House Prices/Credit Crunch/Recession etc - Article from FT..

[Buttinhams]

Under a new law you can go to prison for 8 months if you are caught changing a cd in your car.

And do not even think about firing a cannon close to a dwelling house; the offence carries a £200 fine under the 1839 Metropolitan Police Act. Under the same Act the fine rises to £2,500 if you “keep or use or act in the management of any house, room, pit or other place for the purpose of fighting or baiting lions, bears or other animals”.

 

[Uncle Spielberg]

Present company excluded of course, but I have found that statements like "I can get you a self cert mortgage for however much you want" and "I am getting on well with XXX lender I will see if they will lend you a bit more" type of comments are why people went through brokers.

Hopefully these cowboys who rode the wave will be flushed out, they are to blame for alot of peoples situations at present I would guess.

I agree irresponsible brokers we do not need or want them in the profession.

 

[Arthritic Toe]

I'm afraid Uncle S that you are way off here with your rosey predictions of recovery next year. We won't see 2007 prices again until at least 2015.

The housing market is in a massive bubble the scale of which we have never seen before. Prices are at least 50% overinflated, driven on by easy credit and an insane speculative BTL frenzy. It beggars believe that people actually thought it was sustainable to have house prices increasing at 20% a year with wages increasing at less than 5%. People seriously thought this state of affairs could go on forever.

I returned to the country a few years ago after many years abroad, and it was just like walking into the movie 'Invasion of the body snatchers'. Everyone in this country was obsessed with property. If you dared mentioned that property was obviously in a bubble and prices would fall, a glazed expression came over peoples faces, and they said things like, "oh no - prices only ever go up" or "its different this time", and then they would settle down in front of their TVs to watch the endless property porn shows.

Last summer, the credit finally ran out. Suddenly, too late, the banks woke up to the risk they are exposed to following years of over exhuberant lending - they too were swept along with the madness. They are now desperately backing away from new business, insisting on high LTV's and attempting to shore up their balance sheets.

You only have to look at past crashes to see that there is never a rapid recovery. Once prices start falling, the crash gathers momentum. Lenders wont lend, and potential buyers will 'wait and see'. Only an idiot would dive in and buy a property this month that will be cheaper next month.

After the fall, there will be an extended period (at least 5 years after it has bottomed) where prices bump along at the bottom before confidence slowly returns to the market.

The supply and demand argument, that is the last bastion of hope for those with a vested interest in the property maket, is another myth. There is no overall shortage of property. This myth has grown out of a perceived shortage during the boom years where 10 potential buyers were oftern chasing 1 house. However the 10 consisted of 1 new buyer and 9 BTLers.

Now you have woken up from your Kirstie Allsop-induced hypnotic trance people, prepare yourselves for price falls of at least 40-50% from peak to trough and a long and miserable recession.

 

[Pavilionaire]

I think you're being unduly pessimistic AT.

A lot of first-time buyers will have been renting, living with friends or parents for a long time now and will probably wait for prices to fall a little more before entering the market. There's only so long they can hang on, after all.

A flat that cost, say. £130K at Christmas 2007 might be going for £100K at Christmas 2008. That's a big saving for a first time buyer and I don't expect them to wait around expecting prices to fall to £65K.

The government could also look to shore things up by scrapping stamp duty or offering financial assistance with legal and conveyancing costs.

 

[Uncle Spielberg]

I think you're being unduly pessimistic AT.

A lot of first-time buyers will have been renting, living with friends or parents for a long time now and will probably wait for prices to fall a little more before entering the market. There's only so long they can hang on, after all.

A flat that cost, say. £130K at Christmas 2007 might be going for £100K at Christmas 2008. That's a big saving for a first time buyer and I don't expect them to wait around expecting prices to fall to £65K.

The government could also look to shore things up by scrapping stamp duty or offering financial assistance with legal and conveyancing costs.

AT has written some sensible stuff but that last statement is absurd. As you say a £ 100000 1 bed flat with a 10% deposit , ie mortgage £ 90000, lets say 7% interest rate, interest only = £ 525 per month, cost to rent the same flat £ 650 ?. There is a rent/buy factor which is compelling and when the mortgage payments or much lower than the cost of renting people will be flooding back into the market, I expect this to happen mid 2009.

 

[Uncle Spielberg]

Again as you say there is a generation of first time buyers not able to get on the ladder, when they can they will be buying and those who think , the flats fallen from £ 130k to £ 100k lets wait until AT's £ 65k will lose out like they did when the dithered in the mid 90's.

 

[Tom Hark Preston Park]

I returned to the country a few years ago after many years abroad, and it was just like walking into the movie 'Invasion of the body snatchers'. Everyone in this country was obsessed with property. If you dared mentioned that property was obviously in a bubble and prices would fall, a glazed expression came over peoples faces, and they said things like, "oh no - prices only ever go up" or "its different this time", and then they would settle down in front of their TVs to watch the endless property porn shows.

