Falling prices = happy smiles for many people

[dejavuaswell]

Falling house prices can be good for people - lots of people.

First time buyers and people looking to move into a bigger home would welcome falling prices but you would hardly know it from reading the newspapers.

I agree that falling prices do put a lot of homes within reach of people who may have given up on buying but there are two things working against this: 1) it makes it much more difficult to get a mortgage as banks are very cautious about lending to anyone who doesn't have a large deposit because they don't want to end up in a negative equity position (this affects FTBs more than any other group); 2) a recession will also affect the number of people able to buy - it will force up unemployment and make those in jobs feel less secure about taking up additional financial commitments such as a bigger mortgage.

What I don't understand is all this talk about buyers markets and sellers markets. Obviously this doesn't apply to first time buyers, BUT surely many buyers are also sellers and vice versa so for them it makes no real difference....or have I missed something?!

So if you're selling your house at a lower price, then generally the house you are buying will also be at a lower price.

Its a problem for people who bought their houses at the hight of the boom though. We can't sell DH's old house as its not worth what he paid for it and so wouldn't be able to cover the mortgage, basically we're stuck paying a mortgage we can't afford but can't afford to sell the house either

Falling prices leads to negative equity for those who bought in the last few years in some areas. Most home owners unless they want to upsize are going to be worse off. Those downsizing or having to sell due to relocation/unemployment etc.. may all be worse off. First time buyers will need greater deposits when prices are falling.

Most people will actually not be impacted you only realise it when you move.

I actually feel that the tide has turned in the media - now there is much more talk about falling prices being a 'good thing' than there was a few years ago. I think the baby boomers who have mostly benefited from rising prices are just fed up of having to bail out their kids with deposits or put up with them living at home for years!!

Having just bought a house I'm a bit concerned about prices falling but we don't plan to move for years and it's a damn sight better than renting!

I think ultimately its a very good thing - well certainly if we want our children to ever be able to afford a house.

But a lot of people are still very unrealistic about what their houses are worth.

To make houses truely cheap the prices need to fall 40% in real terms. If we have price and wage deflaton that means house prices will have to fall far more than 40%. If that happens no bank will survive because the number of job losses and repossessions will be huge.

The Govt and Bank of England does not want price or wage deflation or indeed house prices to fall and will do everything to try and make sure they don't. They would much rather have inflation.

Agree. But it's so hard to get a mortgage now it probably cancels it out for ftbs.

As far as i'm concerned I don't care if my house falls in value now - I'm here till I pop my logs!

CLOGS!

i think saying falling prices is a good thing is naive. mortgages are harder to get, negative equity is blight on many people's lives, and those who have pisspoor pensions relying on some equity are worse of. the answer to our housing crisis is not falling prices - it is a wholesale reform of the housing market including improved levels of shared ownership, better rental stock, etc etc.

Of course 'falling house prices' won't be a good thing for everyone, but the fact remains that in the UK, England in particular, one's 'worth' as a member of society is sometimes measured in one's housing status.

The sort of wholesale 'reform' needed to revamp renting would actually release thousands of 'quick profit BTL' properties onto the market anyway as short term owners decided the hassle of long term tenancies weren't worth it, which could have the effect of lowering house prices anyway.

so reform cant include cultural change?

lol at orm popping her logs.

If prices fall quickly it will obviously cause a lot of pain. But the current situation in which prices are so out of kilter with incomes is pretty horrendous. Recent figures showed that four out of five first time buyers were only able to buy their homes with substantial help from family. This has appalling implications for equality and social mobility.

It could conceivable include cultural change- but it won't, not in the UK where we're all so rank and class obsessed. It's why I smile when I see advocacy of The Swedish Model- there's no way we, the British in general would embrace any method or way of being that might advantage those whom we consider 'less worthy' than ourselves. It's in our national character.

It's why a change in legislation that made renting a safe and secure option via vast improvements to tenant security (did you know 4 out of 5 rental deposits are at least partially withheld?)- would cause a glut of property in the market. Thousands of chancers would offload their speculative BTL houses, bought as a 'get rich quick' scheme rather than face the reality of long term, secure tenants with rights sitting on their investment. No more '60 days notices' there!

