Up To 35% Hpc Predicted In The Ft

[uncle_monty]

Good bear stuff. Apologies if already posted.

Monty

Widespread alarm is rattling at castle gates

By Norma Cohen, Economics Correspondent

Published: July 9 2008 03:00 | Last updated: July 9 2008 03:00

In an age when an Englishman's home is not only his castle but his retirement fund, the prospect of falling house prices provokes widespread alarm.

Yesterday Savills, the property advisory group most closely associated with the London housing market, fuelled the national unease when Jeremy Helsby, its chief executive, reiterated the company's forecast that house prices could fall by as much as 25 per cent over the next two years.

Mr Helsby argues his prediction should cause no surprise given the widespread transformation of houses from homes into investments.

"Joe Bloggs has spent the last 10 years believing that housing is an investment," he says, noting that such sentiments led people to buy more property than they needed or could afford.

That forecast, while alarming to homeowners, is hardly out of line with projections made by City economists in recent months. David Miles, chief UK economist at Morgan Stanley, has predicted a drop in nominal prices of as much as 20 per cent between January 2008 and the end of 2009.

Economists at Citi warn prices are likely to fall by that amount by the end of 2010, but that this forecast may be optimistic given the sharp drop in the number of mortgages approved for house purchases. Ed Stansfield, property economist at Capital Economics, says the consultancy's forecast is a drop of 35 per cent in house prices by the end of 2010 - a gloomier prognosis for owners than most.

Nationwide, the UK's largest building society and compiler of one of the most closely watched indices of house prices, has chosen to scrap its forecast for softening price growth, made last autumn, and not to make another. Fionnuala Earley, chief economist, says this is a function of unusual volatility: "Because things are changing so fast, we decided not to issue a forecast."

The government's own assessment, which slipped out in May when briefing notes prepared for Caroline Flint, the housing minister, were caught on camera, expects a fall of 5 per cent to 10 per cent in house prices over three years as a best-case scenario.

These forecasts do not appear unduly gloomy when juxtaposed with the trajectory of prices since last October. According to Nationwide, they are down 7.3 per cent from that peak. Some economists believe it is reasonable to assume similar drops in each of the next three six-month periods

However, not all experts are so gloomy. The Council of Mortgage Lenders, a trade body of the nation's lenders, says that while it believes conditions will be tough it does not expect any return to the deep housing recession of the early 1990s.

Richard Donnell, head of research at Hometrack, the housing data analysis company, says his forecast is for a 4 per cent decline in house prices in 2008 and a further 2 per cent in 2009 . But underlying all forecasts, economists say, is one undeniable fact - prices are still beyond too many first-time buyers.

"The credit crunch and lack of availability of finances are a factor [in lower house prices]," says Ms Earley. "But we cannot get away from the fact that demand was softening before the credit crunch because affordability was falling."

Nationwide's calculations show the proportion of take-home pay that the average first-time buyer needs to finance a 90 per cent mortgage is rising "close to 1980s levels", says Ms Earley. That ratio peaked in the second quarter of 1989 at 55.8 per cent of take-home pay.

Steve Nickell, warden of Nuffield College, Oxford and head of a government advisory unit on housing affordability, says by almost any measure prices are out of line with what people can afford. By his calculation, with the average house priced at £174,000, financing 80 per cent of that purchase at 6 per cent would take up 45 per cent of pre-tax earnings - and much more after taxes are paid - of someone on average income.

Even switching to a less expensive interest-only mortgage will not help very much, says Mr Nickell. Prices would have to fall to £115,000 before the average first-time buyer could enter the market.

In London, where prices are far above the national average, Mr Helsby says the biggest impediment to purchases is lack of confidence. "People have to feel that life will get better before they buy a house," he says. And that is unlikely to happen until they cease to expect house prices to go on falling.

[interestrateripoff]

Good bear stuff. Apologies if already posted.

