House prices

[Newbie1999]

Realistically, how much do you think house prices will fall over the next couple of years?

When everyone is back at work, they will still need / want the cafes just as they did before.

That's the billion dollar question though isn't it. Will more people work from home so not be so near cafes? Will people have got used to wfh & saving the money spent in cafes & not want to spend as before? Will people want to save more? Will people want to social isolate regardless of what's open?

Why do people see their houses? The 3 Deaths - Death, dept, divorce. All likely to increase over next few months (60% increase this month).
I predict that if this lockdown continues to Mid summer that there will be a dearth of properties on the market by early 2021 with a stagnant 90s style market where significant price drops are required for sales. (The prices in London have already fallen in the saturated 2 bed flat market by 20%). So south east drops of 30 % from 2017

@Singlewhiteguineapig if you look at 2008 data, it was the north and northern Ireland that suffered the highest price falls despite the crisis at that time being directly linked to the banks (and London is a financial hub). This is likely to be the case this time too. London has more jobs that are wfh, unlike the north which has a lot of manufacturing.
www.google.com/amp/s/amp.theguardian.com/uk-news/2020/apr/15/watchdog-identifies-sectors-hit-hardest-by-covid-19-in-britain

From this report, finance is the least affected sector.

Also there is a report that said London and southeast would fall less than the north.

Does it matter if house prices fall? In the long term house prices always increase.

Even if they fell 50% that would only take them back to 4 years ago prices where they were too high compared to wages.

I don't know how they can stay at current levels.

@BackforGood. Because a lot of cafes and small shops will go under, perhaps even before the lockdown is loosened, due to lack of custom. Governments support might not apply or help enough or on time.

Also, this pandemic isn't going to be over for a good while. Even when ppl start going to cafes again there will be less than usual for a long time, maybe years. And even 10% customers meaning less profit may put some businesses under. No businesses, no jobs.

@NotSuchASmugMarriedNow1 it matters if people want to move or remortgage. They may be stuck on the expensive variable rate if they are in negative equity.

Also all this fiscal intervention needs to be paid for which we result in higher taxes.

Does it matter if house prices fall? In the long term house prices always increase.

This has always been stated as a fact but actually its not necessarily an infinite fact. Economically there has to be a ceiling beyond which wages just do not keep pace and the market grinds to a halt.

I would speculate we might have seen the top of the market and unless wages and inflation keep pace it's not going to keep going up. It may well have been true in previous generations where the economy and industrial production were developing and changing but new technology is moving more toward AI and automation which could render a lot of jobs obselete.

I also think a cultural change is coming, the tiny house movement is introducing a new way of living which is less debt laden and less focused on consumerism in nature. I think there will be a grass roots movement led by the younger generation who simply cannot afford to take on that level of debt or simply don't want to.

Thirdly you could argue society will become even transitory in nature with people moving to where work is rather than putting down roots.

Agree with @Shadowdoor21, people will be more cautious in their behaviour even when lock down ends, this caution will extend to holding off making big financial commitments, which will undermine the economy.
An example of this is the motor industry, who makes more profit from their financial packages than the actual cars they sell, I expect this sector will suffer.

I don’t see how house prices can’t fall by at least 10%

Another one saying 30 years ago you could buy a forever home with a half decent job is bullshit. My first purchase was a few years after this. House prices actually fell and we bought at the bottom of the market.

You could only get 3 times your salary at the time - still in recession. That meant a tiny starter home. Interest rates were much, much higher. The payments on our mortgage was double what would be offered today on the introductory 1.7% introductory rates around meaning effectively we could have afforded to pay around 2/3 more for the same house - and I say 2/3 because we needed a big deposit.

I do know salaries haven’t kept pace with house prices. However, some of this is mitigated by ridiculously low interest rates. To not take this element into consideration is to perpetuate a lie.

Back to the point in question, there is speculation a couple of million of the population will lose their job. I hope not. It’s bound to cause more than a 3% dip in prices.

Houses are only ever a good investment if you buy at the right time.

With all the talk of this being like the great recession, we've never known anything like it in our lifetimes.

I don't understand why people peddle these delusional myths across MN. Maybe there are a lot of real estate agents on here Here are my favourites:

1. "house prices won't fall due to increasing demand".

