Sunday, April 6, 2008

Even the VIs know the game is up

Will prices tumble like a house of cards?

Mortgage lenders are bracing themselves for a slump in property prices of up to 20 per cent, The Independent on Sunday can reveal. A housing market collapse, wiping an average of £40,000 off a home, is now being discussed by lenders.Lenders had until recently predicted a small fall in house prices of no more than 5 per cent. But recent turmoil has spooked banks into thinking that a general crash is now more likely."Whereas in the past we were modelling for a 5 or 10 per cent property price fall, we are now testing against a 15 or 20 per cent fall," explains Matthew Bullock, chief executive at Norwich and Peterborough building society. Bank group Lehman Brothers went further last month and said that it expected house prices to have fallen 8 per cent by the end of next year.

Posted by little professor @ 02:08 AM (1930 views)
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25 thoughts on “Even the VIs know the game is up

  • planning4acrash says:

    As I always said, they will slowly adjust their predictions downwards, as they manage expectations to the upside of what they feel communicable. Clearly, those 15-20% are VI’s trying to avoid the 30% over valuing “revealed” this week in to the masses. Its always been there, but many ignore the smaller articles and this week is the first time that its on the front pages.

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  • Justanotherftb says:

    Haha! I love these articles – a few months ago it was “houses will continue rising slowly”, then “houses will stay the same price”, then more recently “houses will dip a little bit then take off again”, and now we’ve got to “houses may drop by 15 or 20 percent (a crash!)” :LOL:

    How many times can these supposed “experts” get it totally wrong before they lose all credibility!

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  • A nice quote here:

    ‘Estate agents say buyer enquiries are plummeting as people’s finances are squeezed by a combination of higher utility bills and rising food prices’.

    and as we know these higher food and fuel prices are in no small way down to the devaluation of Sterling, brought on by the BoE base rate having been lowered. Who exactly wanted the rate cuts? The estate agents of course!

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  • Mikelivingstone says:

    “Mr Boulger’s view of a housing market going backwards was borne out last week by the latest mortgage lending figures from the Bank of England. It said that the number of new loans made for house purchases in February – a key indicator of market activity – had fallen sharply. Just 73,000 mortgages were approved during the month. This represents a 39 per cent year-on-year fall and means that mortgage advances have sunk to levels last seen during the market crash of the early 1990s. ”

    73,000 mortages is where annual repossessions will get to too. By the end of year 1:10 housing transaction could be due to repossessions. This will have a serious impact on pricing, as it is a similar proportion to what buy to let used to be.

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  • I think some estate agents are deliberatedly massively overpricing properties so they can knock 20% off without too much trouble. Prices seem very unstable at the moment, and it would not be too wise to buy at such a time.

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  • speculatorone says:

    2. hpwatcher said…

    I agree with you. I have noticed this for the past 6 months or so. I think all agents live in cuckoo land when it comes to valuing houses and actually believe their own [email protected]$£sh$t.

    How can someone who sells cars one week suddenly because a property valuation expert within 7 days of work for an agent?

    Most of the problem with the housing market is it is unregulated and any idiot can become an estate agent without any training.

    Well that rant has made me feel better today!

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  • justwatching says:

    I wonder what % correction (note I didn’t use the word FALL because I have been MEDIAWASHED (I’ve just coined a new term, do you think it will catch on)) B&B used in their DOOMSDAY model calculation??

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  • @hpwatcher “I think some estate agents are deliberatedly massively overpricing properties so they can knock 20% off without too much trouble”

    There are certainly some properties priced in anticipation of a lower offer. But this is a very dangerous, and in-the-end, self-defeating tactic for the vendor. Whilst their property sits on the EA shelves for years on end, many others are being priced way below them to sell. We now know that prices are finally coming down, and this will leave their homes looking even more isolated. I know of at least 20 houses in the local area that have been on the market for over 2 years now and have hardly budged in price. I’m sure EAs just give up on some of the more greedy vendors.

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  • Stillthinking says:

    The only money they make is from successful sales so this is just the cusp of the estate agents starting to talk the market down. A necessary precursor which we haven’t seen. I remember somebody criticising some comment on this site saying “How repetitive” blah blah blah, but actually the fat lady hasn’t even opened her mouth yet let alone started to sing. I am curious about whether large job losses are going to kick in also.
    EAs are the sheepdogs of the modern world, and when they decide to panic the sheep into lowering prices along get out now grounds, then we shall see something more substantial. 30% fall. Pff. I expect and demand more.

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  • I posted this yesterday on another thread, but think it’s worth another look, as the article is written by Pierre Williams, Head of Communications at the House Builders Federation (HBF), and it’s a VI talking up a 30% crash – sorry, but no mention of 911, Mayans, moon landings or Diana – JTCF – just the crash facts, ma’am.

    There’s a great article in the March08 copy of ‘showhouse – what’s new in building’ (house building industry mag, a snip at £7.50, look at it in the library – their website is yet to launch…)

    article title is “crash and burn” – has some good lines

    “The infamous crash in property prices could finally be upon us. So, says Pierre Williams, we should be prepared to take it for what it is – a necessity”

    “Let’s put it this way: if prices are 30 per cent too high, then they are 30 percent too high”

    “I’m confident most of us would rather take a short whack now rather than endure years of torture.”

