Friday, November 7, 2008

Housepricecrash

House prices falling by over £900 a week

The average home lost £4,000 in value in the past month – £923 a week. Prices are falling far faster than in the early 1990s, when the crash was relatively steady, spread over nearly three years. Economists say house prices have not fallen as sharply as the current 15 per cent a year since at least 1931. Some 45,000 homes are expected to be repossessed this year, but this number is expected to rise, forcing prices still lower and pushing thousands into negative equity.

Posted by sovietuk @ 11:03 AM (1496 views)
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28 thoughts on “Housepricecrash

  • Wallop!!

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  • mark wadsworth says:

    “since at least 1931”

    Exactly! All this ‘since 1992’ and ‘in the last 25 years’ can go straight out of the window.

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  • george monsoon says:

    So.. If I can just hang on to my job for another 18 months and manage to get a mortgage.. I may be buying my own home sooh

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  • So, if we do get deflation like in the 1930s, anyone with a mortgage will see the value of the debt rise. Yet another reason not to buy.

    There is really nothing holding up the market – and I can’t see it ending anytime soon

    Where do we all think it will go? I’m with 50% not including inflation – so say 60%

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  • Sweet, I hope this appeared in the actual paper aswell.

    BTW if Halifax numbers continue at 2% per month through to next March they’ll show YoY fall of about 22% instead of the 13% they’re currently showing.

    And that would take things back to early ’04 levels.

    Hopefully we will see some bigger monthly falls through the Winter months.

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  • I recon houses will come down 70-80% from peak levels before a sustained rise kicks in. Bubbles always over-correct. And yes GM keeping your job is all important. Don’t count on a mortgage though, try save enough to buy it cash like they used to 100 years ago.

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  • Does anyone think repayment rates should be factored in to anticipated falls.

    Example. £800k house falls by 50% it becomes £400k meaning that with a 25% deposit it could be purchased for £750 per month interest only if mortgage rates had fallen to 3% (base rates 1-1.5%).

    That £800k house would currently rent for £2500-£3000 per month.

    Given the enourmous marging illustrated between the 2 doesn’t it make you think someone would purchase it before it reached £400k in value if mortgage rates really did fall.

    I quote – Gordon Brown – I will do anything !

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  • Maybe, I can see a cash buyer stepping in. The problem the banks have is that they already lent out all the money. They don’t have any money to lend.
    Strange that people are so critical of the poor old banks. If I had some work to do by Friday and I finished Tuesday afternoon I would expect a pat on the back.
    The banks lent out the whole weeks money before Monday lunchtime and nobody says well done or anything !

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  • Question to str… why would you pay £3000 rent a month on a £400000 house?? I like how the only thing you dont see is dropping rental prices and peoples ability to pay that kind of money in rent. Have you woken up with your rose tinted glasses on today?

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  • mark wadsworth says:

    S2R07, I think your £2500+ rent is very much on the high side, call it £2000?

    Mortgage rates are highly unlikely to fall to 3%, let’s say 5%? That would be stupendously low.

    And you can’t factor in a large deposit on one side but not on t’other.

    So the comparison is rent £2,000 or buy £400,000 x 5% ÷ 12 = £1,667 per month, so not much in it either way.

    But I agree there will be a massive overshoot. When I was buying flats in 1999, the gross rent was about 150% of the mortgage with LTV 75% at 7% interest, 25 year repayment.

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  • Excellent point str 2007… there is a huge wall of money waiting to snap up property and property related debt when the pricing is at a level that buyers and sellers agree. everything is being done to stave off this impending implosion (some of it too late!)

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  • When all the stories hit of losses people have made on housing fear will set in. In a recession no one is sure of their job. Would you risk a 50% down payment that took 10-20 years to save on a house when losing your job, house and that down payment are a real threat? No, you wait till you can either buy a house cash or economic recovery starts.

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  • Mark W

    ”And you can’t factor in a large deposit on one side but not on t’other”.

