Has the ED housing market reached the bottom yet ( II )

[lard]

Seeing as though we are throwing around estimations I'll go for a bottom of 60-70% off peak in real terms.

Before you all think this is insanity, this would in most cases get us back to about a 1999 level in real terms. Not too long ago folks!

What goes up must come down.

[Mick Mac]

Gosh - 60-70% lard - If that is the case we will all be in nagative equity and very glum indeed. i hope you are not right. The economic circumstances needed for such a fall would be beyond my imagination but would probably include mass unemployment, deflation and goodness knows what else.

I'm not sure the house prices had actually peaked had we continued to experience "normal" circumstances. What took us outside normal economic circumstances was the sub prime positions of the banks and the subsequent increase in the cost of borrowing which made the monthly cost of repaying a mortgage unaffordable, however now with rates in decline houses would once again be affordable (albeit expensive) if we had normal mortgage lending by the banks, which we don't have [one post stated a first time mortgage buyer was paying > 6% which he said was the best rate available despite a base rate of 3%].

However this is not to say that the bounce will happen anytime soon, people are not going to start buying in what they understand to be a falling market and the general feeling of job insecurity that most of us are feeling may prevent even the most bullish from buying at the moment. Therefore we will have to wait until the banking crises and job losses in the financial sector bottom out before we get people thinking positively again and at that point if mortgage rates are still low some people will start buying and prices will begin to rise slowly and I believe will rise above 2007 peaks before too long. Noone knows how long the banking crisis/recession will last so its impossible to predict when the property pick up will happen but I still think now is a good time to buy if you are intending to retain a property in the medium to long term (and you are confident you job is secure???)

Everything happens in cycles. Buy on the way down, don't wait for the bottom or you will miss it and find yourself buying on the way up, then its a sellers market and sealed bids, gazumping etc will return. In a buyers market huge discounts can be secured. I guess its a big financial committment for anyone and although its very interesting to discuss the topic i do feel for anyone who has to make a real financial decision and in the "real world" it must be a very difficult decision as regards when to buy.

[Josh]

Mick Mac Wrote:

-------------------------------------------------------

> I'm not sure the house prices had actually peaked

> had we continued to experience "normal"

> circumstances. What took us outside normal

> economic circumstances was the sub prime positions

> of the banks and the subsequent increase in the

> cost of borrowing which made the monthly cost of

> repaying a mortgage unaffordable, however now with

> rates in decline houses would once again be

> affordable (albeit expensive) if we had normal

> mortgage lending by the banks, which we don't have

i think you're quite wrong here. The circustances you describe as "normal", i.e. banks recklessly lending huge amounts of money to anyone and everyone at low rates, were far from the historical norm. The subprime crisis, UK house price bubble, and house price bubbles in many other countries were caused by banks inventing investment products (mortgage-backed securities) with unquantifiable risk, which in turn was stoked up by low interest rates. That era of crazy uncontrolled lending has had disastrous consequences and is now over for good. We are now returning to normality again. The idea that house prices will "rebound" as as daft as the idea that banks will start pumping out credit at 2007 levels again. It aint gonna happen for a long time!

[Mick Mac]

Josh - You have just described the sub prime mortgage lending, which as I said, were the abormal economic circumstances that led to the crisis.

The sub prime issue, when widely defined, includes the original reckless lending of US (and other) banks which led to higher house prices rather than simply the losses incurred by banks as a result of investing in products which included sub prime debt.

I think we agree that the sub prime issue both originally fuelled house prices (banks' irresponsible lending) and then brought about a crash (sub prime losses hit banks balance sheets and banks rapidly adjust their lending criteria) which results in more expensive mortgages and house price crash.

[Josh]

Mick Mac Wrote:

-------------------------------------------------------

> Josh - You have just described the sub prime

> mortgage lending, which as I said, were the

> abormal economic circumstances that led to the

> crisis.

> The sub prime issue, when widely defined, includes

> the original reckless lending of US (and other)

> banks which led to higher house prices rather than

> simply the losses incurred by banks as a result of

> investing in products which included sub prime

> debt.

