Saturday, November 4, 2006

Watch out! You’ve been warned!

What goes up...

House prices are rocketing, the market's crazily optimistic: surely we cannot be headed for a crash? Our man with the maths, Edmund Conway, examines the evidence

Posted by hainsworth @ 04:03 PM (398 views)
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7 thoughts on “Watch out! You’ve been warned!

  • “Few people expect prices to fall by more than 20 per cent, so anyone who has already paid off, say, 15 per cent of the house value should not be affected.”

    I don’t agree. Even if you pay cash for it, a 15 or 20% fall in the value of what you have bought will affect you.

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  • exactly – there seems to be this stupid belief that if you can afford a house and withstand any adverse conditions then you are making a sensible purchase. By this reasoning it would be sensible for Bill Gates to buy a 1 room bedsit in Hackney for 1 million. And then there is the stupid argument that eventually if you hold out long enough you will always get your money back. But if I had $100 and burned 20 and put 80 in the bank, eventually I would recoup my money – its still a crap investment though.

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  • How will it affect you? If you need to sell and move up you will be money up because the next property will have dropped more in value. If you need to stay put it doesn’t matter. If you need to move down the ladder it will affect you. As long as you are not in negative equity and in a forced selling position it doesn’t affect anybody.

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  • good I article this, I thought. Well reasoned and balanced. I liked the way it had a clear seperation of risk factors and protective factors and the risks were there for all to see.

    paolo8888 I’m not sure about your point. You are right that cash buyers would be effected but the point was about mortage holders. I think the authors point was that if you have paid off 15-20% of the capital and there is a 15-20% dip in prices, then you may be spared the perils of negative equity. Although there may be other costs and knock on effects

    BFS

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  • These people have very short memories!

    I for one, expect prices to fall a lot more than 20% of current levels, as this would not even bring us close to the histoical mean.
    Additionally once house prices have been falling for a while, they will probably become oversold, before stabilising and begining the long upward trend again.

    Like I say some people have got very short memories.

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  • Dohousescrashinthewoods says:

    Definitely – big loss on your investment.
    There is no guarantee this is a secular bull: house prices may not reach these levels at the next peak.
    If the fallout is bad and legislation is put in place to prevent it happening again, sheeple will never see the money again.

    (love the saying by the way)

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  • Nohpc….

    You can’t make such statements about negligible effects and further wheeling and dealing to find a more comfortable financial position unless you are certain that the mortgagees in question have strong equity in a property. Have you ever heard of negative equity? How about MEWing. These, along with price fluctuations, affect people who, during the feeding frenzy like we’ve just had, have ALREADY “moved up” to a more expensive lifestyle in ways that are unsustainable when interest rises and prices fall and/or they confront some life crisis like divorce or unemployment or illness. Suddenly, they owe more than the place is worth, more than they can possibly earn. They can’t move up, or down because they owe more than they can sell for. Or they have huge mortgages that they can’t afford, because their bills have gone up, their income gone down, or payments have risen with interest rates — and they default. Sure there should be such a thing as a “safe investment,” that’s merely tied to price fluctuations, in which case you just stay put in a down market, but if you want to want to understand how life isn’t a series of predictable maths problems, and single variables like pricing going up or down, just go to the debt counseling agencies and ask some of the clients why they are in line for advice and why they are losing their homes.

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