Which Will Fall Most, Low Or High Price Properties?

[silver surfer]

I don't know but, I'd guess that in the UK low priced properties will fall the most.

Here's some evidence from the US that suggests it's the lower priced properties that are leading the market down, the first time I've seen this tiered data broken out from the Case-Schiller Index

http://calculatedrisk.blogspot.com/2008/06...ce-indices.html

[blankster]

I think that properties 'ripe for renovation', especially if uninhabitable, that will lose the most value.

[Justice]

Builders will buy up property than needs renovating as they will not find contract work but on the other hand 1 bed flats will not sell because FTB's can leap frog that rung on the ladder.

Just look at what happened during the last crash to see what will happen again.

[blankster]

Builders will only buy up renovation property when it's cheap enough, though.

[Converted Lurker]

I don't know but, I'd guess that in the UK low priced properties will fall the most.

Here's some evidence from the US that suggests it's the lower priced properties that are leading the market down, the first time I've seen this tiered data broken out from the Case-Schiller Index

http://calculatedrisk.blogspot.com/2008/06...ce-indices.html

when you say "fall the most" are we talking percentage or value? My tuppeneth (fwiw) is that the higher up the tree the greater the real or nominal fall. Already seeing evidence in my area NW that professional landlords (those been in it for a couple of decades or more) are back in looking at buying rental yield. 50-60K places in Liverpool giving £400-450 per month, if 'on benefits' all the better.

Anyhow, back on thread; 20% fall in Kensington West London could equal 200K equity destruction. However, 30% fall in Kensington Liverpool could equal 25K equity destruction....

[bobthe~]

when you say "fall the most" are we talking percentage or value? My tuppeneth (fwiw) is that the higher up the tree the greater the real or nominal fall. Already seeing evidence in my area NW that professional landlords (those been in it for a couple of decades or more) are back in looking at buying rental yield. 50-60K places in Liverpool giving £400-450 per month, if 'on benefits' all the better.

Anyhow, back on thread; 20% fall in Kensington West London could equal 200K equity destruction. However, 30% fall in Kensington Liverpool could equal 25K equity destruction....

We have seen a 2.5 million house drop to 2 million (asking prices obviously).

Hard to see how a 250k flat could drop that much, so can't disagree with you there CL.

In terms of percentages, I don't think this is entirely like last time, but certainly you can see new build city centre flats taking the biggest hit. I remember reading from Bob Beckman that areas hit by a crash (in all markets) can expect a fall of 2/3 to 3/4. These are the epi-centre. Tech shares fell by that much in the dotcom bust. And that included the "good ones" that survived.

My thinking is like Justice's in that people will avoid these because they can get something nicer for similar money or not much more money, after a while. There will also be a rush to sell these, with developers, mortgage holders etc racing each other to the bottom.

[silver surfer]

when you say "fall the most" are we talking percentage or value?

Percentage. That was the message from the tiered Case-Schiller data, it shows lower price property went up more in the boom and is now falling more in the bust.

I think there's been a similar situation in the UK, but without hard data that's just anecdote and observation.

[Converted Lurker]

We have seen a 2.5 million house drop to 2 million (asking prices obviously).

Hard to see how a 250k flat could drop that much, so can't disagree with you there CL.

In terms of percentages, I don't think this is entirely like last time, but certainly you can see new build city centre flats taking the biggest hit. I remember reading from Bob Beckman that areas hit by a crash (in all markets) can expect a fall of 2/3 to 3/4. These are the epi-centre. Tech shares fell by that much in the dotcom bust. And that included the "good ones" that survived.

My thinking is like Justice's in that people will avoid these because they can get something nicer for similar money or not much more money, after a while. There will also be a rush to sell these, with developers, mortgage holders etc racing each other to the bottom.

all these inner city flats will be halved in cost at a stroke IMHO. Mind you they were arguably only operating in their own bizarre bubble world of valuations anyhow, perhaps up to 30% over valued so I'm not sure they have either the scope or volume to affect prices overall, other than the fantastic headlines they generate upon collapsing. I sincerely hope all these inner city developments get finished/sold and are set free on to the open market which will then reperesent open season. This lack of development over the next few years really troubles me as it could mark the beginnings of genuine supply and demand issues in ten years time and the devisive HPI bubble (cycle) starts up again

Edited July 12, 2008 by Converted Lurker

[Converted Lurker]

Percentage. That was the message from the tiered Case-Schiller data, it shows lower price property went up more in the boom and is now falling more in the bust.

