Sunday, February 28, 2010

Tell Us Something We (on this site) Don’t Know Already Roger!

House price falls have been delayed, not prevented

House prices are still too high and will eventually fall back to more appropriate levels, says economist Roger Bootle.

Posted by magnaman @ 11:03 AM (2452 views)
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18 thoughts on “Tell Us Something We (on this site) Don’t Know Already Roger!

  • It seems to me that politicians and central bankers want house prices to fall.

    “Wha … ?” I hear you cry. I assert that they do. The problem is prices only change in response to market movements. Politicians want house prices to fall, but only if by making it happen, they don’t have to suffer the fallout of masses of repossessions. The problem is that you cannot have one without the other. You simply cannot have a gentle deflation of house prices without something pushing the overborrowed into repossession territory.

    That is why even our central bankers (who largely created the credit and asset boom) are happy to come forward and say that houses are overpriced.

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  • Which is why the Brown stuff will hit the fan after the general election and not before (if it does we won’t be told about it anyway).

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  • Paul,

    The “overborrowed” have had about 15 months to sort out their finances. I think low interest rates will see them safe for another month or two. After that, as you say, the overborrowed slip into repossession territory.

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  • @paul 1… I don’t agree. Repossession is mainly due to non-affordability (Of mortgage debt). A significant amount of the affordability part is directly proportional to the IR’s. A huge price drop could be sustained if:
    1. IR’s remained low-ish (And not escallated to the 15% area of 80/90’s crash)
    2. Nequity is allowed to be transferred from one property to another (Allowing market movement).

    The fact that people can not walk away from their property in the UK (As easily as in USA), means there is a high risk to defaulting (Banks continuing to chase for debt balance). Which they will not do (IMO), due to nequity alone, if the property is still affordable.

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  • mark,

    I see your point however:

    1. The fact that people cannot walk away from their property in the UK means that there is a low risk of default for the lender (think about it). That is why the only way prices will come down is through forced sellers (at the margin of the market where prices are decided) – after all only 5% of property owners are buying or selling at any given time.
    2. Affordability is a function of credit availability. Nequity is already transferable between properties – the debt follows the buyer, not the asset.

    As another poster put it – when you buy a property and the price is too high you must make clear that you’re looking to buy the property not the debt against it.

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  • Sell high buy low?

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  • All I know is that I have to throw in the towel. I am about to put a deposit on a house after a nice £30000 reduction. I just cant wait any longer and especially as we dont really know whats gonna happen. I dont see my new house as an investment either, I just want a nice place with a good school nearby for my son to go to when he’s a couple of years older.

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  • markj69 str05 says:

    @martin… Sounds like you still have a year or 2, if schools are your priority. You might find prices more favourable, and more choice if you wait a little. But i’m not making any recommendations!

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  • as long as you’re happy taking on the debt and it’s not a short term decision then good luck to you, as mark says, you may find yourself in negative equity on a year or two, but sometimes needs must as you say

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  • Spring is in the air, can’t you just taste it?

    Gordon’s road show is well and truly on the way to victory.

    Nothing can now derail the sense of optimism that the new season will bring.

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  • alan_540, I know what you’re saying with regards to negeq, but i’ve been paying attention to this site for about 4 years now and sold my small place last year (I bought in 1995 when I was only 21) so I have a large deposit for a 4 bed detatched and will take a mortgage of £60000. At the minute my rent is far more than I am earning on interest and repaying a mortgage is going to be far cheaper than my rent. Like I said earlier and as others have said, we just dont know what will happen or when it will happen. My new home is not seen as an investment but a place for my wife and I to bring up our little boy ………… and its opposite a park and golf course!

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  • tenyearstogetmymoneyback says:

    Good luck with the house Martin.

    What would be interesting is to know what type of mortgage deal you are going to go for.
    Walking past HSBC yesterday they were offering something like 2.5% providing you have a
    25% deposit.

    Going back to the USA / UK differences another fundamental difference is that fixed rate
    (for the full term) mortgages are much more common over there. here taking out a 2 year fix is
    considered to be long term planning.

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  • Tenyears,

    We have been offered four year fixed at 4.69% with no arrangement fee. It’s probably not the cheapest but will give me chance to save for the period and let me pay the majority of the debt back after 4 years. I do believe that interest rates will rise in the coming few months but its still a balancing act with money in the bank or a home of your own.

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  • tyrellcorporation says:

    LOL! Smugdog, I think after todays poll the emigration office are waiting for the deluge of applications! I have to say I don’t share your sense of elation and I don’t think the markets will either. Time will tel eh?

    I think it’s time for The Sun to wheel out the famous headline about turning off the lights…

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  • mark wadsworth says:

    @ Martin, best of luck with the house but £60,000 is not really a mortgage to be scared off, even at 10% interest it’s not going to hurt you took much.

    @ Paul, why would falling prices cause repossessions? If people can afford the interest and repayments on a mortgage, that’s the important thing.

    To be fair, repossessions would call prices to fall, which is why the govt is going out of its way to prevent too many happening.

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  • House prices are going to soar with those new 0% deposit 100% optimism mortgages. If only I could afford the optimism…

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  • Just noticed an interesting correlation between $US/GBP and houseprices. A year or two back GBP was around $2.00 average HP was c. £200K. GBP rate dropped to the $1.40s, houses likewise to £147K. Both then bounced up 10% and now both seem to be drifting back down. Question is, as several commentators are predicting $US/GBP rate to go as low as $1.20/£ or even $1.00/£ can we hope to see average house prices similarly drop to £100K-120K?….. {salivates}

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  • hash browne says:

    One of the comments on citywire reads as follows: “…Even if land was cheap, or even free, we would still be faced with expensive houses because of the cost of building them to the standards imposed by the legilsators.”

    I am sick of hearing made-up assumptions like this so I thought I would do my own research:

    According to the BCIS, the median building cost of a one-off semi detached house in an average area, including prelims, is £996/m2.

    The average floor area of a house in the UK, according to the Indpendent is 76m2.

    Therefore the average semi costs £75,696 to build, excluding land costs.

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