Dye is reportedly expecting a 30% drop in London house prices in real terms over the next five years. He says a similar drop in prices across the nation 'would not surprise'.
Is a drop of 30% over 5 years a crash?
Well, it would only take prices back to 2002 levels when people were already talking about crashes ...
IME prices in London have already dropped. It suprises me that the Halifax et al can still find an increase at all in the area
tim
I think he said '30% in real terms', which probably only takes them back to 2003 levels (in £), given any reasonable prediction of inflation over the next 5 years. That would hardly feel like a 'crash' to most people.
One of the Sunday papers (Telegraph or Mail) had an article about the fluctuation in house prices since about 1970, but I can't find it on-line.
They compared the annual change in house prices and the ratio of prices (or mortgages) to incomes. The latter triggered the reduction in the rate of increase, but it was only in the post 1989 drop that prices actually fell. In all the others they stagnated.
So the answer is that it appears never to have happened yet. If it did, it would undoubtedly be a crash.
In message , mogga writes
Who was the guy who was all over the media like a rash in Jan/Feb last year, predicting the same, and worse. "Sell by May, or you'll have to stay", was the gist of his prediction. Needless to say he wasnt going to sell his own house.
Well, properties in my patch just South of Manchester City Centre, including my own, have possibly doubled since he made his prediction, so I should care if they fell by 30% over 5 years.
Anybody who has the ear of the press, and wants to be splashed all over it, need only predict a property crash, and they get their ego massaged big style.
He might be right, but you dont need to b a rocket scientist to predict that something will happen over the next 5 years.
In article , tim writes
Prices in *parts* of London have dropped. Other parts have risen. Posh areas stagnated last year and have recovered again as City bonuses return.
Latest estimates are that house prices have risen 10% in St John's Wood since the New Year and 9% in Notting Hill. But prices of flats have remained - erm - flat.
A lot of these posh buggers don't give a toss about interest rates 'cos they pay in cash and/or the oodles of equity earned over the last few years when prices soared.
And as there are not enough slick mansions to go around, they are bidding each other up.
But 85% in 3 years is only about 13% per year. Impressive, but hardly excessive. Worth raising one eyebrow, not two.
It depends on whether you are buying or selling!
Don't forget that it takes a 40% increase and then only a 30% decrease to return prices to their original value.
In nominal terms.
In real terms prices declined in 72 - 76, 78 - 81 & 89 - 95
I still haven't decided whether, from the point of view of the average house owner, prices should be viewed in real or nominal terms.
Daytona
Err, the author of the current article ?
Why not?
MMM! So if he makes this prediction every year, eventually he will be able to say, "I told you so", and he will get even more coverage.
Presumably he still wont be selling his own house?
"Daytona" wrote
Nominal. A fall in nominal terms will push people into negative equity and prevent them from selling because the sale proceeds won't repay the mortgage.
If general inflation is 25% and house price inflation is 10%, that's a 15% relative annual decline in real terms but still an increase in cash terms, so at least you can still fund a move. If inflation is 5% and house price inflation is -10%, that's the same annual decline, but you *can't* move if you bought within the previous year and with a mortgage of 80% or more. You've lost 10% of the price of your house, which wipes out half your original deposit, and the costs of sale, conveyancing, paying stamp duty, arranging a mortgage, and moving will account for much of the other half. This leaves you unable to fund a deposit. And in a declining market lenders get very keen on your having a deposit.
In the last crash ISTR one or two lenders allowed 120% mortgages to people with an exemplary payment history so the logjam could be broken.
Yes, and some are still lending up to 125% LTV.
I am sure some of the overheating in the property market would be removed if the max LTV was (say) 75% or 80%.
We pay mortgages in real money, not nominal money.
"Doug Ramage" wrote
I imagine this would lead to a deliberate distortion of property values as people overstated their value in order to get the mortgage they need...
Possibly - but the mortgage valuers are likely to deflate over-enthusiastic prices.
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