I think there's been a similar situation in the UK, but without hard data that's just anecdote and observation.

Not sure it matters as in my example if West Ken falls 20% (versus 25% in other areas) it's very very bad if you own there, however, likelihood is that if could afford a 1 mil place you'll be OK/have decent equity, that is unless you transported the equity from your previous sale (maybe 300K) as you'll then be licking wounds furiously as you witness it fall in value and have to cope with the jumbo mortgage thereby demolishing the "house price falls don't matter if you don't need to sell" mantra.

[silver surfer]

all these inner city flats will be halved in cost at a stroke IMHO. Mind you they were arguably only operating in their own bizarre bubble world of valuations anyhow, perhaps up to 30% over valued so I'm not sure they have either the scope or volume to affect prices overall, other than the fantastic headlines they generate upon collapsing. I sincerely hope all these inner city developments get finished/sold and are set free on to the open market which will then reperesent open season. This lack of development over the next few years really troubles me as it could mark the beginnings of genuine supply and demand issues in ten years time and the devisive HPI bubble (cycle) starts up again

I absolutely agree. There's been a lot of champagne popping on this forum over the demise of the builders, but we need one of two things to happen.

Builders need to go bust so their land banks are liberated and the market price for land can be re-calibrated.

Or they need to succeed sufficiently to get back to building houses.

At the moment they seem to be steering a middle course between total collapse and actually doing what they're supposed to do-namely build homes!

[Mrs Bear]

I don't know but, I'd guess that in the UK low priced properties will fall the most.

Here's some evidence from the US that suggests it's the lower priced properties that are leading the market down, the first time I've seen this tiered data broken out from the Case-Schiller Index

http://calculatedrisk.blogspot.com/2008/06...ce-indices.html

I've seen some hefty drops in all categories in my area. (Kingston on T). A few flats down from eg £265K to £220.

Current favourite is 5-bed new-build, large but a semi, orig. price £2.2M - developers' ad last week in local property-porn mag said:

'Make us an offer we can't refuse - guide price £1,690,000.'

As for properties ripe for renovation, an elderly aunt's 4 bed in Herts, needing updating but perfectly livable if you don't mind an avocado bathroom was orig. priced at £425K last Dec. Relatives handling sale (she's had to go into a home) are now reducing it to £325K in hope of getting shot PDQ.

[Converted Lurker]

I absolutely agree. There's been a lot of champagne popping on this forum over the demise of the builders, but we need one of two things to happen.

Builders need to go bust so their land banks are liberated and the market price for land can be re-calibrated.

Or they need to succeed sufficiently to get back to building houses.

At the moment they seem to be steering a middle course between total collapse and actually doing what they're supposed to do-namely build homes!

and the worry is that the govt, any govt (who don't build houses anyway) will not pick up the slack as, guess what, politically slowing the pace of a house price correction may be more vote worthy than building houses/keeping millions in employment.... We need these 2mil units to be built over the next 8 years for a variety of healthy reasons, builders downing tools now is not good....gotta go...

[Guest happy?]

Houses are like cars: 1600cc family saloons always sell (and maintain their value in a falling market), Bentleys, bangers, and over-priced non-standard cars stand around on forecourts depreciating.

3 bed semis will always sell, 2 bed terraces will always sell. Mansions will sell only very slowly. 1 bed and studio flats will collapse (and 2 bed flats will be hard to shift). Property requiring significant renovation will be bought by builders at knock-down prices only.

