Friday, November 7, 2008

Still being too optimistic

Five experts predict how much further prices will fall

When will the house price crash end and how far will prices fall? Should buyers grab a bargain now, or wait another year, or even longer. Times Money asked five experts for their predictions on how far prices will fall before they reach rock bottom. Martin Ellis (Halifax): -10% Jonathan Davis (Housepricecrash.co.uk): -35% Yolande Barnes (Savills): -10% Nick Bate (Merril Lynch): -10% Nicholas Leeming (Propertyfinder.co.uk): -10%

Posted by little professor @ 08:20 AM (1015 views)
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19 thoughts on “Still being too optimistic

  • Notice how Jonathan Davis actually gives some evidence for his conclusions, whereas everyone else is doing a thumbsuck, yet again!

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  • The question is if a so called “expert” makes a prediction and it does not hold true, is it not fair to then refer to him as an “idiot” until he make a correct prediction.

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  • Even the optimists know this is not over.

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  • I make that four experts not five – and the four experts are in agreement.

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  • Having had a look at alot of asking prices, most haven’t budged.

    These vested interests are doing themselves no favours pretending it’s only another 10%.

    Vendors who haven’t dropped asking prices will be thinking ”Oh well if we get offered 10% off our asking price, we can negotiate from there”. Fact is they won’t get an offer because they haven’t moved down with the market.

    Vested interests should be going along the lines of another 25% from here, which means that if vendors reduce asking prices in line with current falls ie 15% off & then accept an offer 10% below that ie 25% off things might start moving for them.

    See my post below which I added to yesterdays long Interest Rate Drop thread.

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  • Had to get a post on this thread.
    What a day.
    What a shock.

    This is only slightly hyperthetical but with the big cut today (and I’m sure another 1% soon) mortgage rates could be offered in the region of 3.5 – 4.0% soon.

    There is a house I keep any eye on which came on the market 12-15 months ago at £565k. They’ve changed agents on each price reduction (so I assume to avoid appearing on property snake). It has been reduced to £450k (some 20% off) and before you say it the asking price aws roughly in line with others in the road. It’s been priced at £450k now for a good 6 months.

    Now assuming an original deposit of 250k and a mortgage requirement of 300k with interest rates at about 6% that gave a monthly repayment of about £300k x 6% / 12 =£1500 interest only.

    Assume now the same deposit and a mortgage requirement of £200k but at 3.5% that would give a monthly interest only figure of £585 per month or at 4% £667 per month interest only.

    That is now showing a discount of 55-60% on 18 months ago.

    Crash n burn said he could start to see some value.

    55-60% off (repayments strikes me as reasonable value aswell.

    Not long to go – maybe.

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  • (From yesterday aswell)

    Very concerned what will happen to savings.

    And very little in the media about how much people will loose out.

    Effectively a 1.5% rate cut slashes interest income by about 20-25% if it gets passed on to savers.

    This combined with a devaluation of 20-30% against other currencies in the last 12-18 months.

    And we all know the real rate of inflation is more than 5% (which in itself is double what it should be).

    Rule book, window, out. ‘mmmm.

    Thursday, November 6, 2008 08:25PM Report Comment

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  • mark wadsworth says:

    Cool.

    It shouldn’t take half an hour to find quotes from the four non-experts from a year or so ago predicting 10% rises in 2008 as well. That’s them disqualified.

    Good to see JD sticking his head above the parapet.

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  • I’ve said several times that there is a floor to the market at the point where buying becomes significantly cheaper than renting. And, where I live, that is pretty close already. More than a further 10% fall just will not happen. There are huge regional variations though.

    I’m viewing a house this morning. Yes really. Asking price is down 15% and I”ll be offering 10% below that. Ok there may be further falls but It’s a home – not an investment.

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  • str 2007 – your calculations above seem to overlook the ‘deposit’ of £250,000. That’s quarter of a million pounds to put down, before you get to ‘reasonable’ mortgage payments. Or 7 times average wage – just for the deposit.

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  • @mark wadsworth

    “It shouldn’t take half an hour to find quotes from the four non-experts from a year or so ago predicting 10% rises in 2008 as well.”