...

Now you have woken up from your Kirstie Allsop-induced hypnotic trance people, prepare yourselves for price falls of at least 40-50% from peak to trough and a long and miserable recession.

Good post

Wonder if there will ever be a Royal commission set up to investigate the media's role in fuelling this speculative frenzy? These shows have come a long way since the innocence of 'A Place In The Sun'. It's all about greed and making a quick buck nowadays. Or at least up til last Summer it was. Property Ladder my arse.

 

[Gwylan]

After the fall, there will be an extended period (at least 5 years after it has bottomed) where prices bump along at the bottom before confidence slowly returns to the market.

I don't see why this is the case: the slumps in the mid-70s or early-90s didn't last anything like five years; in both cases, prices picked up after about two years. God knows, the market needs a bit of a crash to get things back to a sensible level, but I fail to see why it will last so long.

I LOVED the early 90s crash BTW, I'd been saving my money to buy a flat and suddenly prices nose-dived: a property slump is really good news for first-time buyers and there are plenty on here.

 

[larus]

I don't see why this is the case: the slumps in the mid-70s or early-90s didn't last anything like five years; in both cases, prices picked up after about two years. God knows, the market needs a bit of a crash to get things back to a sensible level, but I fail to see why it will last so long.

I LOVED the early 90s crash BTW, I'd been saving my money to buy a flat and suddenly prices nose-dived: a property slump is really good news for first-time buyers and there are plenty on here.

Agree. I think though the days where we get another surge in house prices will be sometime off. I feel though that house prices will continue to fall, so what extent is determinded by the knock-on effect to the overall economy and jobs.

Interest rates aren't going to rise (and if they do, the rise will be small), therefore the effect on peoples mortgage payments will be limited.

The real problem stems from the availability of credit. The LTV ratios which have been available in the past will not be available again (at least in the short to medium term), and this is one thing that US always seems to overlook in his optimism on the housing market. There may be buyers available, but they will need to be able to get the mortgage.

I am also hoping that the market dives a reasonable amount. I have paid my house off (4 bed detatched in Telscombe Cliffs), and am looking to move to mid-Sussex to a better area and a better house. Probabaly be an increase of in value of 50 - 80%. OK, I lose value on my house, but I make save more on the new one.

 

[Arthritic Toe]

I don't see why this is the case: the slumps in the mid-70s or early-90s didn't last anything like five years; in both cases, prices picked up after about two years. God knows, the market needs a bit of a crash to get things back to a sensible level, but I fail to see why it will last so long.

I LOVED the early 90s crash BTW, I'd been saving my money to buy a flat and suddenly prices nose-dived: a property slump is really good news for first-time buyers and there are plenty on here.

Not so actually. The last slump lasted well over 5 years (see graph). You can also see that there is a slow pickup from the trough. This notion that you must jump in quick to avoid missing the boat is another fallacy peddled by those with a vested interest, who want to part you from your cash. At the trough, there is such a huge stock of property for sale with no buyers, that it takes several years to get that moving again.

 

[Uncle Spielberg]

Agree. I think though the days where we get another surge in house prices will be sometime off. I feel though that house prices will continue to fall, so what extent is determinded by the knock-on effect to the overall economy and jobs.

Interest rates aren't going to rise (and if they do, the rise will be small), therefore the effect on peoples mortgage payments will be limited.

The real problem stems from the availability of credit. The LTV ratios which have been available in the past will not be available again (at least in the short to medium term), and this is one thing that US always seems to overlook in his optimism on the housing market. ****There may be buyers available, but they will need to be able to get the mortgage.****

I am also hoping that the market dives a reasonable amount. I have paid my house off (4 bed detatched in Telscombe Cliffs), and am looking to move to mid-Sussex to a better area and a better house. Probabaly be an increase of in value of 50 - 80%. OK, I lose value on my house, but I make save more on the new one.

Having been a mortgage broker for 20 years I am aware of that fact.

 

[larus]

Having been a mortgage broker for 20 years I am aware of that fact.

But you do seem to take a view with is contrary to all of the evidence. I undertand that there is a lag between events and the statistics being published. but nearly all indicators point to this situation geting worse before it improves.

The level of debt (personnal, business and government) both here and the US is horrendous. There has got to be a fundamental change in our economy, as we can't pretend we are getting wealthier just because our house prices keep going up.

The housing market cannot start to stabilise (much less improve) until the credit market conditions improve. There seems little indications of this happening in the near-term, and this is the point that I feel you fail to acknowledge in your posts.

I would not dispute that you understand the mortgage business, but that is different to understanding the workings of international credit markets.