Monday, February 2, 2009

More from that Think Tank

House prices to be the same in 2013 as they were in 2003

"House prices could be the same at the end of 2013 as they were in 2003, according to a think tank that warns the house price crash could leave a generation of homeowners out of pocket". "The Centre for Economics and Business Research is forecasting that property prices will fall by 40 per cent from their peak in 2007 unless Government action succeeds in boosting mortgage lending".

Posted by alan @ 09:33 PM (3015 views)
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46 thoughts on “More from that Think Tank

  • Well, that’ll teach them for lording it over prudent renters at dinner parties for the last five years.

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  • Well this article may end up being not far from the truth.

    I also happened to click a link from the article to mortgages and the cheapest seemed to be First Direct offering 3.39% variable and 80% LTV.

    OK this is nothing like we had, but if a young couple saved hard for a year or 2 I expect they could come up with £20-25k. That gives a budget of £100-125k for a first home. Not huge but at 3.39% the interest only element will be less than £285 per month.

    That IMO will put a floor under the price of apartments etc.

    And well and truly stuff BTLers who want to rent them out for £700 per month.

    Apologies for my optimism.

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  • STR2007; trouble is that the young couple who saved hard and got their 3.39% mortgage may find that their interest rate was the cheapest for a generation with the only way being up at a cripling rate for every percentage point!

    Not forgetting that their shoddily constructed new-build flat will still be hard to shift when they they are fed up of hearing all their neighbours every move and sexual encounter in their timber frame hell.

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  • Yes str2007…..

    ……It’ll all be over by Christmas……….House prices will shoot up because a few people will get cheap loans……….Not.

    What about inflation and then the inevitable interest rate rises………

    You just don’t seem to realise str2007. The system in now broken. If they rpint money. Inflation. If they don’t print money, stagnation, then inflation.

    It is a DEAD parrot!

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  • For all the time i’ve been looking at this site, you just think that the madness will start again when the whistle blows, as if the respite has jsut been half-time at the cup final?

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  • inflation is eating my savings says:

    5. shining wit said…
    For all the time i’ve been looking at this site, you just think that the madness will start again when the whistle blows, as if the respite has jsut been half-time at the cup final?

    Do you advocate running to the hills or buying gold? Or something new and refreshing?

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  • Shining wit: You should have realised by now that this site has lost it’s raison d’etre as it has become the playground of several highly self opinionated individuals who like to hear themselves talk.

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  • @shining wit
    “For all the time i’ve been looking at this site”

    What, since the 29th Jan 2009 when you first posted? Strange, you seem to know who malct is (referring to him in a comment) and start up an argument with troy and start lecturing people and post lots of comments….. anyone would think you’re another offspring of the almighty malct (crunchy/troy/etc) 🙂

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  • little professor says:

    STR – unfortunately many people will be suckered into that trap, only to end up getting burned when and if interest rates eventually rise. The BBC website mortgage calculator is good in that it also presents the mortgage payments if rates were to rise to 12% (not an unrealistic prospect considering our currency is collapsing and has already lost a quarter of its value) – for a £100,000 mortgage that would be £1,000 per month interest alone – enough to completely destroy a homeowner who had only budgeted for a £285 mortgage payment.

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  • little professor says:

    phd – good spot, yet again

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  • Shining wit, you are probably like myself and never get a comment posted as this site is now run for the benefit of a small number of self opinionated individuals who like nothing better than to hear themselves talk.

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  • honest valuer says:

    STR – My experience from the early 90’s HPC was that once the floor had been reached under the prices of Victorian terraced houses the price of flats continued to decline as the majority of FTB’s (and the then few BTL brigade) preferred the absence of ground rents, service charges and poor quality construction by buying a cheap house. It will be far worse for flats this time.

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  • brickormortis says:

    Well what about the generation that were being priced out of the market by over-inflated house prices? Who gave a [email protected]*t about us? Answer that one!

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  • STR: I take the point that a cheap mortgage might put a floor under the market… to a point. As economists define: demand is “willingness and ability to pay the price”. Whilst people might become able, they might not be willing as the perception of further falls removes the compulsion to buy.
    …. as for the new detractors on this site, we must be careful not to respond since I doubt their motives.

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  • @ 4. shining wit

    you’ve got your ‘sh’ and ‘w’ all mixed up, should be round the other way :o)

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  • Whining Sh!t……. well I’ve never noticed that before?!?……. Bet you lads are rocking in your arm chairs waiting for Countdown to be screened each day… :O)

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  • Well I’m glad my comment got an HPC discussion underway and thankyou for all your comments so far.