House prices in the UK are a function of availability of credit. That's it. Please please please do your research and you will understand what I'm talking about. When interest rates fall and high LTV loans, "Help to Buy" etc. pump credit into borrowers hands, they go out and spend more, that drives asset prices. The Bank of England estimated in 2019 that a 1% increase in interest rates would result in 20% drop in house prices.

1. "in the long term house prices always increase"

It is economically impossible for it to exceed a certain affordability ceiling for too long because with each % increase in price, lenders will have to push more credit out for borrowers to buy the house and this means more money spent on servicing the debt, which drives less spending on other things contracting the economy or greater borrowing to keep status quo, which drives more money spent on servicing the debt etc. At a certain point, this "bubble" will pop (a la 2008) and we will have a crash.

1. "in a recession most sellers will "sit tight" and not sell and therefore house prices won't be affected"

If only recessions worked like that. No matter how "tight" people WANT to "sit", recessions usually mean lay offs, pay cuts, people in insecure jobs so unwilling to service big debts etc. and there are always forced sellers. The smartest sellers are the ones who move first, realise a recession is coming, sell as quickly as possible and then "buy the dip". The inconvenience of moving twice and some money spent on rent means usually these sellers tend to be property investors.

Has anyone got any more examples?

@newbie111 lots of people on property threads have a vested interest!

Houses are only ever a good investment if you buy at the right time

Houses are homes not investments

I think right place to buy might be more true

Houses go up in price and houses go down and then they go up again but the next time they fall it isn’t as low as the previous high.
So the only right time to buy is as soon as you possibly can.

@newbie111

'you would be very lucky to get a drop of 10% in London.
people are talking about the BIG drop for the last 25 years, last one brexit, none happened'

Err actually since 2017, the prices have dropped 20%. The flat I bought for 400k was 450k in 2017.

I was actually deleted off a first time buyers Facebook group because I suggested prices would drop due to covid (this was when UK has 10 cases, I had an inkling that prices may dip then as I grew up in Singapore during the SARS pandemic, this has surpassed my imagination). The classic response then was -: your property would not drop in price unless you smear coronavirus all over it!' And then when UK had more cases and an expected lockdown, they were saying prices wouldn't dip by much! I am now itching to know what they are making of this situation.

@Oliversmumsarmy what if you buy a house for £400k, deposit of 40k. Price drops 25% and your fixed rate mortgage of 2 years expires. You are in negative equity and cannot remortgage. You are stuck on variable rate. Due to economic crisis, pound crashes and interest rate rises to defend the pound. Your variable rate mortgage is £1500 instead of £1000. Can you stomach the increase? And oh yeah you throw in a job loss or lower income into the picture?

Was it the best time to buy? A lot of people would argue that you are building equity. But rent doesn't usually go up overnight the way a variable mortgage can.

In my area of SW London house prices have pretty much stayed stagnant for the last 5 years

or dropped a bit before Corona

*”house prices won't fall due to increasing demand".

House prices in the UK are a function of availability of credit. That's it.*

No, that’s not it. Demand is essential - like anything, from gold to sandwiches - where there is strong demand there is a price rise. There are too few houses in the UK, meaning that there are more wannabe buyers than houses to sell.

This is what keeps prices so far out of reach of most people. If there were twice as many houses, higher supply, then demand would be met and prices come down.

@PersonaNonGarter Demand also means that the people who want the houses can afford it. affordability is driven by income. And cos it's the UK, it's also driven by bank of mum and dad. Who have just seen their pensions crash so I am not sure they are ok with giving £100k to their kids to buy a house.

That's why they think prime central London may not actually shift very much. Because those people can afford it. When you have a billion dollars and even if your networth just plummeted, you still can afford that £10 million townhouse cos that's just pocket change to you. Prime central London is also the first to bounce back if it dipped.

I don't think Olivers, for all her economics expertise, understands that once a property is in negative equity it is the mortgagee who holds all the cards, not the mortgagor. Including permission to sell at even a small loss. This is what happened in the late 80s / early 90s, with lasting effects.

And yes I have used 'mortgagee' and 'mortgagor' correctly.

If I haven't I will listen to Barry Manilow all night.

If a property goes into negative equity and you can afford the mortgage and have no plans on moving why would it matter

And if you need to move for a job offer? To downsize?

@Oliversmumsarmy what if your fixed term mortgage ends and you need to remortgage?