is that you will only really feel the effect of negative equity – when you owe the bank more than your home is worth – if you realise that loss by selling up.

The market will carry on falling – "readjusting", if you will – in the short term. But long term, house prices rise. Homeowners only feel the need to move between five and seven times in an entire lifetime, the property website Rightmove.com suggests. So if you borrowed 125 per cent of the value of your house at the top of the market last summer, then just sit tight. Don't start perusing the estate agent windows again until your numbers break even.

Yes, there will be some who get trapped as the market falls, and that is not a nice place to be. But the number of people who bought recently and who are forced to move in the near future – and I mean through some fundamental life-changing event, not because they want a bigger garden – and who happen to have borrowed over 95 or 100 per cent of the value of the property, is likely to be a tiny proportion of the homeowning population.

And for the rest of us who just fancy moving – who have decided after a year or two that this house really isn't for us – the question must be asked: should we be blaming the scaremongering media or should we have thought a little harder about that purchase in the first place?

What Kate and her ilk overlook is that a severe crash is not predicated upon the majority of houses falling into negative equity. It is predicated upon MARKET FORCES. As of now the cycle is in a downswing and it only takes about 5% of the total market to freefall to bring the rest down with it. Sentiment, sentiment, sentiment.

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"The crucial thing to remember is that you will only really feel the effect of negative equity – when you owe the bank more than your home is worth – if you realise that loss by selling up"

Oh and of course if you are about to come of the discount period of a mortgage and are hoping to remortgage to another cheap deal to avoid paying your lender's SVR....but let's not worry too much about that eh Kate.

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I hate this "negative equity is only a problem if you sell" myth.

If you buy a house with a mortgage for 30%+ above what you could get it for a year or two later, you are going to pay tens, maybe even hundreds of thousands of pounds more of your future income back to the bank over the lifetime of that mortgage.

It's a disastrous move financially to buy at the top of a bubble.

also there appears to be a myth that if you've owned for a while you lose less in a falling market; "pity those FTBs who put down 10% deposit on a 120K house they could be faced with 5-10% neg equity if prices fall by 30%...." So? they'll still have a very manageable mortgage and can begin the grind of perhaps over paying to pay down the debt asap...

Now compare that scenario to that of middle England who caught the money for nothing bug, no disclaimer needed I know tens of married couples with a couple of kids that have done this over the past 2-3 years;

Taken their previous gain of circa 200K on a 300K sale and put it into a 500K house with a 300K mortgage. New house corrects by 35% they'll be left with approx. 50k equity and an approx. 150K 'loss' and a jumbo mortgage to service. Even if the house rose to 600K in the time period the figures are still as dismal, the loss is bigger although the equity stays higher....nightmare.

Know of agents in London that talk of this scenario for those 'aspirational movers' who (typically) went from 2bed flat in Fulham to 3 bed terrace house over the past 2 years... <_<

Edited by Converted Lurker

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This is all you need to know the smart money has positioned its self for the house price crash which

will result in soaring repossessions and mortgage defaults.

House Building, share prices.

Barratt homes, year hi £10.42p year low 34p. current 42p.

Bovis homes, year hi 952p year low 265p. current 318p.

Persimmon homes, year hi £13.02p year low 215p. current 236p.

Redrow homes, year hi 572p year low 89p. current 110p.

TaylorWimpey, year hi 384p year low 24p. current 31p.

Banks, share prices.

Allnce & Leic, year hi £11.70p year low 249p. current 255p.

Barclays, year hi 754p year low 272p. current 279p.

HBOS, year hi £10.23p year low 249p. current 271p.

Lloyds TSB, year hi 585p year low 286p. current 299p.

Bradford & Bngly, year ho 441p year low 48p. current 50p.

As I would agree, it's extremely interesting debating the ifs, whens and wheres of the housing market.

But all you need to know is above house prices will crash, interest rates will rise. Position yourself

accordingly as the smart money is telling you where we're at.

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also there appears to be a myth that if you've owned for a while you lose less in a falling market; "pity those FTBs who put down 10% deposit on a 120K house they could be faced with 5-10% neg equity if prices fall by 30%...." So? they'll still have a very manageable mortgage and can begin the grind of perhaps over paying to pay down the debt asap...

Now compare that scenario to that of middle England who caught the money for nothing bug, no disclaimer needed I know tens of married couples with a couple of kids that have done this over the past 2-3 years;

Taken their previous gain of circa 200K on a 300K sale and put it into a 500K house with a 300K mortgage. New house corrects by 35% they'll be left with approx. 50k equity and an approx. 150K 'loss' and a jumbo mortgage to service. Even if the house rose to 600K in the time period the figures are still as dismal, the loss is bigger although the equity stays higher....nightmare.

Know of agents in London that talk of this scenario for those 'aspirational movers' who (typically) went from 2bed flat in Fulham to 3 bed terrace house over the past 2 years... <_<

Add on top of that, that in the last recession, and it makes sense again, if you are on a middle rank in your company and your salary is large, you are in the GOLD on the target population for redundancy.

Useless middleness is the first to go in the salary cost cull.

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Guest Winnie

The Independent - the Ladybird version of The Grauniad, for the really flimsy of mind......

Seriously... do you think she's married to David Smith?

These pieces come ahead of Monday's Halifax data which Caroline Flintstone is busy manipulating as we speak........ :P

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  • 396 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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