"Joe Bloggs has spent the last 10 years believing that housing is an investment," he says, noting that such sentiments led people to buy more property than they needed or could afford.

To be fair housing is like an investment it can go up as well as down. The down bit is the reality people forgot and the higher the price goes the bigger the fall when it goes down again.

[Guest Shedfish]

35% was my maximum expected fall, to happen over 4-6 years, not so long ago. it looks very conservative now. i reckon we'll be in double figures by the end of 2008, and even that feels conservative; with the mortgage approval figures, the rapidly increasing unsold stock, the decimation of the mortgage market.. and panic hasn't even set in yet.

what a mess. could have been avoided.

[renterbob]

35% was my maximum expected fall, to happen over 4-6 years, not so long ago. it looks very conservative now. i reckon we'll be in double figures by the end of 2008, and even that feels conservative; with the mortgage approval figures, the rapidly increasing unsold stock, the decimation of the mortgage market.. and panic hasn't even set in yet.

what a mess. could have been avoided.

Money confuses the minds of men.

[time 2 raise interest rates]

And don't tell me this will be everyone's fault but the Labour party's

Edited July 9, 2008 by time 2 raise interest rates

[interestrateripoff]

Personally I think 50% and we'll be lucky.

The real question is what's going to happen to everyone who lands in negative equity? The bigger the fall the more people will end up in this even with good LTV. It's like a huge black whole that's going to suck everyone in with a mortgage.

How will all of these people get loans? This is nothing like the 90s we might end up with a situation where over 50% of mortgages end up in negative equity or higher.

The falls are the story but it's negative equity which will have the devastating effect.

Question is what does the govt do if you've got 50%, 60%, 70%, 80% of people with mortgages in negative equity?

This is what will sink the banks and no appears to have any solutions at hand, in the above scenario writing off huge chunks of people loans seems the only viable option.

[bendy]

Nationwide, the UK's largest building society and compiler of one of the most closely watched indices of house prices, has chosen to scrap its forecast for softening price growth, made last autumn, and not to make another. Fionnuala Earley, chief economist, says this is a function of unusual volatility: "Because things are changing so fast, we decided not to issue a forecast."

that says it all.

and that's 2 things: we don't want to put the bad data in the media and we don't want to get our heads out of the sand.

[DoctorJ]

12 months ago I would have been happy with a 35% drop, but now I want more! we'll see if I get what I want.

Funny how it acceptable now for the media to go for really bearish predictions - but are they being bearish enough?

[waitingscot]

Isn't it possible that, just the the media went overboard creating expectation of eternal house price increases, now they are over-egging predictions of falls in prices.

What I would like to know: at around the same stage in the downturn in house prices in the early 1990s what sort of predictions were the media making at that stage. And did the reality fulfill those expectations?

[eric pebble]

12 months ago I would have been happy with a 35% drop, but now I want more! we'll see if I get what I want.

Funny how it acceptable now for the media to go for really bearish predictions - but are they being bearish enough?

I have said for years -- and you can go and check all my posts if you like -- "prices" need to come down 60-70% AT LEAST for anything to be even vaguely good value.....

[renterbob]

I have said for years -- and you can go and check all my posts if you like -- "prices" need to come down 60-70% AT LEAST for anything to be even vaguely good value.....

Eric, you are soooo soft, it is laughable.

Minimum 85% decline in 'value'.

Show some fists man!

[thecrashingisles]

Isn't it possible that, just the the media went overboard creating expectation of eternal house price increases, now they are over-egging predictions of falls in prices.

What I would like to know: at around the same stage in the downturn in house prices in the early 1990s what sort of predictions were the media making at that stage. And did the reality fulfill those expectations?

Take a look: http://www.housepricecrash.co.uk/wiki/Read...ast_time_around

It was 'green shoots' all the way down. There was never the level of bearishness that we have now.

[Radge]

The falls are the story but it's negative equity which will have the devastating effect.

