Sunday, June 1, 2008

More Potential Fuel on the House Price Bonfire

Second home sales may worsen house price drop

A Capital Economics Report indicates that one in four second-homeowners could sell up in the current downturn, prompting even more dramatic house-price falls, until now many commentators had thought buy-to-let could be the weak point that topples the market.

Posted by enuii @ 10:24 AM (1332 views)
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17 thoughts on “More Potential Fuel on the House Price Bonfire

  • This is an angle I’ve pondered before, but struggle to make any estimates on – it is very hard to know how many second home players have borrowed to get their second pad.

    Many will have been bought outright with inheritances or bonuses, many are without doubt owned by people who are financially fireproof; but there must be a significant contingent who are either overstretched or worried at the prospect of house price deflation, who will want to offload.

    I can’t see people falling over themselves to buy at the moment, and the local population is often hopelessly outpriced, and in no position to step in.

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  • dohousescrashinthewoods says:

    Leveraged in terms of salary multiples and.. leveraged in terms of numbers of properties.

    Deleveraging is a wise move in a falling market, and here it looks like it could up the supply and drive prices down hard.

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  • Sitting Tight says:

    Down here in my neck of the woods (Cornwall) the weekly paper is brimming with properties at the moment. Many of them have been on the market for quite some time. A lot have reduced prices and many are advertised with no chain, vacant possession – obviously second homes. Interestingly this week was an ad from an estate agent declaring it cheaper to buy than rent!! Siting a crappy little flat being shared by two people with joint income of 26k and 5% deposit. Think monthly payments were around 550. Flat was 120K!!!

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  • Looking at it from another angle the numbers are not critical due to the other factors such as the BTL brigade, amateur developers, excessive overpriced low quality new build, interest-only over leveraged mortgage holders, hidden inflation, stagnant wages and rising direct and indirect taxation.

    The perfect storm is brewing and will hit in the second half of this year.

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  • Talk about stating the obvious. But maybe these peole aren’ty so dumb, they get paid for it…

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  • 240,000 second homes, 25% (60,000) of these likely to be put up for sale. That’s one person in a thousand selling a second home. Without access to Capital Economics’ model it’s difficult to gauge how big an impact this will have on HPC. Any ideas?

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  • Mr Plumbase says:

    Several cottages around these parts (Norfolk/ Suffolk borders) are up for sale, many of these places have remained unoccupied since they were purchased.
    Punters cashing in their “investments”?

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  • confused76 says:

    Icarus
    60,000 homes flooding the market is a 20% increase in supply, considering that at any point in time just 1.5% of the housing stock (total 20m dwellings) is on the market. plus all the BTLs (which are also second homes in disguise) soon to come to the market… what a mess!

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  • Thanks confused76, though I’m not sure it’s that dramatic. Let’s say the average house is on the market for 3 months and these 60,000 houses come on the market over the period of a year, then they’d be adding only 15,000 to the number for sale at any given time. That’s an example of why we need access to the model and its assumptions in order to judge for ourselves what the impact is.

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  • Expect this effect to impact on house prices in places like Devon and Cornwall where locals have been priced out by two-weeks-a-year City workers.

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  • another day, more good news, personaly i can”t wait till 2010, when i think i will finaly have the chance to buy a house without being enslaved for the rest of my life..

    Thanks to UT,JU,Confused76,S2R1 etc and the developers of this great website, a came accross it by accident about 18 months back, and it made me delay my purchase, even thou VI were placing stories about 1 million pound average homes (by 2020) on the teletext, and more chance of Elvis on the moon and the rest of the Bull..

    You guys have saved me a fortune!!

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  • The impact of second homes coming to the market could well be dramatic, particularly if sellers mortgaged their main residence in order to buy the second property and now NEED to sell in order to remain solvent. IMO there is still a stalemate in the market (sellers holding out for unrealistic prices with buyers waiting for a drop) – if this situation persists you will see more than just the the second home on the market !

    UK residential property prices need to return to levels supported by genuine affordability – whichever way the Gov/Treasury/BOE/EA’s/Housebuilders stack this up a heavy and quick correction will be seen as preferable to a protracted and painful dawn out decline.

    I expect to see prices begin to implode over the next 6-9 months.

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  • i hope your right jack c, i’m feeling VERY optimistic about a great big crash, very soon.

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  • @11. amjidk – the problem is that when the housing market implodes it will have far reaching consequences for the UK economy – I mentioned this back in 2007 and speaking to a multitude of people recently who run businesses from engineering, construction to financial services etc.. they are all in “survival mode” cutting costs and making efficiences wherever possible. Those who have saved a substantial deposit for a house could find themselves drawing down on their savings to tide themselves over month by month if they lose their job (or if self employed see a downturn in business)

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  • jack c, i think you’re probably right, if the government had egulated the banking industry as it should have (and not allowed the decade of reckless lending) we would not have been in this mess…

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  • It seems likely that any forthcoming housing market crash/economic downturn is going to hit the UK VERY hard. Maybe that’s a good thing. We’ve been living well beyond our means for a decade now, debt is rampant in this country and every year more people are suckered into the ‘keeping up with the Joneses’ mindset.

    Personally, I think it’s time we tightened our belts, stopped consuming such huge quantities of crap and started focussing on the issues that make communities and neighbourhoods strong and safe places to be. This country is sick and it’s now time for some medicine.

    Bring it on.

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  • @16. wiltshire – how many in this country now have the stomach to take the medicine you are describing? not many IMHO

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