    Pleased to see some of you are hardened HPCers still. Believe it or not I am myself, however I do believe that this House Price Crash is not as clear cut as straight asking price falls.

    Little Prof
    You also see that quite alot could get sucked in now. I also have your concerns about rising interest rates.
    I did notice on the same link that you could get a fixed rate for about 5.5% for 10 years.

    This would bring a 100,000 mortgage up to £458 interest only. A significant step up from £285 per month, but probably not a deal breaking level.

    5.5% fixed for 10 years is actually quite high given current base rates as back in 2005 you were able to get 4.79% fixed for 10 years.

    My thought process was going along the lines of a tracker/variable rate for a year to 18 months (while they’re trying to get inflation underway), and then fixing for 5-10 years at the lowest rate possible whilst maintaining repayment/interest only option as a bit of a safety net.

    I think due to past experience that any government looking to wind up interest rates high would do their best to get mortgages onto fixed rates before they started as the ensuing collapse if they didn’t would make the rising of rates a pointless operation.

    And has anyone considered that they might not raise interest rates. How long were they at next to nothing for in Japan.

    Perhaps it’s Gordon Browns plan to re-ignite the finance industry by lending money to the rest of the world at very low rates. IE create the ‘carry trade’ from here as it was in Japan. (I don’t know or understand the economics behind this last sentence BTW but if someone who does would like to constructively comment I’d be interested to hear it).

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  • Is shining wit really nooneo?

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  • Growler

    It is still by and large a case of having a deposit, my point was that this low rate was based on a 20% deposit not 40% depoist as most other good deals are. (Also I believe it’s some sort of offset arrangement so given low interest rates could be good for people with extra savings they don’t want to commit to a mortgage but at least would get the benefit of effectively higher interest rates.)

    The motivation I believe is that products like this make it cheaper to buy than rent. I also believe that when you’re renting the desire to have your own place becomes incredibly strong.

    Having looked at a few rentals recently I frankly cannot believe the attitude of the majority of Landlords.

    Example asking rent of £1450 per month and not providing curtains ?

    Putting a house at £1350 per month up for rent without cleaning it first and never having decorated the inside once since the property was new 15 years ago.

    Attempting to let a property with 1970’s kitchen that’s falling apart.

    Expecting the last tenants to of had the carpets steam cleaned themselves

    Not checking gutters once a year for blockages and allowing a leaking gutter to create damp problems inside the house.

    And generally not looking after what they percieve to be an investment.

    The list goes on ………………….

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  • What makes me laugh is the comment that the continued mortgage restriction is part of the problem. The article goes on to say that people will lose their jobs and stuggle to pay mortgages due to the recession!

    In other words, how is lending more money to people going to solve the problem of house price falls when it is those who default on mortgages who will drive down the price faster than anyone!

    Increasing the level of mortages will allow people to bail out of property faster but will not stop the decline in prices.

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  • mountain goat says:

    C R Apspray – “this site has lost it’s raison d’etre as it has become the playground of several highly self opinionated individuals who like to hear themselves talk.”

    Why do you bother to post here then, to spray your negativity?

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  • mark wadsworth says:

    “… leave a generation of homeowners out of pocket” ???

    Don’t they mean “… ensuring that the next generation of homeowners aren’t saddled with crippling debts”?

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  • Now now boys, school is cancelled because of the white stuff…. now go and play snowballs just like the rest. Provoking thoughtful debate is excellent on this site, but if to deflect focus onto silly matters, away from promoting affordable and sensible housing, then go and play with your short wave radio and karate suit instead….. Doh

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  • mark wadsworth says:

    @ STR2007, the Yen/Australian dollar carry trade is easy to understand, I explained it in the last footnote here, click the link in that to get to the JPY/AUD chart from 1994 to the end of 2008.

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  • I notice that the VI arguments for house price bottoms and subsequent soaring prices again are based on the minutiae of lending criteria, much as the arguments for endless rises were before the bust, vis low interest rates, willingness to lend, etc. They seem to have no conception of the broader picture – or pretend it’s not there; but given that we are in the worst economic situation for decades (or ever?), how the most inflated asset, driven up by the very causes of the crisis, can suddenly detach from everything else and spring back into an economic parallel universe is difficult to conceive. The almost irresistible logic of the situation is that house prices will fall well below their long-term mean value.