> I think we agree that the sub prime issue both

> originally fuelled house prices (banks'

> irresponsible lending) and then brought about a

> crash (sub prime losses hit banks balance sheets

> and banks rapidly adjust their lending criteria)

> which results in more expensive mortgages and

> house price crash.

but it wasn't just the subprime crisis. Banks had started using wholesale funding to lend so that they could compete more aggressively for market share. the likes of bradford & bingley and HBOS had lent up to 35 times more than they had on deposit. It was inevitable that the house of cards would eventually collapse, but the bankers carried on doing it because they only had their sights set on very short-term gains, i.e. their next bonus. It was like musical chairs, with the housing market in the middle. The subprime crisis in the USA was just one symptom of a totally dysfunctional system, not the root cause of the problem.

[indiepanda]

I agree with Josh.

Look, basic stuff - I read somewhere that the average salary in London is about ?30k and the average property was about ?300k, now however accurate those figures are - assuming they are roughly in the right ballpark, the average person can only just about afford to get on the housing ladder if they have a partner also earning at least average and they are buying a below average property and prepared to mortgage themselves up to the hilt. That says something is seriously wrong with the pricing.

I think bank's slack approach to lending let prices reach a completely unrealistic point - it wasn't just sub-prime, it was excessive lending to those who could manage a sensible mortgage, just not a stupidly large one!

[MrBen]

IndieP - I understand the concept of interest rates and tracker mortgages - so it's not strange that my tracker has therefore fallen with the base rate!

The point I was trying to make was....that quite a few of us might be actually better off (although certainly won't be shouting about it) as big short term savings on certain mortgages will off set any of the losses on fuel and food, both of which are now falling again.

Assumes that they still have a job. And dont get too hung up about their current house price.

[MrBen]

The best thing is the death of all those tv shows. Watch A Place in the Sun now and it's already looking horribly dated. I never got that show - why would someone want to choose between Wales and a villa with a pool in Portgual?

[indiepanda]

MrBen Wrote:

-------------------------------------------------------

> IndieP - I understand the concept of interest

> rates and tracker mortgages - so it's not strange

> that my tracker has therefore fallen with the base

> rate!

>

> The point I was trying to make was....that quite a

> few of us might be actually better off (although

> certainly won't be shouting about it) as big short

> term savings on certain mortgages will off set any

> of the losses on fuel and food, both of which are

> now falling again.

>

> Assumes that they still have a job. And dont get

> too hung up about their current house price.

Sorry, perhaps it was the way you worded it....

I do get what you mean. If you are one of the lucky ones that bought a house a while ago, or even bought recently but don't have a pressing need to sell, provided you are still employed, the situation isn't as bad as te media would like us to believe.

For most people it's more the fear of what would happen if they did lose their job, not be able to find another and end up having to crystalize a loss on a house bought recently that is the issue. (And that is probably true to an extent even if that loss isn't a "real" one - i.e. selling for less than they paid for it - just a perceived one - i.e. had to sell for less than it was once worth.)

I think most people are more scared by the thought of small possibility of a big loss than they are motivated by the thought of a more likely small gain, even if on balance they are more likely to end up better off than worse off.

And I'd include myself in that "most" category. Whilst pretty frivolous with my money in general I am pretty risk averse when it comes to large costs.

[Mick Mac]

Yes, the interest rate cuts have benefitted massively those people who had mortgages linked to the BOE base rate. Those people will see their mortgage payments significantly reduced in Nov / Dec - which is very valuable money if you have a family to support and if payrises are unlikely this year. I don't think it will increase consumer spending significantly but will take some pressure off family finances.

[EDOldie]

Simple question then, with interest rates falling, possible tax cuts on Monday. Will it be enough to make people feel better off and start to spend, most particularly on property again?

People must be thinking that property is starting to look, if not cheap, better value than 18 months ago. Is there another boom on the way?

[Josh]

EDOldie Wrote:

-------------------------------------------------------

> Simple question then, with interest rates falling,

> possible tax cuts on Monday. Will it be enough to

> make people feel better off and start to spend,

> most particularly on property again?

>

> People must be thinking that property is starting

> to look, if not cheap, better value than 18 months

> ago. Is there another boom on the way?

I'm sure Labour would like nothing more than to reinflate house prices in time for a general election, and they will doubtless throw absolutely every weapon at their disposal at the mortgage and property market to get people buying houses again. But in the medium and long term, house prices have got adjust. The boom was fuelled by debt, and the UK will have to deleverage and start saving again, which means a major adjustment is inevitable. You can't defy gravity forever.