    “The sooner we take the medicine, the sooner we find the bottom; the better for us all. We’re here to build. But we need solid foundations on which to do so.”

    and there’s more…

    “And aren’t those journalists predicting doom and gloom simply a curse on the property industry? I think not. The confidence boosters are only trying to keep themselves in a job. And I don’t think that does us any favours.”

    Pierre Williams, Head of Communications at the House Builders Federation (HBF), VI builder voting for a quick crash of 30% – made my day!

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  • mark wadsworth says:

    Wimps, frankly. Why only budget for a 20% fall? Why not 40%?

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  • Looking through my old notes, I see that I predicted that when the bubble burst, price falls would create a vicious circle, with lenders less able to lend the more prices fell – back in January 2004.

    I also concluded that they would be in deep financial difficulty if prices fell by more than 30%, leading to a situation where mortgage funds were simply not available – creating market meltdown as a result.

    This led me to my inverse sine curve theory – that price falls would gradually accelerate, before going into total collapse – a true crash, unlike the slump seen in the early 90’s

    Well, I’ve waited a long time, but things do seem to be mapping out now.

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  • Good find happyrenter!

    Mark – they probably are modelling for a 40% fall, but certainly won’t tell us that – if they fail to spin the negative news they run the risk of an ‘over correction’ based on sentiment!

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  • planning4acrash says:

    justwatching, do you remember when we first heard of the credit CRUNCH? It came out of nowhere, and then everybody was using it, like BOOM. And I remember thinking, come on, that’s ridiculous, it will never catch on, and just sounds like a way of avoiding words like depression, deflation, crash, etc. I took the mickey, calling it the snap crackle pop. But here we are. And yes, correction is a similar word. Came out of nowhere and all the papers use it. Again, to avoid the word crash. Who makes up and conveys this stuff?!

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  • discombubulation at its worst

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  • planning4acrash says:

    Antibubble Sheeple herding in the home counties.

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  • Planning4acrash

    The thing that I remember when we first heard about the Credit Crunch was people like Adam Idiotgarth complaining
    about “a log jam” in the credit markets as if one slight tweak would put everything back to normal. How wrong they were.

    :- Duncan

    p.s. I keep wondering what will come of this site in a couple of years when we catch up with the USA.
    Someone might start a Housepricerise site in which strange people could suggest that at some time in the
    future prices might start going up. It took seven years last time (1990 – 1997) so there will be plenty of time
    to discuss it. 🙂

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  • I’m sure the terminology will change with time. I think it’s human nature to want/hope for the best. I’m sure that given time this will become referred to as a depression/recession – probably once the US media begins using similar terms.

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  • justwatching says:

    Planning, its mejia spin machine.

    Again, an interesting use of wordage. Why is a CREDIT crunch? Why not a DEBT crunch? Is it because DEBT sounds more harsh?

    I was just looking at the BBC Business pages, subsection YOUR MONEY. Thats ironic. Who actually has any money?

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  • New meaning of ‘Correction’ in this particular case : – Downward movement, possibly freefall.

    First the correction against a fantasy inspired(with some Greed mixed in) valuation. = 30-40%

    Second real devaluation inspired by an economic catastrophy or economic rationality. = ???

    What do you think ?

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  • mark wadsworth says:

    JW, ‘Credit crunch’ is a brilliant phrase, as you point out, it should really be called ‘Debt crunch’ or indeed ‘Debt crisis’, as to your question, who has any money, answer, people who sold their investment properties and sold-to-rent in the past couple of years, that’s who. For every liability there is an asset.

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  • Suddenly, the consensus seems to be moving towards a 10-20% fall, even from the VIs. Not as extreme as we might imagine, but an interesting shift.

    The VIs face a choice between a slow slow market for may years, or a short sharp shock. VIs may accept the inevitable and prefer to talk down the market quickly, so those that survive can start making money again, abet from a lower base.

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  • “Credit crunch” is just a great alliteration – short and sweet.

    While the core problems in the credit markets that have caused the lock-up may well be sorted out by the autumn (provided no previously unforeseen problem rears it’s head..) – the wider issue of rising loan default rates will remain, with resultant higher lending rates and tighter criteria – so the phrase is likely to continue in use for some time.

    The property downturn is likely to affect the wider economy to a much greater extent than before – repo’s and bankruptcies are likely to be on a scale not previously seen, and the depths of negative equity will make the last slump look trivial. Global issues, of fuel, food and other commodities also look unlikely to go away in a hurry.

    We are at a watershed at the moment, and without a particular event to link it to, I suspect it will be remembered simply as “The Crash”

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  • damocles vs sisyphus says:

    We are at a watershed at the moment, and without a particular event to link it to, I suspect it will be remembered simply as “The Crash”

    “The Crash of Gordon” sound like a good name for a film: Either a financial tales of terror,with a classic Hitchcook twist type genre or a basic economic horror full of city zombie types searching the baron landscape for credit to infect the masses?

    Coming to a town near you soon!!

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  • planning4acrash says:

    Mark, there should be an asset for every liability, but there isn’t when prices fall and you have negative equity. Or if debt growth exceeds GDP growth. The market reaches that equilibrium but is usually one side or other. A periodic oscillation.

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