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  • @C R Apspray/Tyke/Shining Wit/Malct/Crunchy/Troy

    Every criticism you make about others actually refers to yourself and that’s how you give yourself away every time (that and repetition and numerous other traits):

    “small number of self opinionated individuals who like nothing better than to hear themselves talk.” (C R Apspray said)
    “several highly self opinionated individuals who like to hear themselves talk” (Tyke said – without knowing what Apspray had said because it was posted without a password and didn’t appear until the same time as Apspray’s)

    @bluebeach
    “Bet you lads are rocking in your arm chairs waiting for Countdown to be screened each day… “(earlier post)

    “Now now boys, school is cancelled because of the white stuff…. now go and play snowballs just like the rest. Provoking thoughtful debate is excellent on this site, but if to deflect focus onto silly matters, away from promoting affordable and sensible housing, then go and play with your short wave radio and karate suit instead….. Doh” (later post)

    So how was the earlier comment provoking thoughtful debate? You can’t make a childish comment one moment and then start lecturing others about behaving immaturely the next and be expected to be taken seriously surely? – unless you’re malct as well (your criticism referring to yourself), sitting in your armchair making up new usernames waiting for Countdown? And how does saying “then go and play with your short wave radio and karate suit instead” provoke thoughtful debate?

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  • theboltonfury says:

    Can I just say – I am not Malct

    However, I did hear a news report yesterday that P4AC had been found in full scuba gear, chained to the hull of a sunken ship in the channel. Rumours are that, if you listened carefully, you could make out the words ‘get away it’s all mine, currency is finished I tell you’

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  • Time To Move On says:

    I think its time for me to delete this web site from favourites. Its been a great source of information for 2 to 3 years for me. It has served its purpose but now it appears to be an area for infighting. Time to go!

    If this gets posted then I will be amazed as I never had a comment posted.

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  • @theboltonfury – nice one, now that *is* shining wit!

    for everyone else, I know it’s boring now that house prices (and rental rates) are finally dropping faster than a JAFK (jet-assisted falling knife), but be happy in that fact, and that the recent sprinkling of snow (I’m a Northerner so even the stuff down here in the south east looks like a sprinkling to me) is a reminder of how much fun can be had with a ball of compressed crystalized flakes of frozen water…

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  • @boltonfury
    LoL

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  • Phd…. I’ve just given myself a good slapping…. Sorry…

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  • mark wadsworth

    Thanks for the link. As I understand it, in brief the main reason the ‘carry trade’ is over for the time being is that more volatile currency fluctuation has the potential to wipe out gains – quickly.

    However my point was earlier that creating the ‘carry trade’ out of the UK instead of Japan could, hypethetically be a forward game plan. (Or indeed happen whether planned or not).

    I picked this comment from your link

    ”The carry trade “is a strategy that has a good track record,” said Pablo Frei, a money manager at Quaesta Capital in Switzerland, which oversees $US1.2 billion in currency funds. “You have to unwind carry during times of high risk. There will be a day that it will be put on again. The question is when.”

    and possibly where ! may I add.

    In 2-3 years time is it conceivable that the volativity of current uncertainty may have calmed and with low interest rates in this country create a platform from which the carry trade could then resume ?

    All this BTW is aimed at the point I made earlier – will interest rates rise ?

    The government have made it quite clear they aren’t going to attempt to support the Pound and in the last few days the pound has actually strengthened a bit against other currencies.

    Perhaps a test of whether or not imported inflation will become a problem is how the mighty (or not so) Ford and Gereral Motors get on with their price rises.

    It could be that consumers turn their backs and force them to re-think this strategy, particularly if other car makers go down the route of keeping the factories ticking over by selling at even tighter margins. Time will tell on this one.

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  • “People can be blind to the truth”
    Im not sure but didn’t the CEBR(AND THEY WEREN’T THE ONLY ONES)say the Housing Market was strong….Well they got it wrong!
    August 14th 2007-Jerome Corsi PHD on the Alex Jones Show said Housing was going to drop 50% or more from the peak,Bear Stearns would collapse + other major banks will fail as well,The crisis was going to be global.He also said get out of debt,debt is death right now especially mortgages!April 2007 ABN AMRO did a report saying the UK Housing market was 25% more overvalued than the US.
    January 2006 HSBC Global Research Produced a report called A Froth Finding Mission,Detecting US housing bubbles.Im sure you can see where im going with this,The party is over ,no amount of bickering will change it.Maybe Home(PLACES TO LIVE)prices will go back up very soon,but that will be to get the last of the people who were wise into the whirlpool to which they may never recover from.

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  • @ phdinbubbles…

    I think that this site has some good points and some bad. It proves that, like the great british public, the obsession with owning your own home, is alive and well and living in 2009.

    I have been looking at this site for a few years (make of that what you will), I have noticed that several posters have unmoving opinions. My reply to str2007 was in response to his constantly bullish remarks about the cheap money that may become available and the continual threat of the madness starting up again in the very near future.

