Monday, December 22, 2008

Back to 3.5x earnings says L&G

UK house prices won't recover for a decade

"It will be at least 10 years before we see prices return to their 2007 peak levels," he said. LGIM, part of the insurance giant Legal & General, has been remarkably accurate with other economic predictions in the past year. and best of all "...Mr Drayson: "Banks will not price off affordability in future. It has been a mistake of the last several years to price off interest rates, which can move monthly. They are more likely to return to more cautious income multiples." ....." "...the market will only recover as incomes rise..."

Posted by voiceofreason @ 07:47 AM (1357 views)
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9 thoughts on “Back to 3.5x earnings says L&G

  • tyrellcorporation says:

    These are the ACTUAL fundamentals of the economy and the property market. Not the spurious VI spun ‘Fundamentals’ we’ve heard about for the last 3 years or so. Probably the most heart-warming piece I’ve read for months.

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  • “…the market will only recover as incomes rise…”

    Unfortunately, IMO, this is exactly what will happen. Labour are going to create some pretty nasty inflation. UK is a net importer, and inflation in China was already flying. Now the glubberment are going to print money as if it was going out of fashion and the GBP will devalue further. Salaries will have to rise. Given that they are suppressing interest rates, I’d say that gold is still the best place to be. The GBP will soon be worth less than the zimbabwean dollar. In real terms house prices will fall by 50%, but in actual terms I think we may have already seen the worst of the falls.

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  • What people have been saying on this site for years is finally becoming mainstream.

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  • I’m starting to think inflation is the only way the housing market will ever correct itself. Most sellers, under no pressure to sell, simply will not accept that their house is worth less. The market is at a standstill. The fall in volumes is much more significant than the fall in prices. Inflation – and lower prices in real terms – might be easier to swallow.

    This is not good news for us STRs.

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  • @4 to be honest, I’m past caring about house prices. I am more concerned about trying to sustain an existence over the next 2009. House prices are almost of a complete inconsequence these days

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  • Firstly
    ”The crash in prices he is forecasting will take the total fall from the August 2007 peak to 30pc. Although his prediction is among the bleaker of economists’ outlooks, the market – through property derivatives – is pricing a 50pc fall from peak to trough”
    I’d say is inaccuate as most commontators are talking about 10-15% falls over the next year..

    50pc peak to trough is looking more likely and the derivatives market I believe works on the Halifax index and is based on actual fall (excl inflation).

    As imbreda says, the falls could well be made up of 25-30% actual and 20-25% inflation.
    Combine this with lower interst rates and ‘total cost’ could well be looking like 60-70% less than it did in 2007.

    Luckjim
    I’m starting to see your scenario.
    However I’d say rents are definately dropping with more choice available for renters.

    This very fact pushes down the justifiable purchase price for any BTLers still in the game.

    Unemployment has barely got going yet. It’s fairly likely a large employer from every small town could go to the wall over the next year or 2. That will make a significant difference.

    Further, those with the deposit and courage to enter the market may have to re-assess their aspiration when they actually find out how much (little) they can borrow.

    IMO we are still seeing the tail end of the ever hopefulls thinking they’ll realise 2007 prices. Reality will kick in during 2009.

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  • str 2007

    I think one of the big problems is the lack of fluidity in the housing market. Typical familly homes in my area are 300k. Just moving like-for-like costs well over 10k in stamp duty and fees. People are reluctant to downsizing becuase they lose so much in the transaction.

    If you lose your job say, the logical thing to do is cut back until your situation improves. This is waht you do with you car, holidays, even groceries. But to downsize your home and upsize again later will cost you 20k. So people don’t do it – they struggle on (with the governments help). It’s only the most desperate cases that lead to houses coming onto the market.

    I actually think abolishing stamp duty would help prices fall.

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  • What boltonfury says.

    Two years ago everybody was desperately scrambling to get on the housing ladder. Two years from now they’ll be desperately scrambling to get on the career ladder. Plus ça change…

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  • Prices will take a final tumble when they have to push rates up to head off hyper-inflation. Keep your powder dry…

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