[indiepanda]

Anyway, not everyone wants house prices to rise again now - anyone not in the market, or anyone wanting to take the next step up the ladder should want prices to revert back to a more sensible level. I can't say as I would vote for Labour anyway, but my opinion of them would sink even lower if they tried to artificially increase prices back to their insane level.

With all the serious economic commentators seeming to think prices have a way to go down yet, I can't see prices suddenly jumping now. The market commentary will almost create a self fulfilling prophesy because people will choose to keep out until prices have got down to the level the commentators suggest is more reasonable.

In any case, just because banks are reducing their rates (most not as fast as the BoE - only trackers have a guaranteed price drop) doesn't mean their supply of mortgage lending has suddenly increased, or that they will go back to lending the silly multiples they were pre credit crunch.

[Josh]

the interest rate cuts are good for existing home-owners but not much use to first-time buyers without large deposits as the banks are still setting mortgage rates high for buyers who need loans of 75% or more. To get the whole market moving up again, Labour needs to push first-time buyers back in and force the banks to reduce rates for high loan-to-value mortgages. But there is a conflict of interest. The government needs to make the banks profitable again so taxpayers can eventually get their bailout money back, but on the other hand Labour now has the power to force banks to lend at unprofitable rates to prop up the housing market. I think that's what they'll do. Gordon Brown's top priority at the moment is to close cameron's lead in the polls, which can be done by appearing to "rescue" the housing market. Once he gets reelected he can let the house price crash and deterioration of the UK economy resume.

[????]

In a deflationary world (and this is global) which has grown on excessive credit you have a situation where almost every asset's value (shares, property, commodity, artwork, penisons, etc) is now falling off a cliff. Many of these 'assets' are/were funded and underpinned by excessive and easy credit/debt, often based or funded on 'false' investment vehicles.....basically we (individuals, companies, coutries) have just lost loads of 'value' - value that was actually false - and still owe the debt that funded it....that folks is a depression. Globally, people and governments are beginning to realise this. The boom is over and we are all in for a very, very hard time, with falling incomes, asset value, etc even though 'things' will nominally be cheaper....we are especially f*cked as we have the highest level of personal debt in the world and much of our 'income' for the past 15 years has been built on Financial Services which is now an especially F*cked industry......the markets realise it which is why my poor old names sake the ? is 20% down......at a real extreme we could yet do an Iceland (country not store). Thanks Gordon, just been watching him deny any culpability in fuelling this idiocy on the Politics Show..."no more boom and bust". etc...what really makes me puke is that he, in all honesty is loving this, as it gives him an oustide chance of not being bung out on his ear...history will judge him a disaster

[SteveT]

Quids wrote:- almost every asset's value (shares, property, commodity, artwork, penisons, etc) is now falling off a cliff.

To confirm that I have relatives in Derby who were looking to buy a property, they have just bought a new build which was on the market completed 3 years ago for 199k,

two months ago it had dropped to 165k,

yesterday they purchased it for 131k

[macroban]

Lordship Lane flat - ?100k

[Brendan]

So people?s home are being taken away from them and then sold to buy-to-let landlords who can then rent them back to them. Am I the only one who sees a serious problem here?

[AcedOut]

It's not yours until the mortgage is paid off though. Harsh, but true.

[Keef]

We've just decided to pull out of buying a flat, very late on. The vendors basically refused us access to the flat to check a couple of things from the survey until we exchange... No call me suspicious, but WTF?!?!?

Guess they were worried we'd try and knock the price down, but for me, you don't refuse your buyers access unless there is somethign to hide!

Pain in the bum, but I'd rather start again once the mortgage market has calmed a bit. 6.59% fixed for 3 years was just insane!

[AcedOut]

Keef - that's probably very wise decision making on your part.

[indiepanda]

Sounds like a very sensible choice - I reckon you'll be able to get something similar at a cheaper price and a lower mortgage rate in a year. Quite right not to trust a vendor who messes you around too - in today's market you'd think they'd be bending over backwards to keep a buyer happy.

[Peckhamgatecrasher]

Bummer that it's fallen through, but you should be able to make a much better deal in this market.

BTW, I've brought a baby up in a fourth floor miniscule flat - you don't need to worry about space too much until they're about two years' old.

[karter]

Keef, that is a blessing in disguise, prices will continue to fall and you should be able to find a better deal, especially with todays further drop in interest rates of a whopping 1% to base rate 2%. Nice one.

[ibilly99]

NO - next question.