FWIW I have limited sympathy with negative equity holders. If you're fool enough to buy a vastly overpriced house (often on silly multiples of salary), you have to accept the inherent risks. Better if those people had put their energy into lobbying government to make renting a better option (which, as detailed above, would have cause the release of much FTB stock back onto the market, thus lowering prices anyway).

ampere - I agree. Having rented for 25 years and had fabulous private landlords (and one or two really bad) and lived in houses for 4 years or more in a few cases and been chucked out after 6 months in others - I can see why people buy.

I have a fried in Germany and he rented a house on a stable tenancy for as long as he liked. It can be done. He was responsible for all decorating and refurbishment at the end but other than that he had a secure tenancy.

What we need is instititional investors like pension funds to invest in residential rental property and to rent it out on 5 year leases like commercial property with a clause that allows sub letting if a tenant needs to move on. Truth is though house prices are far too high and rents far to low to make private residential property a good investment for investing institutions. Rental income yield of 3 - 4% on a typical residential property is far too low. Commerical property rental yields of 6 - 8% are common so to get rental yields on residential to go up to that level we need to see house prices halving or rents doubling.

fried = friend

beenbeta and ampere spot on. Would love to live in a country with secure tenancies, and also have to struggle to find sympathy for those who bought houses at the height of the boom and now find themselves in negative equity. People need to be responsible for their own risk-taking.

beenbeta

Can I pls do a tiny hijack?

How do I find a list/guide to high yield shares, please?

We've just cleared our mtge and will be investing monthly, dh keeps asking me to do the research but I know you're in the investment business and was wondering if you'd be kind enough to point me through the fog?

Ta

Mumbles

I agree with most of that, but it's a bit harsh to talk of it being people's own fault if they bought at the top of the market. It's very hard to know where the top of the market is. We thought prices couldn't possibly get any higher in 2004, so prudently (we thought) didn't buy, and continued to rent and save. If we had bought then we'd now have a house and a decent amount of equity, rather than no house and paltry savings that are earning less than nothing. It's not always obvious what constitutes a prudent decision.

Zephirine, I don't think it's harsh. We are in exactly the same position as you for what it's worth, having considered buying in 2005 but held off. We are still renting, which is not ideal, but I am glad we haven't bought yet.

Many people we know (SE) gave barely no thought to whether they were overpaying when buying at the peak of the market, they just thought because the banks were giving them the money to borrow, it was OK. I can't think of any other situation in which people would willingly spend hundreds of thousands of pounds without doing some fairly extensive research - but they did and continue to do so.

How can anybody second guess the market. I have never lost out though in buying/selling, location is the key in my opinion. Selling up and renting I think is dangerous game as most people I know the market has moved the other way and they have been priced out of their markets.

People are only trying to buy some 'security' for themselves and their families. I would have loved to rent long term but was fed up of being served notice with 2 small children to worry about and having to put up with dodgy landlords who wouldn't do any repairs..

Personally I feel sorry for anyone who can't sell their house at the moment or who is trapped in NE.

So if house prices fall, first time buyers or people living in rented start to come out and buy houses. This allows the owners of those homes to move, creating a demand and so on further up the chain. Personally I think the market has a natural buoyancy - speaking for the areas I am familiar with in the south. FTB oil the wheels of the chains. I'm too much of a cynic to think banks will be wary about lending money.
Secondly, economists and journalists have a habit of announcing house prices will fall in the final quarter of the year. The fact is, this is always correct - seasonally prices always fall at this time of year or early in the new year.
Location is the key. Too many people overvalued properties based on the prices of other properties in good locations. Properties in good locations still hold their value, or close to, while those in not so good locations (out of popular catchments, no rail links etc) will suffer.

The banks are wary of lending to first time buyers, Jellie. You need a very substantial deposit now, and 80% of first time buyers (at the last count) are only able to buy with considerable help from their families. A lot will depend on the effect of the cuts though. If unemployment rises substantially prices will fall for sure.