    There is a sickening malaise in this country with regards to not only property (a symptom) but the political environment. It is riddled with conceipt and a general air of forboding. The property market is a symptom of everything that is wrong. The UK is undoubtedly one of the most despised country in the modern world, after the US, and the population appears oblivious – It doesn’t even remember that we started 2 illegal wars and will be in Afghanastan for decades unless we scurry away. We, ourselves, in this country have little or no love for our fellow citizens. The country as a whole is almost at it’s own throat. We seem ever pleased to compete with all and sundry to buy tiny boxes for what, even just over the channel, would buy you a house twice the size (In France and in Germany – hardly third world).

    Things need to change, but the political environment is completely unable to facilitate this. This site just proves the point. There is No consensus on what to change, just the desire to find out where to put ones money to get the best back from it. The ying and yang of the Labour and Tory debacle of the last 50 years, alternating between them and never finding any common ground, has almost bankrupt our entire country.

    Now the complete idiot in charge wants to open the printing presses and finally put the poor dog to sleep.

    2 inflation is eating my savings @ 6 – I advocate kicking the entire estalishment into touch, unfortunateley the hills are too expensive to live in and there will soon be nowhere to work there soon.

    2 C R Apspray @ 7 – This site has not lost it’s reason for existing, that is evident because the madness will almost certainly take off again and another HPC in 20-30 years is probable – The UK just loves them, like junk food, we’re addicted.

    2 Tyke @ 11 – Ask the websmaster for posting privedges – they are most accommodating.

    2 honest valuer @ 12 – Spot on.

    2 growler @ 14 – The only way to support the market will be to print enough money – There is a hole in the UK plc’s finances – The banks have simply lent too much and can no longer borrow on the open market in the same amounts – This will get worse when the UKs AAA status is downgraded sometime this year.

    2 debtfree @ 15 – You are so sharp and quick mate.

    2 bluebeach @ 16 – See above.

    Yours
    shining
    (5 o levels in english, maths, technical drawing, art and woodwork)
    wit

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  • So who advises to go back into the market soon. Who advises to keep on renting, and if I stay renting, where do I keep my funds? Sensible answers and reasons please, but a little wit and laughter is allowable.

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  • @str: Renting market is crazy. I’ve just negotiated a new place with much more than I have now for GBP300 less per month. My Landlord came back and offered to drop to match rather than have an empty house. But this is a rare landlord – most are terribly mislead by the estate agents with the result that unlet places are soaring in my area. This area has (maybe had) the highest average house price in the UK as you know.

    @shining. I think you can take a horse to water, but you can’t make it drink.

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  • 2 bluebeach @ 33.

    I say rent for the next 2 – 3 years. We have just renegotiated our rent down by 20%. I pointed out to the landlord that with at least 10 properties in the area of a similar kind (4 bed detached, 3 receptions with garage, large garden & drive) that had all been available for more than 3 months (some nearly 6), his chance of letting our one (physically less attractive than others) in under 6 months was just about nil.

    Two estate agents I know have seen their letting portfolios triple in the last year. Everyone is still in denial and has removed their properties from sales to letting, thinking they can find tenants easily.

    Where to put your money is a tough one. I still believe cash is king personally. Mine is fluid because I know I will most probably by a few shares, maybe a bit of gold (when it comes down), and I will also maybe invest in property in about 2 -3 years myself.

    If they start printing money I plan to expand my business with some of the easy money available, if possible. I think they will have to double the amount of cash in the country to even stop the drop in house prices by any significant amount. Negative equity will prevent a huge chunk of the population moving anywhere without taking a big debt with them if they move (and possibly increasing it if prices sontinue to fall). A property market increasing by 15% a year facilitates many things, one dropping by the same amount makes for a very tight sphincter !

    I still think that if you buy property now, it will lose between 25-50% of TODAYS value (printing money may cause this to be at the lower end of the scale). I think that confidence has been absolutely stuffed in th UK property market. By the end of the year there will be at least 3 million unemployed, and a new large amount of people on the sick, on disability etc..

    Savers (and people living off pensions) will have seen their ability to spend drop to a pittance. Anyone with an endowment mortgage will have to get a new mortgage out to finish paying for their home.

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  • bluebeach – I assume you are buying a house in which to live and of course you wish to wait for the bottom since you get more for your money, although it’s not as important for you as it would be for a potential investor (of course your only home is still an investment, just not of the same kind). I would point out that you probably actually want to buy just before the bottom when prices are almost as low as they’ll go, but whilst you still have some decent choice. I’d advise waiting at least a year – but it will also depend on where you are buying. I think the best advise would be to keep a careful eye on your area of interest (i.e. the type of house you want in the area you want; and any mortgage options you are willing to consider). Always remember that the housing market is quite a granular one (assets in the market are relatively unique).

