Thursday, June 25, 2009

Affordability is the problem in the UK housing market!

House prices could fall another 40% from here

"The problem in the UK housing market is affordability – or the lack of it. We are nowhere near the levels where the market can start to resuscitate. The Nationwide Building Society's first-time buyer affordability index, which measures initial home loan payments as a percentage of take-home pay, is still five years away from a market trough if the last housing downturn is anything to go by."

Posted by damien @ 05:13 PM (2537 views)
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21 thoughts on “Affordability is the problem in the UK housing market!

  • gone-to-colombia says:

    Sound advice but the greater part of the home buying public will never read it.
    For sellers the advice must be sell now and sell fast.

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  • well i am a home buying public, i read the artical.and i dont agree with Moneyweek writter.i think this is the bottom of the bust and prices never will be this low nor lower then this anymore.that’s my advise…

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  • and the reason i say that because in the UK we have supplay and demand issue.that’s why now affordibility is will be less every year.so if you can afford it now go for it otherwise you might have to rent until you have a better paid job!!!!

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  • I have… gives a reason to think…

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  • japanese uncle says:

    Conscientious observation tells house prices have already dropped by 30% from the peak, which may more or less represent the reality.
    40% drop from here amounts to (1 – 0.3) X (1 – 0.4) = 0.42 namely eventual 58% drop from the peak. A little optimistic, but a prediction within a reasonable error, I reckon.

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  • last_days_of_disco says:

    Drew a really nasty personal attack today from an architect friend for suggesting the “green shoots” were complete hype and nonsense.

    In other new he says that after a manic 2008, work in 2009 has fallen off a cliff and he is planning to cut back on staff. So its starting to hurt people a lot and they don’t like it when you say its going to get worse. I bet all his staff are going to immediately run out and buy all these “cheap” houses just as they lose their jobs. NOT!

    It is like a Greek tragedy and people respond in such predictable ways, its deeply sad.

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  • When will we get down 40% ? With the job loses today and more bad news gathering pace daily I expect 6 months

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  • Has anyone noticed everytime there is bad news on the horizon, someone leaks expenses reports for someone, now it is the BBC… wonder if the public will listen to this rather than mervie the banker???

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  • Which way house price goes is a rather complex issue. What interesting is that bulls’ prediction is based on that everyone is crazy, whereas bears assumes that everyone is rational. Which is correct?

    If everyone around you believes in a crazy idea, would you give in just as the protagonist in George Orwell’s “1984”?

    And remember the Character “Cypher” from The Matrix? (The traitor who chosen to go back to a fake perfect world instead of a real harsh world)?

    Say the property money was never real, but if you can’t tell until you die, what difference does it make?

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  • Not that complex Peter. At core banks went bust because credit outstripped real income. But money cannot be manufactured at will – if it could Argentina would be the wealthiest place on earth. So banks will tighten and people will become more cautious. This is currently expressed not just in falling prices but in volumes which are off a cliff.

    Long term property prices can only represent underlying incomes and until they do they will fall.

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  • Tired-of-waiting says:

    All I want to do is buy a ‘home’. I certainly can’t wait another 5 years! I was living off my savings (money from sale of home) and now cannot sustain myself this way and will have to look for jobs that aren’t there…I’m losing my patience here…

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  • Interesting to see this article just below the one that says City Analysts predict a rise in prices soon.

    It just goes to show the spin and ramping that is in operation in the media: The ‘analyst’ predict rises because their salaries and bonuses are not a concern when it comes to buying a house and so can support a rise in house prices, but, the simple truth is that a City Anlayst is only one tiny percentage of the country’s workforce. They are a very small minority. However, they are the one that are given the space in the newspapers and on internet articles.

    History seems to repeat itself with class devides -didnt someone once say “let them eat cake”?
    (actualy ‘brioche’ for the posters that like to nit pick)

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  • Hi Greenbay… errr…. I mean Greenstar….

    I don’t understand – if we have a supply and demand problem which pushes prices higher, why are house prices falling? Or are you suggesting that somewhere in the country someone has built a million house, but they’re all about to disappear thus creating supply/demand price rises again? I didn’t think supply and demand could change so rapidly to affect a 20% drop followed by sudden increases. Strange.

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  • Tired of Waiting maybe if you just burst into tears it will all be ok.

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  • What a sobering article, at least the author correctly states the average salary amount then works out the real income to price ratio and not the usual nonsense.

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  • george monsoon says:

    Tired of waiting – I know EXACTLY what you mean. The deposit I was saving is now being used to replace old appliances, and recently my old car. I would love to say that I can fill the hole in my savings with more cash, but all my disposable income is evaporating in a cloud of subversive inflation…

    Greenstar, are you sure you have understood our current situation properly?

