Friday, October 29, 2010

Capital Economics say 20 percent

House prices 'are still 20% too high'

House prices need to tumble by 20% to make homes affordable, economists have said. The claim came as the Nationwide reported a further slowdown in the property market. Property economist Capital Economics said only a fall of a fifth in the average price - bringing the figure down by around £33,000 to £130,000 - will bring homes within reach of buyers.

Posted by quiet guy @ 05:45 PM (2506 views)
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12 thoughts on “Capital Economics say 20 percent

  • happy mondays says:

    That would be nice, 30% would be better! We had a drop of 20% recently 08 me thinks, but climbed rapidly again..Still not estatic about paying £130,000 for a shoebox with a bathtub..

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  • This figure may need revising down further. It struck me the other day that policy requirements on higher future pension contributions, both public and private, will act as a running wage deflator. Combine this with incipient cost push inflation and competition for jobs which will wipe out their ability to impose wage demands, people will have less money to live on and finance debt (which will be in short supply). Doesn’t bode well for future house prices, even after the necessary, prescribed, correction which faces the country in the short to medium term. At least the madness is over – even if some haven’t woken up to it yet.

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  • That would be nice, 30% would be better!

    I’d love 40%.

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  • The IMF are singing off the same hymn sheet as Cap Ec with 20%. I’ve seen some prices in the NE of England down roughly 65% from the 2007 peak – all about being in the right place at the right time and armed with cash for those looking to buy.

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  • brickormortis says:

    If they are 20% too high then surely they need to fall by one sixth (17%)!

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  • The prices better not fall too far, or LTV could go bad for even prudent prime borrowers and even lead to waves of mortgage defaults; these would seriously hurt the wider economy, so be careful what you wish for!

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  • mark wadsworth says:

    20%? f- off. I’m holding out for 40% from peak.

    Also, what Brickor says.

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  • The last fall stopped at 20% or whatever and rebounded because they reduced base rates by 90% (5 – 0.5%) and luckily for quite a few their mortgages re-set to base rate or upto 1% above base, so whatever sized mortgage they had, essentially they have been given that with virtually no interest to pay.

    If we get 20% off from here, I struggle to see what will re-ignite prices again.

    In fact by then we must be getting closer to interest rates easing up which I would imagine will keep a lid on prices for a very long time.

    Any more financial upsets, increases in unemployment etc. and we will see them drop again.

    What would concern me most is if sterling drops significantly again against other currencies we could see a huge influx of speculative buying from abroad.

    For that reason I suspect I’ll be buying with a clear 20% off from here assuming it looks at that point that falls are levelling off and there’s an increase in transaction levels.

    This all assumes I can get a mortgage then of course 😉

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  • The long term sustainable level depends on the extent of government support for lower income families, and to some extent of the supply/demand equation. One also has to make an assumption regarding the scale and impact of inheritance/BOMADs

    If new build maintains the amount of living space per person at its current level (i.e. keeps pace with population growth) and the government only subsidises the housing of the least wealthy 10%, both of which seem reasonably probable, going forward; the sustainable average price for a house looks to be well below £100k.

    Trying to estimate the impact of family help is tricky, but my best guess is that the average lift to prices from this effect will be quite small, perhaps 10%.

    I suspect that the market needs to correct by 40-45% to become sustainable, but will almost certainly over-correct before settling at that level.

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  • Brightonrentfodder says:

    I hope you’re right uncle Tom! must admit I still can’t fathom how so many flats are selling for more than a 100 grand nowadays (studio flats at that!), surely a realistic price would be half that!

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  • That’s ambitiously bearish Uncle Tom.

    I think you’re forgetting the now prevalent rental sector.

    With 30% off from hear new entrants to the rental sector will be leaping in as the numbers will be adding up.

    Also don’t forget currency, a 20% fall in Sterling combined with 20% actual fall would make this country a very tempting in invesent for financially over bloated Chinese for example, and there’s alot of them that would love to own a piece of England.

    So I’m going to have to beg to differ on that HPC prediction of yours.

    I do of course hope you’re right and that we go straight there without passing go, although the £200 for doing so would be handy. LOL.

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  • When was this written? Pick any year you like, it’s “Capital Economics”. Same thing every year since 1999. The law of averages suggests they’ll at least be right one year. Make their articles 100% more interesting if they could change the percentage once or twice though.

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