Friday, September 14, 2007
Doomsday or just a return of common sense?
The banker predicting house prices to halve
"One senior director at a FTSE bank actually wagered that, at some point over the next three years, UK house prices will have fallen by 50% from the level they are at now. I don't subscribe to that doomsday view, but nor do I believe the likes of Barclays' Bob Diamond when he argues this is just a temporary blip."
Posted by dugmug @ 03:28 PM (2014 views)
29 thoughts on “Doomsday or just a return of common sense?”
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captain sensible says:
Is it really a doomsday view? A 50% fall would only bring prices down to around historical averages based upon income multiples.
confused76 says:
3.5x salary! This is not doomsday, it is common sense!
tyrellcorporation says:
A trader friend high up in one of the top 5 UK Banks told me at the weekend that he had been given instructions to cease ALL lending. He reckoned the whole market was, in his words…fu**ed! and he was taking short positions on the UK housing market players. He also reckoned that things were a lot worse than anything you read in the media. Interesting times… and exciting times for all HPC freaks!
crash bandicoot says:
Yup, a 50% drop only takes you to where house prices would be now if they had risen in line with wages (I forget exactly which survey that was from – I think that it was the TUC one).
If this is true then expect an overshoot on the way down.
tyrellcorporation says:
Mmmm…NEGATIVE EQUITY on a massive scale – It’ll make the 90’s pop look like a cupid’s fart!
David 20040_0 says:
House prices only ever go up
Yorkshireman says:
I do not believe this is a temporary blip. In our area in North Yorkshire there are a lot more houses on the market over the last few weeks. It stands to reason that if you wish to sell, you have to compete with other vendors, so prices should come down. I do not know how far, but ask yourself this question. Could I afford to buy a starter home from scratch, given my present financial circumstances ?
My answer is no. Sadly, neither can my grown up children.
talking rot says:
I’ve always thought the average wage of the UK, outside London, was GBP 24,000. 3.5 x GBP 24,000 equals GBP 84,000. Since Rightmove (or at least I recall it was Rightmove) publicised the average house price had broken through teh GBP 200,000 barrier, there might be a greater percentage decline in house if house prices return to about 3.5 times average annual salary. A fall from GBP 200,000 to GBP 84,000 is a 58% fall. Furthermore, markets tend to over-swing so the fall, if it happens, could be rather large.
Still, never count your chickens before they hatch. Are house prices falling yet? Not in my part of the UK judging by Rightmove’s website. (Alas I’m still abroad so I can’t tell for certain.)
paul says:
The average wage in the UK is nearer 19k. The top 10% of income earners skew the median badly.
Onyerhike says:
Don’t forget that many households have two incomes now – many more than in the 90s.
voiceofreason says:
Pal of mine is unemployed at present and turned £200 into £3400 by shorting banking stocks.
Nice one !!
david20040_0 says:
No way they’ll drop by 50%.
By the way can people stop posting under my name, it is annoying.
uncle chris says:
Ahhhhhh – David – nice to have you back …. fun isn’t it 🙂 … I don’t suppose you read the “expert” view a year ago that prices wouldn’t fall in America, and yet this morning I was reading that prices have dropped 40% in less than 2 years in Florida – Firstrung article here. Now the “experts” are still bleating on that prices can’t possibly drop here (it’s different this time apparently) …. Do you really trust these self-proclaimed experts against your own instincts. Let’s face it, as many on this site have been stating for year’s, the housing market is stuffed.
harold says:
Mmm, cupid’s fart! Which Greek myth is that?
david20040_0 says:
Yeah, I think it might drop 30%, but 50% is too far.
confused76 says:
Should we rename this site
http://www.3.5xSalary.co.uk
sounds more professional than “crash” and definitely a realistic forecast 🙂
dohousescrashinthewoods says:
Love it, Tyrell, that gave me a good giggle. Cupid’s fart!
I expect to see things hit the average and undershoot too, so, based purely on maths and suspending market-induced disbelief, fair value must be 50% and market bottom is likely to be 70%.
Why? Because the staggering overshoot was fuelled by a borrowing binge, which will leave a nasty – and long – debt hangover. 60% might have been a plausible bottom in an ordinary cycle, but 70% seems more plausible for this one. Indeed, it went far further and longer upwards than anyone expected, so I wouldn’t be surprised to see even 70% breached if the fall mirrors the rise.
Jason74 says:
Uncle Chris,
The problem that this site has however is exactly that people have been “stating for years” that the market is stuffed. The crash has been called so many times over the past few years, that people are thinking “oh that story again”. The situation in the credit markets is certainly severe, and seems to be worsening by the week. As such, there is surely a real possibility of a crash now (although I think the 50% predictions wiull prove some way wide of the mark). Not sure that anything said here will influence the world at large however
crash bandicoot says:
If we do enter a period of higher interest rates then even 3.5 times your salary will look like a risky sum to borrow – particularly if the market is still falling. Plenty of folks got themselves into negative equity in the last crash armed with only a 3.5x salary mortgage.
On another note I haven’t seen any mention of the “doomsayers” at HPC for a while. It is starting to look like the doomsayers are moving into fleet street (or the BBC) these days.
