Monday, April 16, 2007

Are we heading for a crash?

Are we heading for another housing crash?

There's been some comment on our Property - Markets and Trends discussion board that the current housing market feels similar to that of the late 80s. One poster argued that there were ten buyers to a house back then and greater numbers this time. Shortly after the housing market went ballistic, he writes, the market went into reverse. Foolish writer Cliff D'Arcy also fears the worst, as he explained in Why The Next Housing Crash Will Be Worse! However, another Fool.co.uk expert argues there is no crash imminent!

Posted by matt @ 02:04 PM (588 views)
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12 thoughts on “Are we heading for a crash?

  • The other fool expert wrote:
    http://www.fool.co.uk/news/property-home/2006/09/28/why-the-next-housing-crash-will-be-worse.aspx
    His comments do not look foolish to me.

    I totally disagree with the author of “Are we heading for another crash wrote?” when he says we need to see another IR rise of 5% to see a crash happening.
    With today’s lending of 6x to 8x salaries, very low deposits, much higher over-valuation of property, much lower base we start from (4-5% versus the 10% of the late 80s) we are in an environment that is far more sensitive to even small IR rises. And that is why the BoE is hesitating to take action.
    I contend that a IR rise of just 1% can crash this house of cards… and I am afraid noone can rule out such a possibility.

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  • But the Motley Fool are a bunch of complete nitwits.

    The very fact that they don’t think there will be ‘a crash’ during the ‘next few years’ is a wonderful indicator in itself. The Motley Fool are Long; go Short Go Short!

    These are the people who were ‘long’ (in their minds at least) the FTSE from 6,700 down to 3,500 because (and I quote) “we believe in investing for the long term” (just as well). Was it possible to get it any more wrong than that? These are the guys who used to start a ‘new’ portfolio when the old ones lost too much. If only we could do that in real life.

    The Motley Fool was started by a couple of guys who got insanely lucky. Right place right time and good for them, but for the love of God do not take what they say as anything other than tepid air.

    These are the same people who were telling everyone to buy internet stocks into the sky as they were falling to earth.

    The article is almost completely without substance. Apparently our interest rates are lower than last time so there’s no ‘danger’?

    His editor told him to put his neck on the line? If their necks were near any lines at any time they would be out of business

    Good grief.

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  • Confused76 don’t forget that we also had MIRAS tax relief last time which gave a discount of up to 40% off of payments.

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  • C'mon Correction says:

    Confused76 – you’re right. The BOE know exactly what’s at stake. With all the econmic indictators pointing to urgent rate rises needed, they just sit on their hands – they have no options left, our economy is going to take a turn for the worse whatever they do, I think another .25% or .5% rise will be the tipping point along with some credit tightening from the mortgage companies for a HPC in most parts of the country by the end of this year. Any rise will take roughly 6 months at least to feed through.

    The amount of housing gone on sale within the last two weeks around by me is staggering. Of one block of newlyish built houses (3 year old), over 60% of them have got for sale signs up (most gone up in the last two weeks)- I’ll take a pic and post it on here. It reminds me of the pictures of streets in london back in 1990.

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  • There are now more houses on the market by where I live in the Thames Valley – I have post a note before on this – looking at rightmove back on January 29th there was a total of 118 houses in my village and the surrounding 4 other villages. By the end of Feb this had increased to 143 at the end of March it was 170 and I have just checked today and the total is 199 – now it could be that more estate agents are now using rightmove, however I think this is not the answer. I will keep track over the next few months and see how this trend continues – but at the moment there it looks like there has been an increase of 68% in 3 months – I did not take into account Flats.. Several of the houses which were on in January have now also reduced their asking price, albeit only by a few %.

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  • If either of these arguments were true, you’d be able to explain the trebling of houseprices in 10 years, but you can’t. It’s a shame that even supposedly educated commentators on the subject are as drawn in by the spin as everyone else.

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  • Fahrenheit451 says:

    I pose you a question …
    How many new houses or flats will it take to stop the BTL pundits saying that there’s a housing shortage?
    Then there will be stability.

    Everyone needs to move home at some time. But if there is nowhere to buy (at a sensible price) then the BTL’s will always have a good time.

    Confused76, is right but it will take time to filter through, and the big hit will come when the 2005 cheaper fixed priced mortgage deals come to an end in 2008. If they were OK with a 4.5% fixed for 3 years and then either have to take a 6.5% variable or 6.75% it will very suddenly end in tears. Nobody can take that sort of hit when 40% of their income was used to pay the mortgage in 2005 and suddenly it jumps to 60% or 70%. Its going to be very very bad.

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  • Errm… so that would be down to the annual Easter rise in houses sales then.

    You need to compare this March with last March etc.

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  • European-bear says:

    One argument against a crash is that interest rates went up from 10% to 15%, i.e. 5% which caused the problem in 1989…and a rise of 5% aint going t0 happen this time….
    But the low of the interest rate cycle this time was 3.75% and the high will be at least 5.5% and probably 6% or higher….A rise to 5.5% will be 1.47 x the low which is similar to the 15% divided by 10%…i.e. 1.5. So all those that were streached at the low point this time will be crucified just as much this time as borrowers were last time who borrowed at 10% in 1987/1988……

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  • P.o.o.r’s rise is unusually large as the typical Jan-Easter rise is historically around 15%, unless there are new-builds in the equation then his figure is unusually large.

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  • I can see the resentment developing between those haves and have nots. Where I work in London, talking about living costs is off limits.

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  • Having looked – It would appear that there are maybe only 5 new build properties, and I don’t know how many there were back in January – My search was to specify town, then limit to houses only, covering all price ranges.

    Currently I am checking the totals on a weekly basis – to see if the trend continues. The same search criteria is used each time.

    Again there is a possibility that houses are being put on with multi agency, however this tends to happen more when property is not selling – sure their will be a few in this total.

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