    Lets look at the facts

    Banks have contracted mortgage lending to a point where new borrowers must stump up anything between 15 and 25% of the value of the house. Given that the average house (taking into account the drop) is around the 200k mark and a starter home is around 120k.. the FTB would need to put up a lump sum of 25 – 50 thousand pounds…

    And.. this is only being offered if you have a shining credit rating.. woe betide you have debts on your credit card, or other outstanding loans..

    Ok so we have no First Time Buyers (except those middle England luvies with rich parents). If you have no FTB, then anyone else up the ladder is stuffed well and truly, because no other links on the chain can move.

    With all the new builds in my area, we have more housing that we can poke a stick at.. and its dropping in price like a lead balloon.
    developers can’t get the buyers and are desperate to sell.

    Nobody can buy a house. They are WAY overpriced and affordability is lower now than it ever was thanks to the banks missappropriation of funds. As long as joe public is paying back for this disaster, house prices are not going to recover for a long time. I rent. I don’t want to rent, but at the moment, it is the ONLY option I have.

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  • Every day brings another prediction of how far house prices will/might/could fall..

    But no-one seems to follow their argument through.

    It is easy enough to demonstrate that house prices are not currently sustainable – we have millions living in houses they could not possibly afford at current market price, so how does it become possible for the next generation to afford them?

    But for each prediction of a fall, there needs to be a logical follow through – if prices fall by ‘x’ %, what happens next?

    If you go down that path, you find that the current boom-bust is very different to the previous ones.

    Previous busts have been slumps; they have caused pain, but for most people, normality was able to resume soon after.

    This bubble got too fat, and has embraced too many people; we are now seeing a true crash.

    If prices fall by another 10% – 20% – 30% – 40% – 50% – will they then stabilise?

    At each step you see greater theoretical affordability for new market entrants, but at the same time, the consequences for existing borrowers, the lenders, and the nation’s economy get worse and worse.

    As a result, FTB’s and the lenders will both get increasingly cautious, while existing homeowners will be locked down by negative equity. BTLers meanwhile, will find themselves in such depths of overall debt that they start to see bankruptcy as the easy way out.

    Much is made of cash buyers brazenly ‘snapping up’ properties, but the bold will move first, blow their funds and get their fingers burnt, while the cautious will wait and wait…

    I doubt the cautious cash buyers will enter a falling market, unless the value of the property they are buying is demonstrably below its cost of construction..

    ..and that makes for a very low base..

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  • The trouble with all predictions is that given enough time all will come true. I sympathise with “tired of waiting” – there is no point being ‘right’ about house prices just as you enter the retirement home.
    personally I am not that bothered weather I own a place or rent a place – in my mind nobody really ever owns anything anyway however the missus wants a nest (which is fair enough and understandable) and as such would like to see the inevitable falls happen sooner rather than later.

    there is a great deal of very good debate on this blog from every side of the economic equation, all of which do have an effect on the house market (and everything else) however in my view the residential house market (for individuals) boils down to just two factors – income and affordability (deposits / mortgage availability / cost of living etc).

    One goal this blog may want to embrace is the desire to simplify the problem for the masses who don’t have the deep-interest in underlying factors but do have the ability to change the HP landscape. If every article was to then link to how this would affect income and affordability (for example) then in my view this would make things allot simpler, less confusing and from a media/PR perspective present stronger messaging…

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  • george monsoon says:

    I have a problem with renting my whole life.

    When I get too old to work, where is the rent money going to come from?

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  • george monsoon says:

    Valid argument Uncle Tom, and i can see your point.

    If houseprices fall over a long protracted period of time .. eg. 1 genreation (or 20 years) which is possible, then the potential buyers in years to come will have grown up with the belief that house prices always fall. This could exacerbate further falls because they will use this knowledge to push for a cheap sale, knowing that they are buying a depreciating asset.

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  • c'mon correction says:

    Tired-of-waiting said “All I want to do is buy a ‘home’. I certainly can’t wait another 5 years! ”

    Why can’t you wait another 5 years? What’s wrong with renting? Only in Britain do we feel this so strongly. Honestly, why buy in a year from now if you can rent for a few more years and save yourself tens of thousands of pounds, that’s like working for 5 years for nothing! In most cases renting is still cheaper than buying, and will certainly be when interest rates start going north very soon.

    Just chill, rent, save and be happy! Home-ownership isn’t all it’s made out, think of all the neg-equity about and the worry about being repossessed if you lose your job. Most of my friends are just like this, they’ve lost thousands and thousands and are quietly very annoyed that their renting friend isn’t doing the same !!!

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