    Well I wouldn’t go that far but I did have a quick look out of interest:

    Martin Ellis
    http://news.hotproperty.co.uk/Halifax_sticks_to_house_price_prediction_18498764.html

    Yoland Barnes
    Check the very last sentence in both links
    http://www.countrylife.co.uk/news/property/article/104111/House_Price_Crash_Unlikely_in_2007.html
    http://www.propertymail.co.uk/article.php?aid=80

    Google doesn’t have much to say about Nicholas Leeming which suggests to me that he hasn’t been in the business long enough to have said anything embarrassing in the last year or two.

    Google has even less to say about Nick Bate so I will have to give hime the benefit of the doubt as well.

    @Luckyjim

    House price predictions from vested interests have been all over the place in the last few years. Jonathan Davis has been consistent.

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  • Property experts – ie. people who work for EAs – are notoriously wayward with their predictions. One of the few (the only?) laws that hold in economics is reversion to mean. So, for house prices to come back to trend, allowing for a bit of overshoot, falls have got to be rather more than 10%. Bearing in mind the amount of debt yet to be repaid and the still high asking prices, the case for big falls is hard to deny.

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  • Cornishman

    The house in question was ‘ a last house’ and I was assuming that someone who’d been on the property ladder for 10 years or so would have that level of equity built up. (ie roughly half of the last house they’re purchasing).

    Agreed though £250,000 does seem like a huge deposit (particularly as viewed from a 25 year olds perspective (or FTBer).

    Reducing the deposit to £150k would leave a £300k mortgage which based on my figures would be roughly £900-£1000 pm interest only. (the price I’m paying to rent a 3 bed semi).

    It depends I guess how you view things, my point was and certainly compared to 18 months ago, if mortgage rates do fall to 3.5% then things are starting to look alot more affordable.

    However £300k based on any sensible earning ratio is a vast mortgage, it will be interesting to see what criteria the banks have in place if mortgage rates do drop along way.

    Incidentally. the house in question sold for £335k in July 2002.

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  • str 2007 – I can see where you’re coming from.

    In the past, the idea was to load yourself up with the biggest mortgage you could and, because wages rose a lot each year, after 10 years or so, the mortgage was paid down to next-to-nothing and you could move house and start all over again. So you could put half the price down as a deposit.

    However, with outsourcing and the internet and the global economy, wages are not rising much for the average person. Rising fuel and food prices act as a brake on spending. So the old idea won’t work this time round. Many people have made no headway in paying down their mortgage – in fact many have increased it.

    To my mind – prices have to go back at least to where they were before this all started. The FTSE is lower than it was 11 years ago – why shouldn’t house prices be lower too?

    The only way this wouldn’t happen is if wages rose dramatically. But how can they if Indians and Chinese people undercut us? Unless, of course sterling devalues Zimbabwe style. Then anyone with a house gets given it for next to nothing. Savers lose.

    Perhaps that’s what GB implies when he says we are well placed (to devalue our currency as much as he wants…)?

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  • “We will do whatever it takes…”

    Oh dear.

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  • Wadsworth – how have you been ? Saw one of those UKIP friends on Question Time last night. He did okay.

    I suspect those expects were predicting a flat 2008 – and yep they were wrong. The other chap was wrong in 2002,2003,2004, 2005 and 2006 …

    Actualy none of them is an expert.

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  • Cornishman

    Exactly, the only thing savings aren’t going backwards against is currently house prices. And GB has just orchestrated a 1.5% rate cut with alot of pressure to pass it on.

    I remain motivated of further house price falls, however I do have a very cautious eye on what a house is costing as opposed to just the ‘headline’ actual house price.

    There are many influencing factors, whilst it’s the headline price we all go by I think it would be naive not to look at the whole equation of home ownership.

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  • Mark Wadsworth says:

    @ QG, nice work.

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  • str2007: interest rates aren’t very likely to stay at 3% for any length of time, or at least I would sincerely hope not. Once we’re in recovery they should go back up to 5-6% and stay there – hopefully this time be put up every time there’s a bubble forming to nip problems in the bud *before* we have an almighty boom/bust cycle.

    Base your calculations of what you can afford on 6% base interest rates.

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