[rxe]

I don't think the factor is "expensive or cheap". It will be "two a penny or unique". If you are looking for a bog standard 3 bed box (or flat) there are loads to choose from. You won't put in a high offer, because if you lose it, who cares, you'll offer on the one two doors down. These are the houses where propertybee and a bit of research are killers for buyers - show the seller an identical house for 30% less, and they quickly realise they are stuffed. If they aren't smart enough to work it out, walk away.

If you move on to "unique" houses - and I mean features such as character, land, isolation or other amenities - then these are the sort of places people fall in love with, for better or worse. For these, people are willing to fight for them - that is why I'm in the process of buying, even now. I'm still looking at similar properties in the area, and they are moving, quickly - 1 - 2 weeks on the EAs site, then gone and they don't come back 4 weeks later. They're also the sort of places that are family homes, so not BTL fodder.

[interestrateripoff]

Won't this come down to location location location??

It all depends on how the market reacts and what people want. I would expect houses in good areas will be better off than areas with social problems.

The rabbit hutches built in city centres will soon be known for what they are flats rather than luxury apartments and I would expect massive falls in prices.

However if there are large property falls the entire market will stagnate as many people will be unable to move or even downsize to cut costs.

[Dunroamin']

I don't think the factor is "expensive or cheap". It will be "two a penny or unique". If you are looking for a bog standard 3 bed box (or flat) there are loads to choose from. You won't put in a high offer, because if you lose it, who cares, you'll offer on the one two doors down. These are the houses where propertybee and a bit of research are killers for buyers - show the seller an identical house for 30% less, and they quickly realise they are stuffed. If they aren't smart enough to work it out, walk away.

If you move on to "unique" houses - and I mean features such as character, land, isolation or other amenities - then these are the sort of places people fall in love with, for better or worse. For these, people are willing to fight for them - that is why I'm in the process of buying, even now. I'm still looking at similar properties in the area, and they are moving, quickly - 1 - 2 weeks on the EAs site, then gone and they don't come back 4 weeks later. They're also the sort of places that are family homes, so not BTL fodder.

spot on, if your house is effectively a commodity with 20 others competing for one or two buyers you're in a world of hurt. If you're selling a place that's unique/different with little or no similar propety on the market and attractive to people who actually plan to live there themselves then the falls will be less severe althogh it will probably take a while to find a buyer.

If a number of properties similar to yours are owned by BTLers - ouch

Edited July 12, 2008 by Dunroamin'

[Guest happy?]

spot on, if your house is effectively a commodity with 20 others competing for one or two buyers you're in a world of hurt. If you're selling a place that's unique/different with little or no similar propety on the market and attractive to people who actually plan to live there themselves then the falls will be less severe althogh it will probably take a while to find a buyer.

If a number of properties similar to yours are owned by BTLers - ouch

Unique properties won't sell in a frozen market as there aren't the number of buyers about - so as you say it'll take a while to find a buyer. 3-bed semis will still turnover simply because they're affordable and more of them. Flats and undesirable properties are only bought by the desperate in a rising market.

Like self-certification lending, we have seen masses of unscrupulous lending to those in the 'right to buy' bracket in recent years. Much of this lending was at punitive rates to the financially illiterate in less desirable areas - most of the attractive right-to-buy went in the 1980's. I suspect that such properties when abandoned will trigger further declines in housing stock as an area's poor reputation accelerates.

[cafu_111]

I think the more expensive properties will see the biggest declines for the following reasons:

a) Credit is going to be harder to come by for bigger properties

For those who are lucky enough to have big enough deposits to obtain the credit for the larger properties, they will be looking at the rising payments on mortgages and thinking twice about overstretching themselves, especially in a market where house values are declining.

c) Even buyers with cash I think will avoid buying the upmarket properties right now. I think there is a consensus amongst most people now that prices should decline by at least 20-30%- Whether that takes 1 year, 2 years or 5 years to happen. If one is to buy a house for 500k, they're probably looking at losing 100-150k which will make most buyers IMHO hold off for a while hence drying up the demand for the bigger properties

d) In my opinion the MAJORITY of people that are likely to invest in an expensive property are likely to be quite clued up on the economy therefore better knowledge will deter them from investing in an expensive property right now (I may be wrong).

e) We are in a property recession and like any other recession buyers look for things that are Value for money and practical rather than luxury. Hence I agree with the earlier posts that people are more likely to buy a 3 bed semi than a 5 bed mansion where they have rooms that they won't necessarily need.

