Friday, October 24, 2008

After backtracking from -5% capital economics again assumes bear status

Capital Economics predict 35% fall in house prices

Previously, the organisation had forecasted that prices would fall 35% by 2010, but in the wake of the economic downturn, the fall will be much quicker. The fall means that approximately £65,000 will be wiped off the average property with the average home costing £120,000. At the peak of the property boom last summer, the average home was worth £186,000. Earlier this week, Knight Frank estate agents said house prices in the UK will fall 30% from their high of summer 2007 and fall to levels of September 2003.

Posted by matt_the_hat @ 08:17 AM (831 views)
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2 thoughts on “After backtracking from -5% capital economics again assumes bear status

  • Still-waiting says:

    30-35% is probably about right. I earn above average income, but it would take a 30% fall from peak for me to be able to afford to buy a house for my family. So once it reaches that level, I expect many people in a similar situation (who have managed to save a £10 to £20k deposit) will start piling in and at that point prices will stop falling.

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  • stillthinking says:

    If there was more publicity about the actual meaning of the losses people would be more up in arms. I think there is a tendency to offset the amount you would have lost through renting for a couple of years against the adjusted house price. In other words, somehow dealing with the loss at the beginning of the repayment schedule.
    In fact, the difference is paid at the end of the mortgage term and gets 25 years of compound interest added on, because really it is in addition to.

    If you were to assume that real interest rates will be 2% (not too much) over the next 20 years(relatively short), then in todays money you will have overpaid by not 65K, but 96K. For a one bedroom flat in London that isn’t suitable for a family anyway that really sucks. Apart from representing a huge generational wealth transfer.

    To what extent the government will be able to lessen this with negative real interest rates remains to be seen. Truly its crazy when you think about it. Anyway, my key point when we are all doing our sums at some point in the future vis a vis renting/buying (should that time ever come to pass), is that the difference is paid at the end of the mortgage term -not- at the beginning.

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