Didntwait says:
Uncle Chris, my mum lives in Tampa Florida and where she lives house prices haven’t dropped 40%, not even 10% actually. 5% at most and thats from its peak… and she’s selling her house now for a big profit compared to when she bought it 3 years ago. The point I’m trying to make is that you can’t believe every article you read.
i also doubt the UK housing market will crash by more than 10%. I mean, if £200k properties start being advertised for £180k round here then I reckon there’ll be a surge of buyers looking to snap up the ‘bargin’ prices.
uncle tom says:
We will see a crash proper – as I have said many times before – the whole market will for a period go into meltdown, with some fantastic bargains for those who have hard cash at the bottom – but don’t think about getting a loan at that point…
.. the market will then rebound. Where it will then settle is a bit open, but I struggle to see it getting stable at anything above 2/3 current prices.
Jimmy_joe says:
> 3.5 x GBP 24,000 equals GBP 84,000
That’s the size of the mortgage before any capital repayments, not the price of the house, which could be anywhere from £62700 (125% mortgate) upwards. Even if future average FTBers can only afford 84000, it doesn’t mean that any house will be sold at that price because owners may not have to sell. Your 58% drop assumes that average homes are bought by average earners who have no capital, so at best it’s a figure in a very large ballpark.
crash bandicoot says:
Good quote from a Goldman Sachs guy on tonight’s Newsnight report on the credit crunch
“the fundamental problem was to assume that nominal house prices never go down”
captain sensible says:
Another quote from Newsnight that Northern Rock were one of the most ‘successful’ banks in recent years. Obviously ‘success’ equates to market share – even if this results in insolvency. I’m off to open a restaurant where all gourmet meals will be priced at 1p. I expect to it to be the most succesful venue in town.
Drnick says:
How good it is to find this siteand know I’m not alone! As a medical (not economics PhD) I’ve been saying this for three years at least-and been laughed at. My loneliness ends!
House prices are far too high in the UK, and only collective greed has kept things going for so long. When I heard the news about NR last night, I knew there would be queues outside NR branches today because of the psychological impact. These sheeople also have been bragging about the value of their houses (“I know I’m retired but why sell, Nick? Prices are going up. I made ten grand last year!”) Fools. We are in for a crash, and a prolonged period of negative equity exacerbated by equity releases secured against UK property.
Birmingham is dead too.
Television pictures will now “flip” the collective psychology to one of fear..
I noted the comment from the guy from GS. I thought it was ominous in the degree of circumspection used.
stillthinking says:
Hmmm, being unable to get a loan when the prices are cheap is something I hadn’t considered in my cunning plans.
Lierbag says:
If it’s only by 50% – you’ll be lucky. Factor in the following:
1. US attack on Iran within the next few months sends oil prices through the roof.
2. Food prices escalate wildly as arable crop production is increasingly given over to biofuels production. Britain needs an area the size of, er, Britain – just to keep the cars running. Oh, and there are forecasts of up to 30% more vehicles actually being on the road in the next decade.
3. Progressive belt-tightening, and curtailment of discretionary spending by UK consumers, impacts on retail profits – ‘High Street’ names go into a tailspin. Sharemarkets panic.
4. Public wakes up in 2009 to the announcement of Peak Oil (ca. 2011). Confidence in the financial system erodes rapidly.
5. Revenues from North Sea oil/gas decline rapidly (output dropped by 12% alone in 2006). UK forced into buying excessively priced fuels from Russia and Scandinavia as part of global bidding war.
6. Climatologist James Hansen’s forecast that – without reducing our CO2 emissions to zero, right now (2007) – climate change will reach an ireversible tipping point by 2012 – ‘affects’ confidence in our present society’s ability to deal with the effects.
7. Bank runs galore!
8. Money withdrawn – in wheelbarrows = worthless!!
As Richard Heinberg has said: ‘The Party’s Over’.
Lierbag says:
If it’s only by 50% – you’ll be lucky. Factor in the following:
1. US attack on Iran within the next few months sends oil prices through the roof.
2. Food prices escalate wildly as arable crop production is increasingly given over to biofuels production. Britain needs an area the size of, er, Britain – just to keep the cars running. Oh, and there are forecasts of up to 30% more vehicles actually being on the road in the next decade.
3. Progressive belt-tightening, and curtailment of discretionary spending by UK consumers, impacts on retail profits – ‘High Street’ names go into a tailspin. Sharemarkets panic.
4. Public wakes up in 2009 to the announcement of Peak Oil (ca. 2011). Confidence in the financial system erodes rapidly.
5. Revenues from North Sea oil/gas decline rapidly (output dropped by 12% alone in 2006). UK forced into buying excessively priced fuels from Russia and Scandinavia as part of global bidding war.
6. Climatologist James Hansen’s forecast that – without reducing our CO2 emissions to zero, right now (2007) – climate change will reach an ireversible tipping point by 2012 – ‘affects’ confidence in our present society’s ability to deal with the effects.
7. Bank runs galore!
8. Money withdrawn – in wheelbarrows = worthless!!
As Richard Heinberg has said: ‘The Party’s Over’.
uncle chris says:
I don’t think those with good credit histories and borrowing within their means will have a problem getting mortgages from the long-established and less cavalier banks. It’s those greedy souls out there who have adopted the Northern Rock-esk gung-ho attitude to finance by living well above their means that will really suffer.