At the same time I think that the properties in poor socio-economic locations will see big declines as well. With due respect there was over the last few years ex council / banged up houses going for ridiculous sums of money and I think these properties will see substantial falls also. The properties that should see the least decline in values as previously said will be the mid market properties i.e. your 3 bed semis in decent areas with good amnesties etc

Edited July 12, 2008 by cafu_111

[Converted Lurker]

I don't think the factor is "expensive or cheap". It will be "two a penny or unique". If you are looking for a bog standard 3 bed box (or flat) there are loads to choose from. You won't put in a high offer, because if you lose it, who cares, you'll offer on the one two doors down. These are the houses where propertybee and a bit of research are killers for buyers - show the seller an identical house for 30% less, and they quickly realise they are stuffed. If they aren't smart enough to work it out, walk away.

If you move on to "unique" houses - and I mean features such as character, land, isolation or other amenities - then these are the sort of places people fall in love with, for better or worse. For these, people are willing to fight for them - that is why I'm in the process of buying, even now. I'm still looking at similar properties in the area, and they are moving, quickly - 1 - 2 weeks on the EAs site, then gone and they don't come back 4 weeks later. They're also the sort of places that are family homes, so not BTL fodder.

Et la Monie??? OK in theory, however, even if you have 300K cash and want to buy a 500K house you're going to have to stack up for the 200K mortgage now, whereas this time last year you had an army of BDMs from non conforming lenders fighting the broker for the business to "reach target". Very different money world now. Also don't underestimate the chain reaction/destruction that will begin to happen, one of the weird aspects of the nature of the house selling game is that in a rising market chains don't collapse as easily as in a falling one, lots of unhappy bunnies being told that 'su casa' is worth 100K less than they think, passed up or down a chain, usually gets to second base before someone goes ballistic. Then surveyors ask for works to be done before completion, last minute nerves....so much can go wrong.

In short and in general terms, if you're a buyer (or seller) the shorter the chain > the lower the price > the more chance of the transaction completing, therefore those places at the lower end of the food chain will fall less in real hard cash and percentages.

[Bigtimebear]

I failed Economics but I have a theory nonetheless. Supply and demand:-

Large rural, period houses, detached with land - e.g. £800k to £2m, there are fewer of and will decline the least.

Where there is more competition and greater supply - e.g. 1 bed new builds to three bed terraced, these will fall the most.

And apparanly 40% of home owners have no mortgage (staggering statistic IMO) so will be looking to trade up, thus increasing demand for larger, currently pricier houses.

[mitchbux]

And apparanly 40% of home owners have no mortgage (staggering statistic IMO) so will be looking to trade up, thus increasing demand for larger, currently pricier houses.

A good percentage of those with no mortgage are going nowhere, they've traded up to where they want to be and paid off the debt.

There are also plenty of people already in larger, pricier homes with no mortage that would happily downsize if the right property came up, just because they want somewhere easier to maintain.

[Guest happy?]

I failed Economics but I have a theory nonetheless. Supply and demand:-

Large rural, period houses, detached with land - e.g. £800k to £2m, there are fewer of and will decline the least.

Where there is more competition and greater supply - e.g. 1 bed new builds to three bed terraced, these will fall the most.

And apparanly 40% of home owners have no mortgage (staggering statistic IMO) so will be looking to trade up, thus increasing demand for larger, currently pricier houses.

Most people would recognise that there's a vast difference between "1 bed new builds to three bed terraced" - for a start the latter has 3 times as many bedrooms as the former, this can be a practical consideration for those wishing to purchase. In any declining market the least desirable properties will fall the most in % terms, they will be harder to shift as most people will recognise better value and more facilities in a larger property.