I don't even think NE will be the major factor. If you've got a loan at 5 or 6 times income, a very small increase in interest rates screws you. I think that's why we've got over 100% more property on the market here (Edinburgh) than normal. I have a feeling the current stand-off will be relatively short and bloody. As soon as the stressed sellers come to understand that the credit crunch is not a temporary fixture and future prices will be fixed at affordable levels, I think the rush for the exits will become a stampede.

I suspect the olde English term preferred by our American cousins will be very interesting. I'm so looking forward to the Fall!

[JoeDavola]

I have said for years -- and you can go and check all my posts if you like -- "prices" need to come down 60-70% AT LEAST for anything to be even vaguely good value.....

This is definately true here in Northern Ireland.

Our wages suck, our house prices last summer were amongst the highest in the country.

When my parents bought their first house in Belfast, my Dad was a joiner on £5K a year, my mum worked in an office and was on £9K a year. Their first house cost them £13.5K. That's right, LESS than their combined earnings.

Fast forward 25 years. I earn slightly over the average wage for Northern Ireland. The same ftb house that my parents bought all those years ago would currently cost me about 8 times my earnings.

How can the same pile of bricks be worth so much more relative to earnings all these years later?

Edited July 9, 2008 by JoeDavola

[uptherebels]

I agree that they need to fall by 60 or 70%, but when they do, and all of those people are in negative equity, that debt will not be chased. In 93, I voluntarily gave the keys back, and the house was sold by the lender. There was a shortfall of about 12,000. They sent me about half a dozen letters over the next year. I took them (the letters) to a solicitor, who told me to throw them in the bin. I did, and then did not even open further letters. After two years, I heard no more about it. Maybe I would if I was to apply for a mortgage now but I don't think I will be doing that. So maybe all these BTL people who we think are in a mess, will get away with it?

[the anti krust]

This is definately true here in Northern Ireland.

Our wages suck, our house prices last summer were amongst the highest in the country.

When my parents bought their first house in Belfast, my Dad was a joiner on £5K a year, my mum worked in an office and was on £9K a year. Their first house cost them £13.5K. That's right, LESS than their combined earnings.

Fast forward 25 years. I earn slightly over the average wage for Northern Ireland. The same ftb house that my parents bought all those years ago would currently cost me about 8 times my earnings.

How can the same pile of bricks be worth so much more relative to earnings all these years later?

Property Porn & relaxed lending criteria.

[lufc]

Steve Nickell, warden of Nuffield College, Oxford and head of a government advisory unit on housing affordability, says by almost any measure prices are out of line with what people can afford. By his calculation, with the average house priced at £174,000, financing 80 per cent of that purchase at 6 per cent would take up 45 per cent of pre-tax earnings - and much more after taxes are paid - of someone on average income.

Even switching to a less expensive interest-only mortgage will not help very much, says Mr Nickell. Prices would have to fall to £115,000 before the average first-time buyer could enter the market.

Surely this can't be the same Stephen Nickell ... he's changed his tune.

Edited to add: I wonder if there is some kind of subliminal Government message in there.

Edited July 9, 2008 by lufc

[messychopper]

I have said for years -- and you can go and check all my posts if you like -- "prices" need to come down 60-70% AT LEAST for anything to be even vaguely good value.....

He's right you know....

The cost of living is way way out of control and there is just no reason why a house goes up in cost other than wage inflation, it's just a roof over your head which wears out needing maintenace so why it goes up in cost when cars, planes, boats, bikes and electronics go down doesn't make sense.

Maybe I just don't get it or perhaps it's different this time.

[crash2006]

12 months ago I would have been happy with a 35% drop, but now I want more! we'll see if I get what I want.

Funny how it acceptable now for the media to go for really bearish predictions - but are they being bearish enough?

you'll get more i can say that, 2 years ago i posted a 30-40% drop in house prices, at the start of the year i revised it to 50% easy, they know what coming a massive hangover that no asprin can repair just time.