    But whoever buys the property BTL or family they will need a 25% deposit.

    I know you don’t need a deposit to rent, but it is the purchase price support I’m looking for and for that reason I didn’t feel it right to assume the purchaser would not have a deposit.

    £2000 per month would get you a £600k house to rent in South Bucks.

    And 5% is the level mortgage rates would be if they just passed on the present rate cut, I as anticipating further cuts with a 1.5-2% margin for Banks. Obviously if base rates were to go down another 1% to 2%, a 3.5% mortgage rate is a very good margin for banks (compared to 1.5% above 5% base rate).

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  • i reckon 97 prices achievable , but if they are predicting massive drops why wait surely if they do it now it would save job’s yes people would be in neg eq but if they have still got a job and do not fall behind in payments it doesn’t really matter. as eventually house will rise again even if it’s not in their lifetime they can leave the property to their kid’s etc the main thing is they won’t be homeless , the longer and slower it takes the more jos and companies we will lose and i can’t see all the jobs coming back maybe 50%, also when this mess is sorted out be very careful what you borrow as i can see the banks putting interest rates up to recoup losses and repay what they borrowed in the bailout and then the govt will have to raise taxes to clear the national debt it is going to take years to recover from this mess and i don’t think things will ever be the same again

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  • mark wadsworth says:

    STR2007, BoE base rate and indeed LIBOR aren’t that important. The spread is normally one or two per cent over the rate paid on deposits and savings (see my later post), so for a 3.5% mortgage interest rate, savers are going to have to make do with 1.5% or 2% interest on deposits and savings. I dunno if that will work out quite as planned.

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  • Maybe that’s the plan then – drive down savings rates so far that the return on housing (for a cash buyer) is better. Then all the people with savings will spend them on houses in order to get a better return on their money, thereby starting another boom? Or cushioning the fall?

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  • waitingfor hpc says:

    i have over £250K in the banks – and i will do ANYTHING but buy a house with it till we have reached the very bottom. I have some in gold, and foreign currency. My cash is not going to help this government one second!!

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  • STR7 – do you not think if mortgage repayments come down that rents will too?
    The only difference in my mind is the deposit so:
    present value of (expected rental stream – interest free mortgage stream) = (deposit + present value of (expected future maintainence)) * market price of risk
    Such that in your example rental will no longer be [2.5, 3]K, much more likely to be [0.8, 1]K.

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  • planning4acrash says:

    waiting4aHPC, your money is helping the government. You pay tax on interest, the banks leverage your deposit thousands of time via the fractional reserve banking system, and, the value of it is being stolen via devaluation and inflation.

    If I had 250k, I’d go buy a small farm and machinery to can food!!

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  • planning4acrash says:

    Waiting4, I hope you don’t have more than 30k in any one banking group. It aint insured above that. I don’t believe the 50k limit, they couldn’t afford it.

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  • For all our negativity regarding bank lending, the market liquidity is returning…
    3M Sterling LIBOR is down 107bps from yesterday
    This week has seen more US corporate bond issuance than in any other since the LEH bankruptcy (even only considering up to Wednesday’s close);
    Wednesday saw the largest US primary market sale since may ($6bn)
    US prime money fund outstandings rose by $7bn on Wednesday, after $13bn on Tuesday, to $1600bn. To Thursday they are up by $42bn from their low on Oct 8.
    Of course this will not stop house prices sliding, but it does reduce the expection of deflation of savings.

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  • C'mon Correction says:

    Surely it matters what interest we get after inflation? Recently I’ve had savings at 6.5%, which is roughly 5% after tax and CPI has hit 5.3%. Now if inflation plumments like we’re told it will (;o) , !!) then CPI could be 1.5% and I’ll still get say 3.5%-4% savings rate which means I’m getting a bigger return on my savings than I have in recent years?! So savers still don’t REALLY lose.