As the vast majority of people cannot afford luxury property in any market, it doesn't matter if these properties are priced at £800k or £8million - they're irrelevant, prices for these properties depend on how many potential buyers have the cash for them - many mainstream banks and building societies have already indicated that they won't be lending on them - I suspect for a reason.

[mitchbux]

I think that properties 'ripe for renovation', especially if uninhabitable, that will lose the most value.

According to FIL this is what was still sticking when the market bottomed out last time. The numbers didn't add up for developers to be able to sell them on at any profit.

A few of these are now sitting in FIL's little BTL portfolio - all bought early 90's. He thinks it might be time to add a few more soon.

Anyway, IMHO it will be anything new-build that will be hit the most. It's not just city-centre apartments that have been sold well over their market price. We live on a 70's estate, in catchment for good schools, in the right part of town. It was easy for us to see what the "going rate" was for our house from LR data. Someone I know bought an off-plan new-build nearby at roughly the same time as us. They paid nearly 200K more for a house with the same number of bedrooms.

[Dunroamin']

I failed Economics but I have a theory nonetheless. Supply and demand:-

Large rural, period houses, detached with land - e.g. £800k to £2m, there are fewer of and will decline the least.

Where there is more competition and greater supply - e.g. 1 bed new builds to three bed terraced, these will fall the most.

And apparanly 40% of home owners have no mortgage (staggering statistic IMO) so will be looking to trade up, thus increasing demand for larger, currently pricier houses.

you're ignoring he demand side of the equation. There will be much more demand for cheaper properties as this is what most of the population can afford. Also be careful about whether you are talking about absolute or % falls. I'd rather lose 40% on a house I bought for £200k than 10% on a house I bought for £2 million. The mortgage company will probably take the same view aswell.

As people have said it will come down to the relative scarcity of properties with a similar quality of location and ammenities to yours. No one built any 300 year old character cottages in the last 10 years (for obvious reasons) - and these are generally considered at the desirable end of the 3 bed house market, therefore, all things being equal, I'd expect prices for these to fall less, in % terms than for new build city centre flats, which we know the market is already flooded with.

[dances with sheeple]

Depends what you mean by high price properties. If we mean bought for cash by the genuinely wealthy, then these people are going to look for fair market value, which won`t be discovered until everything plays out, and lets be honest, this is the big one, the daily news testifys to that. We will all know soon enough how people felt as they watched the great depression steamroller through their lives. I`m not saying that everyone suffered equally in the great depression, or that everyone now is going to need food handouts, but we are seeing the authorities wrestling with events that they increasingly cannot control in terms of spin or managing the actual events as they play out. This is not going away as some said six months ago, we are going to see and live with the consequences. One of the consequences in my opinion is that all property bought after we left rational multiples of earnings will revert back to rational multiples of earnings. The main drivers, sentiment, and cheap credit are gone, and that alone IMO is enough to take this market down in a big way.

It`s two levels (1) credit driven, financially uneducated (most of the recent buyers), and developers just putting the foot to the floor to make as much profit as possible and running out of road (watch them crash and burn).

(2) True wealth, money no object, large mansion type houses all over the place. Footballers, pop stars, and lotto winners will have bought at the peak and will lose shedloads. Smart and rich won`t have been "piling in" at all during the last five years or so.

We have to remember that six hundred thousand pounds for a "family home" had become the norm, and people were talking about these amounts with no concept of the value of that amount of money (it`s free! spend up while you can!) A couple on good money and a couple of liar loans could soon leverage themselves into million pound plus properties. It`s a mistake to think that everyone in the "unique" properties is wealthy, can afford to stay there, and don`t need to sell, many of them will be up to their nuts in debt. That type of aspiration was fuelled by the property porn shows and we will soon see the consequences.

To sum up, liar loans, and too much credit permeate this market from top to bottom and when the shake out comes we are going to see astounding losses (it was never real, unless you got out of course) The really smart money was out a long time ago and does not feature in this part of the performance. Chasing "unique" has a very different tone when it`s your own money you are spending, and therefore "unique" has to become very cheap before anyone will be able to buy it.