    I’m sure others have advise from a different perspective and look forward to reading their views.

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  • growler, where is that? Chelsea? Belgravia?

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  • Yes SH @35, I am happy to continue renting as the moment, I too have just negotiated a reduction. I will continue to be happy whilst prices are falling, although, unless through Death, Debt or Divorce, price reductions are pretty stubborn in North Wales. What really bothers me is this man printing money and reducing the value of savings. If inflation begins to rise, then so should interest rates….but then so will house prices ?!?… Is this how you see things unfolding too?

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  • I like the phrase: “if building societies and banks continue to hoard cash a refuse to offer a reasonable mortgage to anyone with a small deposit or less than perfect credit record”. What are the banks and building societies supposed to do? Offer 100 percent mortgages to subprime borrowers at rates that are lower than the base rate? Isn’t that what led them into bankruptcy in the first place?

    By the way, aren’t the CBER lobbyists for the housing industry. Weren’t they the people who claimed that there was no housing bubble and the orgy in the housing market was just the logical result of the “housing shortage”?

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  • Bluebeach @ 38

    Interest rates will have to rise, as will inflation. I see another year of low inflation, then a sharp rise. even if Crash prints cash it will take a year to make any difference and by then the property market will be in a whole bigger mess. I know the north wales market well and it is a stubborn beast. This recession is already the largest I have (or anybody else) has seen. I don’t really know where this is going but the government is completely inept. They failed to control the rise in propery prices (no more boom and bust) and they will fail in preventing the fall. It will take another year for things to get really bad, when all those attempting to rent their homes, fall foul of the repo man. Everyone can hold off for 6-12 months but then they will have stumped up months of their own money but desperation will sink in very soon.

    I am certainly looking forward to property auctions in about 18 months time. Unemployment will see any remaining confidence completely removed.

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  • Thanks for your views. Diolch yn fawr

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  • Croeso bluebeach

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  • Sining wit @ 37
    Now why didn’t you just say that in the first place. Surprisingly for you our views aren’t hugely different.
    My reasonong for pushing the question originally is my current position.
    Having had 2 good years just completed, I can borrow money easily right now.
    Should my own personal circumstances turn for the worst (It will for most and bad for 3 million) then would I be better of with my family in rented (sorry sir you have too much money saved to qualify for any hand outs & we don’t rent to DSS).
    Or would I be better off milking the system that’s created this mess (oh you have a big mortgage of course we’ll pay all your interest on your mortgage for you).
    OK I’m looking at worst case scenario but you get my gist.

    And as you also point out inflation may well be taking off with the printing presses in full flow.

    If I contimue to rent then I’m in it for the bottom ie aiming to be able to buy without a mortgage as I may not qualify for much if I have a bad year this year and next earning wise.

    51ck
    Agreed – and if I knew I would be making good money this year and next I’d definately wait (still might).
    Growler and I are both South Bucks area which includes towns such as Marlow, Beaconsfield and Gerrards Cross. I think he meant outside London and excluding Sand Banks and Rock, but it is quite pricey.

    Growler
    Re: the crazy rents – have just noticed quite a few taken up from a glut at Christmas and not sure where the people are coming from who are taking up he rents. But that’s this week, hopefully another glut of can’t sells will hit the rental market next week.

    Thanks for all the input and laughs on this thread, nice to see 45 comments on mainly House prices for a change.

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  • str2007

    The system needs people who can borrow against a reasonable deposit. If not then the whole thing goes belly up. I still thin k we have at least 2 years until the bottom. Brown may think he can buck the market, but I bet a pound to a penny that he can’t.

    We are all economic novices, it also appears that most economists are novices also. Not many people thought the market could go as crazy as it did. And not many had the sense to get out of it (or not get into it) in the last 2 or 3 years.

    I also remember one Sherman tanker on here, not more than 12 months ago, moaning that he got out and could’ve made a packet in the last 2 years. I wager he is bragging down the pub now, of his foresight and economic acumen.

    This recession has a long, long way to run yet. Half price properties are a complete reality. Sentiment has gone, confidence has gone, and this government will be gone as soon as they give anyone the chance to do it. I also think that Brown won’t see the year out, as all the backbenchers in his party of sycophants, champagne socialists, and downright pocket liners, as they race for the life-rafts(attempting to pacify their local voters – by distancing themselves from the titanic disaster) as they realise that this man is a fool, and captain of a ship of fools.

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