Tuesday, February 19, 2008

House prices to plunge

Stand by for a plunge in house prices as global picture changes

"The prop under the housing market has been removed and prices must fall. Bond highlights how people had only been able to enter this world of unreal pricing because of the exceptional conditions in world markets - the def lationary pressure from China, the glut of world savings and the willingness of central banks to cut interest rates at any sign of an economic slowdown. This has allowed the huge rise in personal debt that has driven the surge in house prices."

Posted by doomwatch @ 09:56 AM (1884 views)
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18 thoughts on “House prices to plunge

  • finally! After trawling much VI tosh, someone with a brain writes a decent article in a serious paper

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  • “Indeed, the authors reckon a 7% change in loan-to-value ratios causes a doubling of house prices.”

    And the vica versa !

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  • Interesting comment about investing in tobacco whilst everyone else was investing in dotcom. I think I’m going to invest in alcohol this year as there’ll be a lot of reposessed debt-ridden people turning to drink!

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  • Good article. It was insanity that house prices went so high, so fast, especially when wages weren’t increasing and all other costs were rising.

    Looking on ‘Right Move’ this morning, it’s absolutely clear that nothing is selling. Some houses have been there for over a year, in some cases, without being bought.

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  • The Evening Standard notoriously panders to middle-aged and elderly property-rich.

    I find it difficult to believe that they have had an about-face change of heart. I think this is a lone voice in the editorial office.

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  • ” Looking on ‘Right Move’ this morning, it’s absolutely clear that nothing is selling. Some houses have been there for over a year, in some cases, without being bought.”

    … I’ve been watching some properties on rightmove that since june last year that sitll hasn’t shifted, nice London properties too.

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  • The Daily Mail stable has obviously decided to be ahead of the pack.

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  • Isn’t it nice to read something from someone who doesn’t have an interest in the housing market rising?

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  • Anthony Hilton has consistently produced well thought out articles (even though it ends up in the Standard/Daily Mail) – complete opposite of David Smith

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  • Good overall article pointing out how prices could fall quite sharply.
    I can’t make my maths make a 7% change in Loan to Valuation double or halve a house prices but the leveraged principle is there.
    For those without a calculator to hand my calculation is as follows based on a person with a 100k deposit.
    Example 1 90% LTV = 900k mortgage + 100k deposit = house price 1 Million.
    Example 2 80% LTV = 400k mortgage + 100k deposit = house price 500k.
    The LTV in my calculations needs to change by more than 7% to reduce the availablke funds by half for the house purchase.
    These figures are all of course based on the fact someone would take on a 900k mortgage instead of a 400k mortgage if they were suddenly offerd 90%LTV instead of 80%LTV.
    They wouldn’t for their own residence as they clearly wouldn’t be able to afford the repayements – they might in a buy to let situation if they thought the rents would cover the repayments.
    The big question is should residential property be allowed to be used for specualtion/investing at all.

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  • Good overall article pointing out how prices could fall quite sharply.
    I can’t make my maths make a 7% change in Loan to Valuation double or halve a house prices but the leveraged principle is there.
    For those without a calculator to hand my calculation is as follows based on a person with a 100k deposit.
    Example 1 90% LTV = 900k mortgage + 100k deposit = house price 1 Million.
    Example 2 80% LTV = 400k mortgage + 100k deposit = house price 500k.
    The LTV in my calculations needs to change by more than 7% to reduce the availablke funds by half for the house purchase.
    These figures are all of course based on the fact someone would take on a 900k mortgage instead of a 400k mortgage if they were suddenly offerd 90%LTV instead of 80%LTV.
    They wouldn’t for their own residence as they clearly wouldn’t be able to afford the repayements – they might in a buy to let situation if they thought the rents would cover the repayments.
    The big question is should residential property be allowed to be used for specualtion/investing at all.

    Reply
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  • I thought houses were overpriced when I bought mine in 1995. If the price trend goes into reverse, I do hope it’s quicker on the way down than it was on the way up but realistically I guess we are looking at 5+ years if past trends are anything to go by.
    Hopefully it will all go seriously pear shaped during the remaining years of this government, and the next one will be able to start clearing up the mess with a clear conscience (not having caused it in the first place).

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  • Evening Standard (what standard?) Stating the obvious. Wow!!! Thanks for the info. Suppose it helps with the sales though. Circulation could come under pressure now a lot of your readers are going Bankrupt. Don’t worry if you print the details, I promise we will all want to read your news.

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  • ”next [government] will be able to start clearing up the mess with a clear conscience”

    I think there will be a lot of messes that will need to be cleaned up, after this ‘Labour’ shower.

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  • An Bearin Bui says:

    That summary paragraph tells the tale alright: the only reason house prices have risen for the last 6-7 years was down to very unique and unpredictable circumstances that couldn’t last i.e. the China/India effect, globalisation generally, baby boomers planning to retire who were looking for high returns on investment. These are all long-term factors that aren’t going away but the world is now adjusting to them as normailty so the exceptional economic conditions won’t last.

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  • theboltonfury says:

    just goes to prove the government have realised that as long as they keep house prices high, then the government know they’re safe. It’s only really now that house prices are wobbling that all the other total cocks up they’ve made have been even noticed as many are devastated that they aren’t as well off as they thought they were

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  • Bearshare1616 says:

    str2007, The figures are irrelevant, What the article suggests is that the more you allow people to borrow LTV ratio, the more people will borrow and this will accelerate the speed of HP inflation. Therefore if you reduce the LTV by a certain percentage, market sentiment will prevent buyers spending more on houses. The more you reduce the LTV loan the faster the market will drop. The article suggests using their research that by just allowing an extra LTV loan of 7% the market rapidly doubled in value.

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  • To Bearshare1616

    You said : ‘The figures are irrelevant’

    I think the figures do matter because it’s the figures that make house prices and that’s what we’re all talking about.

    You said : ‘The article suggests using their research that by just allowing an extra LTV loan of 7% the market rapidly doubled in value’.

    No it doesn’t, this is what they said.

    ‘Indeed, the authors reckon a 7% change in loan-to-value ratios causes a doubling of house prices’.
    That means hyperthetically they do based on the calcs I used. But in reality as I mentioned it will only double the price of investment properties as owner occupied situations would be unlikely to cover a double sized mortgage.

    BTW I didn’t post item 9. And didn’t mean tom post item 10.

    Anyway, I’m now going to go and look for mortgage with a tabacco repayement vehicle 😉

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