Thursday, October 7, 2010

House prices fall off a cliff

Finally, a wake up call - shock 3.6% house price fall

"Despite the crash of 2008, house prices remain overvalued. In fact, they became more overvalued last year." "I have argued on this website - as have some others - that house prices remain dangerously overvalued, even after the crash of 2008. Last year was good for property because low rates held up the market by making mortgages more affordable. I thought that trend (with repayments at levels of affordability last seen in 2003) would roll into 2010 and keep the market temporarily suspended. I was wrong. September's shock fall of 3.6% suggests the factors we have been talking about are sinking in already: Not only are house prices overvalued against wages but the prospects for wage rises look bleak given the UK's woeful economic prospects."

Posted by doomwatch @ 04:07 PM (3309 views)
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20 thoughts on “House prices fall off a cliff

  • sibley's b'stard child says:

    Is it just my PC or is it dodgy link day?

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  • Just a rehash of the press release by Halifax.

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  • I too am delighted to see the index at last showing a decent fall, however, I do not think that sellers are generally reducing their prices.

    The vast majority of sellers do not have to sell, and they will not “give away” their prize asset at a knock down price.

    I foresee a rerun of the market over the last 18 months whereby property will be removed from the market, volumes will drop even further and prices will flatten as supply is restricted.

    Either way, I see no reason why casual sellers (as against forced sellers) would drop their prices.

    Until higher interest rates force people to sell, I really can’t see the full HPC taking place.

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  • You speak wise and unbiased words oh wdbeast.

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  • phdinbubbles says:

    wdbeast
    “The vast majority of sellers do not have to sell, and they will not “give away” their prize asset at a knock down price.”

    If the ‘unforced’ don’t sell and volumes drop, then the ‘forced’ will surely make up a greater proportion of those that do sell. Is that a recipe for stagnation?

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  • @wdbeast post 3 – I tend to agree with you because our local estate agent pretty much said as much when the supply side dried up earlier in the year. He reckoned that he was being asked to do lots of valuations but when the vendors did not like what he suggested their response was typically “I’m not selling for that – I’ll wait till the market picks up.” As a result the supply side round here really did dry up. Over the last few months the supply side has increased markedly and prices dropped also. However I am noticing that not a lot of new properties are coming on now and those that are still around are simply swapping estate agents to try to clinch a sale. On the whole sellers are greedy, in fact very greedy and until there is a huge change in sentiment I think we will see properties withdrawn if their overinflated prices cannot be met. People do not like to have their perception of great wealth eroded. But at the end of the day a property is only worth what someone is willing to pay.

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  • The one thing that history teaches us that bubbles always burst, whether there are bubbles within bubbles, bubbles on the way down or outright explosions. But predicting eactly when these bubbles are going to burst is entirely unpredictable and can be triggered by events. A 3.6% drop in house prices in one month may be such an event, a sharp rise in interest rates may be another, a sudden rise in pessimism due to government cuts could be another, or a second financial crisis could be the catalyst.
    People have already had a taster, with the semi burst that happened in 2008 and there arent’t so many people around nowadays that will say, ‘prices never go down.’ Therefore, I wouldn’t bank on the fact that people will just hold tight and keep property. If I was a buy to letter with a large stock, I would look to offload as much as I could now. Its called smelling the mustard! Its also how canny investors play the stock market.

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  • People can’t always wait indefinitely. e.g. a mate of mine has a huge 100% interest-only mortgage on a very good tracker rate, so he makes a lot of money renting it out. But it runs out in 6 months time and he’s got to sell.

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  • 8. cyril said…

    People can’t always wait indefinitely. e.g. a mate of mine has a huge 100% interest-only mortgage on a very good tracker rate, so he makes a lot of money renting it out. But it runs out in 6 months time and he’s got to sell.

    The banks know this, the Gov knows this, but all the time the normal rules are suspended.
    The sheeple think HPI is good ,ergo….who gives a sheet about the youngsters?

    A couple of ‘lost decades’ and feudalism returns

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  • Mustie

    Correction – what someone is ABLE to pay. And that’s the big difference now.

    British Blue
    I’m not sure btlers can offload now, the numbers simply don’t add up for the ‘bigger fool’. They are left holding the baby.

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  • mountainpark says:

    Depends where the btl is. I’ve just sold one(completes tomorrow), at a great price for me, and it’s good value for the buyer as well.
    It was built in 1894 though, in a great location, and not a new build box somewhere desolate. Me and the wifes first home together. Feeling slightly misty eyed about. sniffs

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  • @wdbeast
    @smugdog

    Let’s just wait a few months and find out. If the next Halifax HPI bounces back up 3.5% or so, then we’re back in a stagnant market. It will be interesting to see what Nationwide’s next report is. A gentle decline over the next few years still seems possible to me.

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  • Those investors been greedy enough to stick to a high sale price over the last couple of years (and not sold) will duly be punished with even bigger losses. The housing market wont stand still for them. Those investors who purchased houses in poor locations and poor construction will be licking their wounds even more!

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  • general congreve says:

    50th article posted on this topic today I think. But why not? It’s the day we’ve all been waiting for. Must be some serious jizzing in the pants action going on for 99% of members of HPC today 😉

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  • Wow, what a party GC, Look at that chap in the corner, overdone to excess I guess.

    When the morning comes, the interest rate hangover still persists for HPC.

    Until mass unemployment or sky high rates appear, the only dazzle will be the memory of the

    crystal ball from the night before.

    ‘Pants action’ GC? Oh please don’t! Although, very apt and appropriate for this club I’m sure. Yuk!

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  • mark wadsworth says:

    PhD, comment 5: “If the ‘unforced’ don’t sell and volumes drop, then the ‘forced’ will surely make up a greater proportion of those that do sell. Is that a recipe for stagnation?”

    Well parried sir!

    And as I have explained before, there is a gap of at least 20% or 30% between what buyers can pay and what sellers can afford – it’s because both have very similar housing ‘wants’ but the latter group are only paying half as much in interest.

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  • lol its been a funny old day, interesting how 5live, bbc news, sky have been reporting on it and how sentiment is changing slightly too… towards a 10% decline next year from a recovery in the next few years….

    I have to agree with what everyone has been saying… some people won’t have to sell… but others who lose their jobs in the public sector cuts/ due to recession/ private sector cuts will be forced to sell… and if people think they are going to get less money in a year than they will today then they will sell…. especially with inflation at higher than expected levels….

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  • yorkshireman says:

    Is this Black Thursday ?

    If so, can I call it ?

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  • Could this big drop actually be the result of a rush of FTB’s capitulating after years on the side lines (and saving)? As FTB’s can only afford the very bottom of the market, this would cause a big dip in the figures.

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  • the number cruncher says:

    Some interesting observations from our village estate agent (shows the [email protected] up nature of the south east – no post office, but we have got an estate agents) – he has now put up 4 properties this last 2 weeks for sale OR rent. My village is very chocolate box and full of retired city workers. We have never had 4 properties up for rent before and it is odd to see properties up for sale or rent as I would assume that would put off tenants looking for something long term.

    unfortunately they are at very high rental prices

    Looks like the strategy is to go back to sell at peak value or try and rent it out in the hope of a sale at some future date.

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