    Some of my home-owning friends thought these lower interest rates will be great (if the banks feed through the cuts!), but then inflation could be 1.5% and so next year wage increase won’t be 3-5% like recent years but will likely be 0-1% (factoring in increased unemployment competition too driving them down further), therefore negating the benefit of lower interest rates.

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  • Well guys if mortgage rates don’t come down then house prices definately will.

    Waiting4HPC
    If your money is ‘house’ money then you’re still ok, I assume you’re using the interest to pay your rent as am I.
    Should the savings rates drop considerably it does add to the weight of doing something else with it.

    Mark W
    I thought Base Rate and Libor were important – maybe if they are now having to use savers money to Loan out, but if they go to the money markets (which are getting pumped up by central banks) then Base and Libor rates surely do matter.

    P4AC
    Re: fractional reserve banking multiplying up deposits thousands of times, I thought it was a loan amount that was multiplied up by 9 times ? IE if someone borrows £1k the bank can then lend out another £9k against the signature for the £1k loan.
    And let me know where you can buy farms and canning facilities for £250k.

    51ck

    Yes ok, rents may well come down if mortgage rates dropped that much.
    Can you explain your 2.24pm post and how it reduces deflation on savings please. I don’t fully understand it and am interested.

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  • STR7:
    Sure…
    The facts I posted show that the liquidity is returning.
    this liquidity is institutions lending and borrowing.
    The reason for any impending savings deflation is that it would be the easiest way for the powers that be to reduce the levels of debt out there, which would be deemed necessary in the case that lending is not happening.
    Therefore the return of liquidity decreases this deflationary pressure.
    Does that make sense?

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  • 51ck
    Thanks

    So this increase in liquidity has come about because of the 1.5% rate cut.

    That would indicate no further need to lower interest rates then ?

    I thought that the reduction in value of savings would simply be caused by reducing interest rates by 2% at a time when inflation is over 5% (2.5 times target) and ultimately weakening Sterling further importing yet more inflation.

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  • STR7
    The increase in liquidity is only in part due to the recent cut.
    Note that most of the facts I gave are US ones (corporates / treasuries / money market).

    When all the banks are lending to each other, to corporations, and to the guy on the street then a change in base rates will cause immediate and highly correlated changes in the rates offered in the markets, but when these institutions do not want this new business or are worried about the amount of low quality loans on their books they will protect themselves by hoarding cash and increasing their offerred rates to be uncompetitive. When some of these institutions do this it causes others to too. In this situation the changes to rates are not going to have such a fast effect (so they may continue to hoard cash), but as some start to enter the fray to compete, others will follow.

    Having low rates and high inflation will weaken sterling and will cause savings values to decrease, yes. However it does seem that inflationary pressures have come down massively (comodity bubble burst). I read a report in the economist suggesting that freight ships are running slower to save money – that is a reliable sign of a global slowdown which means less inflation.

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  • Tenyearstogetmymoneyback says:

    I think that the latest rate cut marks the end of the interest only mortgage.
    Quite a lot had already been withdrawn.

    The banks have finally realised that at some point (preferably before a persons retirement)
    they need to get their money back. In fact traditionally the person retiring should have
    enough stashed in the bank or building society to fund a first time buyers mortgage.
    You could look at it as a rental scheme without all the excessive leverage and hassle Lie to Fret has

    On to

    12. goweresque said…
    Maybe that’s the plan then – drive down savings rates so far that the return on housing (for a cash buyer) is better.
    Then all the people with savings will spend them on houses in order to get a better return on their money, thereby starting another boom? Or cushioning the fall?

    Something I have asked many times

    Can anyone give me a good reason why renting should be cheaper than buying ?
    Personally I think it should be the other way round with the landlord having to cope with void periods, agents fees, maintenance etc.
    As soon buying IS cheaper I will buy and hopefully I won’t need a mortgage (although if rates are 3% it might be tempting)

    Duncan

    Bought 1989 £65500 Sold 1999 £70500.

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  • 51ck
    Thanks for coming back on that one, it’ll be interesting to see what happens to savers % rates over the next week or so and how hard they get hit.

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