20% drop in house prices in next year

[WeeBitWobbly]

Did anyone read this in today's paper.

What do you think?

Have you got a link?

Am hoping so. I need to buy within a couple of years!

I'm hoping not. Just buying at the moment

here

Hmm, Capital Economics have been predicting housing slumps for a long time (and usually by more than 20%). I suppose they will have to be right one day.

I really, really hope so, will finally mean we can buy and stop renting!

This has been predicted by someone or other every year for the past eight years.

The difference this time though CrazyHorse is that there is an actual reason for it. House prices have been overpriced for some time but people could 'afford' to pay those prices all the while banks would lend large multiples of peoples salary. Now that's not happening and deposit requirements are in line with banks risk margins there is downward pressure on prices.

Couple this with the realisation by most that interest rates can only go one way over time, and god forbid that be a short time, and it puts buyers, especially first time buyers off.

It's not just one investment house saying this now, if you pay attention to this stuff, the whole message has changed in the last few months. Even the BBC's coming round to the idea now.

Have a few interesting links;

Page 14;
www.bankofengland.co.uk/publications/inflationreport/ir11feb.pdf

www.estateagenttoday.co.uk/news_features/FTBs-fall-to-one-in-five-in-much-of-UK#comments

www.bbc.co.uk/news/business-12522590

www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/8332900/Home-buyers-under-pressure-amid-drop-in-lending.html

www.ft.com/cms/s/0/534695a2-385f-11e0-959c-00144feabdc0.html

I can believe this, our house has already lost 10% and I can see it losing more. Unfortunately with that loss goes our deposit (1st time buyers) so whilst I welcome our future family home becoming more affordable, our current place seems a waste of money!! Oh well, we got a mortgage when we wouldn't now :)

Look at the chart in this article showing the ratio of house prices to earnings since 1950.

Currently the ratio shows the average house costs 5.2 average annual earnings but historically it was 3.7x and usually bottoms out at about 3x earnings during house price slumps.

For houses to be truely cheap like they were in the 1960s and 1970s when most of our parents bought we will need a drop relative to earnings of about 40%. That means if earnings grow just 2% per year for the next 5 years a 25 - 30% drop in nominal house prices is entirely possible.

If wages actually started falling 2% per annum then nominal house prices would need to drop 50% to be truely cheap.

please please please please please

wont happen without interest rates going up or a sig. rise in unemployment IMHO

I am so fed up of reading about how people can't 'afford' to sell their house I was going to do an AIBU about it!

where I am I reckon prices need to go down by between 30-50% though

Have a look at what's happening in Spain just now (google distressed sales). I think the same could well happen here. People just got so carried away (with a little help from the banks).

The bubble here is just waiting to be burst. Good news for all the younger generation (and others) who at present are completely priced out.

What is a usual lending multiple now? And would 10% be a minimum deposit with most lenders? I haven't lived in UK for a long time but am coming back this year and would like to buy within 2 years [of bloody hard work and saving every penny]

house prices have gone UP by 10-15% in the area i've been looking over the last year

20% min deposit to get a decent mortgage rate I think, oxocube. And maybe 3-4 times salary (but I'm remortgaging so don't quote me)

Thanks AtterySquash. Its good to know what I'm up against

Out of interest, if house prices did fall 30% and your wage went up 10% and you were able to bororw 3x joint income with a 10% deposit would it allow you to buy the house you need for your family in your area?

beenbeta, using those figures, no, we'd still be 250k short of what we'd need!!

No, we'd still be a long way off being able to buy the house we currently have a mortgage on.

that's really quite an interesting one, because i've just looked at the figures again, and on our fairly decent income, we could afford to buy the 2 bedroom house i lived in 4 years ago. which was fine for me and ds1 but wouldn't be much good for the family of 5 we are now...

also, even if everyone agreed unilaterally to cut house prices 20% overnight, there would still be plenty of people like me who DO have some equity in their home for whatever reason (dh and i both bought places when we were very young, so have made a lot of money from 20 years of rising prices) who would be able to outbid those with their 3x income and 10% deposit and push prices back up again... am i making sense?

beenbeta no we'd be 150K short, however it depends on whether you are asking about the house we need or the house we'd like
However I think it's 3x largest income and one lot of the second as the trad multiplier?

mrs I can't work out whether you are saying you have 1 home with lots of equity or 3 homes (1 joint plus 1 previous one each!) don't answer it's just if you have spare homes then no people prob can't compete however what drives the fall in prices is general sentiment so people see falls and think I need to move or want to move etc so it then becomes a race for the bottom, something also has to change to cause falls eg rise in interest rates (0.5% is a lot lower than most places) loss of interest only mortgages, increase in unemployment, changed family circs.

I assume you are assuming everything stays the same therefore no problem but if one of you looses your job ........

Here's another one this gov needs money? how about changing tax regs to take mortgage interest out of tax deductability (sorry clumsily phrased) no good reason why not to but overnight it will make the vast majority of BTL completely unaffordable hence.....

(I believe interest rates are going up soon....)

We are looking at houses and they are still trying to add 15% to 2007 prices, madness however since the council and NHS are the main employers locally I cannot see how the prices can do anything but fall, who is going to buy them ?
And whilst in the EA's today I over heard a conversation about a property from a company with a charge on the house pushing for it to be reduced in price so they can get their money back.

This subject is so depressing. There's no way we can buy anything on our (well above average) household income. Even with a drop.

So I don't see how prices can do anything but drop, they are inaffordable.

And tbh, If I had the money now, I would wait.

We're in Ireland and just got turned down for a largish mortgage, but have been apporved for a small one.

Two years ago I got a mortgage for a much higher amount, but banks here are being extremely cautious and risk adverse.

Public sector pay here has dropped 7.5% per. year for the past two years (actual pay cuts, very hard) and where we are, according to the press, house prices have dropped 40% in the past two years as well.

If you read the papers, the Irish housing market has collapsed but the problem is that vendors aren't accepting that and are still insisting on unrealistic asking prices :(

We are in a good position to buy, but are surrounded by a glut of family houses for sale, all at unrealistic prices...many of the properties have been on the market for 2-5 years and will never sell until the vendors accept that the asking price is too high. Of course the agents are just as culpable, as they should be advising what a realistic asking price is

Problem is if they do suddenly start to drop the demand from pent up FTB's will be intense in some areas!

Much as I think prices should fall a bit or at least stagnate, house builders will simply stop building and many people will stop selling causing a lack of supply.

Also, Capital Economics have got it wrong for years and have always been rather over optimistic in their forecasting.

I do think we are in for interesting times asthese ridiculously harsh cuts begin to bite - you can't make this many people redundant or fearful of losing their jobs and it not affect the housing market. Can't look too good for the cabinet members portfolios now can it