House Market upcoming "crash" : thoughts from a first time buyer

When the market ceases conspicuously to be a sellers' market - and there will be a period of reckoning of up to 6 months while many sellers remain in denial of the fact that nobody wants to buy their house at the asking price - you should see a fall very quickly of anything up to 10%. (The same thing happens when there's a transition from a sellers' to a buyers' market as asking prices are realised and even gazumping becomes commonplace). As to further falls after that, it's just a matter of how long before the more recent BTL'ers start to panic. Interest rates will be the most significant determinant in the short term and revised property taxation in the longer term (i.e. soon after the next parliament). Many are arguing that a modest fall (mini-crash) will happen even if rates don't rise much further. But if they do (global upturn? more turmoil in the oil-producing Arab states? continuing UK consumer-driven overheating?) then expect fireworks.

As sure as the sun will rise tomorrow,there will be a "re-alignment" in house prices. Its pure economics. That day is coming closer and closer. The only ones who are in denial are those with an interest in stoking up the market ,i.e financial institutions,estate agents,housebuilders etc.

Life is for living,not wandering round with a huge concrete millstone round your neck. IMHO you would be overcommiting yourself at this level. If we are talking a 25 year term then its just over £750 per month on mortgage alone!. Have you considered another part of the country or perhaps even going to live abroad with your family?. It really isnt worth paying that kind of money (more than 125000) to live in the UK anyway!. Here in Manchester there are tiny 2 up 2 down terraces going for in excess of £96000 in average areas. They are simply not worth it and what is more,i notice a lot of proprties are "sticking" now,,they are not up and sold within a few weeks as they once were,interest rates are on the up,dont be conned.

joe

There is no law that says that everyone can afford a house where they want. If you dont like it, move. You are not a mollusc fixed to a certain bit of rock and unable to move. Use your legs to move to a better environment otherwise 300m years of evolution have all been for nothing*.

Bitstring , from the wonderful person Tumbleweed said

There are two sides to every argument, including that one .. some places (e.g. 'Channel Islands') have gone out of their way to ensure that 'locals' can continue to live locally .. other (desirable) places are apparently content to kick out all their local residents and let the richest buy the place up.

I guess it's a matter of time before some locals, somewhere, rebel (which may be France, or Wales, or , or wherever). Some of still remember 'come home to a real fire .. buy a holiday cottage in Wales'.

Michel,

I think more and more British people will simply choose to go and work and live in other parts of the EU or to places like Aus/NZ because the UK is simply out of their reach.

I think the people who can't currently buy, assuming there is not a crash, will begin to do this or, after a crash, those who have lost everything will have no choice but to pack up and start a new life overseas. The hard reality, especially as we move towards this bigger EU concept, is that the UK has ridiculously over-priced houses compared to elsewhere... and often poorly built tiny ones compared to elsewhere also... You have to remember that, with the exception of Japan and Germany, places like the rest of the EU, the US, Aus, etc, are also suffering from enormous house bubbles currently also. It is going to get nasty....

Oh but London is the panacea,the grail,who would want to live anywhere else but in good old London town-in blighty..

On last nights 'Location Location Location' they had a young lady that had been living in Africa for about six years and wanted to live in London but could not afford to buy there. The presenters solution was for her to buy a property in an 'up and coming area' outside London which she then rented out. She then continued to rent a place in London. The idea was that after a few years the property she owned would have gone up in value giving her a deposit on a place in London.

Possible solution I guess, but when they show the figures they were assuming she could rent the place out continuously.

Regards Andy

I think people are routinely borrowing *8 through brokers. If they weren't, nobody could afford to live (or work) within M25. Do a deal with the grandparents. They get to look after the children in exchange for half the equity on their houses. What else are they going to do with their time/money?

On Wed, 23 Jun 2004 12:49:53 +0100, "stuart noble"

Yes,in fact,stick them in a home and live in their house..!remember,its a house at any cost these days...keep chasing it and it'll keep moving away from you..

On Wed, 23 Jun 2004 12:49:53 +0100, "stuart noble"

(to the OP) ...yes, and don't worry about whether the grandparents will be able to service their mortgages on the released equity when rates go up. And if others are going for 8x, well, what the hell - you go for 9!.

Continuing house price rises are just more storeys added to a delicately balanced house of cards. There will come a point.

Of course on this hasn't taken into account is that in 6 or 7 years average incomes will be 20% higher assuming 3 percent annual growth (1.03 ^6 = 1.194 and

So a 20% fall in real house prices (which is what I assume they are talking about) means they stay flat in nominal terms. Meanwhile if interest rates rise, more people will rent, pushing up rental yields in line with increasing interest rates. There is evidence of this happening already.

this is still a fall since, as you say, wages have risen.

evidence = wishful thinking....you must be a BTLer.

Dunno. I think they're likelier talking about a nominal 20% fall ...

... which corresponds to a 40% (ish) real-terms fall.

Just as well I've only liquidised half my portfolio then, innit?

$-)

Not really wishful thinking. Rents dropped off about 2 years ago, but there has been a moderate bounce back. This is linked in part to interest rates, as if interest rates go up, yields need to rise accordingly - this can either occur by a drop in the price of the underlying asset (eg as with bonds), or from a rise in the income it produces. With property, there is a tendancy for moderate interest rate rises to increase rental come, this is largely because the supply versus demand model is broken. The other thing that needs to be considered is that not all property owners are sitting their calculating the yield or imputed yield of their properties - some live in their own home (imputed yield point) and most BTLers own 50% of their asset and won't do anything whilst they have good mortgage cover.

I have access the Butler interest rate forecast - basically it shows base rates peaking briefly at 5.5% in late 2005, on a 100k interest only mortgage this will only make a difference of 80 per month, which isn't going to kill anybody. Meanwhile houses in the 140k region seem to be attracting upto 625/650 pcm rent, this has definitely gone up from 600 last year.

I am not saying house prices are going to continue to shoot up (though there are still rises in many places), but a sideways drift for 2/3 years seems likely.

Economic models are analogues used as predictive devices - some more successful than others - but the idea that a *tendency* can arise from any shortcoming in the model's ability to predict it is either nonsense or a grammatical error.

If you're an established BTLer with a mature portfolio then I'm sure you'll manage (though you may want to make some changes). If you're a newcomer then I should get out now.