Even switching to a less expensive interest-only mortgage will not help very much, says Mr Nickell. Prices would have to fall to £115,000 before the average first-time buyer could enter the market.

you can check my posts that what i said 2 years ago also, this is the min amount it needs to drop too.

Edited July 9, 2008 by crash2006

[right_freds_dead]

how fµcking depressing will this gnat of a country be if it takes 4-6 dirty wet grey summers of rain to drag the feeble jerry built rows of northern decayed slave boxes to a still far too high level of -30%.

how crappy will it be awaiting the inevitable, holding on in some landlord trap. some tax target. some cctv id big brother genesis mock tudor pasty greggs mc'pub stabbing hell hole do we have to endure, only to find out were too old and poverty ridden to get pain curing healthcare and pension funds when the moron book is fully paid off and tax our joint-fuzed, over worked, dampened old bones ?

great britain. they say who put in the great, but im asking - who took it out.

what i now see deserves no adulations. just sorrow for the bereft tundra of id culture.

[numpty]

I agree that they need to fall by 60 or 70%, but when they do, and all of those people are in negative equity, that debt will not be chased. In 93, I voluntarily gave the keys back, and the house was sold by the lender. There was a shortfall of about 12,000. They sent me about half a dozen letters over the next year. I took them (the letters) to a solicitor, who told me to throw them in the bin. I did, and then did not even open further letters. After two years, I heard no more about it. Maybe I would if I was to apply for a mortgage now but I don't think I will be doing that. So maybe all these BTL people who we think are in a mess, will get away with it?

No, I dont think so.

A BTL investor you will have admitted in effect when he applied for the loan that he had other investments such as his own house. So a BTL lender looking at the loss will want to know what the defaulting borrower is going to do to make up the shortfall. Unlike yourself in 1992 this type of investor will have other assets and you can bet your life the lender will be after them!

[scuuzeme]

Yesterday Savills, the property advisory group most closely associated with the London housing market, fuelled the national unease when Jeremy Helsby, its chief executive, reiterated the company's forecast that house prices could fall by as much as 25 per cent over the next two years.

Mr Helsby argues his prediction should cause no surprise given the widespread transformation of houses from homes into investments.

"Joe Bloggs has spent the last 10 years believing that housing is an investment," he says, noting that such sentiments led people to buy more property than they needed or could afford.

Can they be sure that was Jeremy Helsby, and not in fact Roger Bootle in a clever Jeremy Helsby disguise?

I'm really quite impressed by the sheer level of negative sentiment from a big VI here!

[right_freds_dead]

Can they be sure that was Jeremy Helsby, and not in fact Roger Bootle in a clever Jeremy Helsby disguise?

I'm really quite impressed by the sheer level of negative sentiment from a big VI here!

those kind of predictions are hardly negative.

they are more in line with the status quo of 'sorry for robbing you, so heres a tiny bit back of what was taken'

35% over 4 years is total crap and hope and glory spin from asshole VIs.

[Ferret]

those kind of predictions are hardly negative.

they are more in line with the status quo of 'sorry for robbing you, so heres a tiny bit back of what was taken'

35% over 4 years is total crap and hope and glory spin from asshole VIs.

Should revert to the £115K you offered a couple of years ago fred old mate.

I see your mate is lurking below fred.

Oh dear he has done a runner.

Edited July 10, 2008 by Ferret

[salamander]

Back in November 2006 the FSA were warning banks to consider the effects on their business of the "severe but plausible scenario" of price drops of 40%.

http://business.timesonline.co.uk/tol/busi...ticle638405.ece

The banks have had plenty of time to consider the effects of a crash and to modify their business models accordingly. If (as seems to be the case for many) they chose not to take this seriously and they suffer catastrophic losses as a result they deserve to go bust. End of.

Edit: Actually, the point of most relevance to this thread is that even before the credit crunch, the body which oversees all UK mortgage lenders was concerned that 40% drops were a "plausible" possibility....

Edited July 10, 2008 by narrowescape