Why are property prices still so high

[divydoris]

Hi All

This is a first post for me on here, and I come here with quite a specific question.
My partner and myself have been saving for a good number of years now for a decent deposit, we both have ok(ish) jobs and probably doing better than most, but not loaded.

For the past several years we have not been able to afford anything, yes I mean anything, and thats also including a decent sized radius from our perfect area.

Now all of the above hiccups has been fine over the years, my partner has been concentrating more on his career, and we have had some great opportunties through pure luck and good family links and circumstance to rent and live in some well priced great homes.

The biggest incentive also for us over the years was the solid certainty that the house boom we saw pre 2007 was never going to last, and that the economy would in some way go bang, and then property would follow as a result.
People were borrowing insane amounts of money, so we decided just be patient and enjoy our lives best we could, our day would come.

Well we are now in 2013, the economy is in a dreadful state, no matter what David Cameron and Osbourne tell us. I know of many family and friends who are having a rough time, many of them a stinking time. This has now gone on for over five years, and me personally I cannot see things getting better soon. Politically I am of the opinion the love affair with UKIP is a scream for help from many people. just my opinion.

After the financial crisis of 2007 we then got the panic measures of a dying government(Gordon Brown) who slashed interest rates and started printing money, just an incredible time.

So we are now five years, things are not going to get better anytime soon, our debt is bigger than ever, personal and government borrowing, apart from the richest 10% in the country(maybe 5%) who are getting richer, it is getting worse.

So my big question is... HOW ARE PROPERTY PRICES HOLDING UP.

In recent months for the first time I have doubted the certain feeling I had that property would reflect the economy we lived in, we got the car crash yet prices are holding, even rising in some places.

I know many people are willing/praying that prices do not collapse, and I can understand that, but economics say that this should not be happening.

I have now been converted, after all these years of posting on sites about the certain property crash that would come I now think it will not happen.
I posted on two sites in particular, one of which after hundreds of posts would never allow me to say what I have here.
If anything it is worse for us now than back in 2004/05, we could have maybe got a mortgage then, we have zero chance now. For the first time in my life I feel run down and with little hope.

I would love to hear peoples opinion

It depends where you are located.

If you are in the South East and London house prices have risen above 2007 levels because financial services industry and the high wages/bonuses it pays benefited hugely from the bailout of the banks. The influx of foreign buyers fleeing China, Russia, Eurozone has also pushed up prices at the top end to insane levels.

However, if you are located in North or Midlands in a not very desirable area (ie where I live) then house prices have definitley fallen since 2007. Also there is a big difference between asking prices and actual transaction prices (ie the price people actually buy and sell at) in my area.

There are still a lot of unrealistic sellers out there. In my area prices have been fallinlg slowly over the last 5 years and were static for a few years before that yet many sellers refuse to accept that fact and just sit on the market for years turning down offers. However, they are now at last becoming more realistic. For example, I just bought a house for the same price as it sold for exactly 10 years ago and houses/flats built 5 years ago as new build for buy to let investors are selling for 10 - 20 % less than their original price. I live in an area with some economic problems though and not well connected to the South East.

I also have a friend who works in commercial property making loans on office buildings and shopping centres and he says that outside London in provincial cities prices of those types of properties have fallen 50% from the peak.

To some extent low interest rates and banks unwillingness to repossess property and sell it at a loss has also been a contributing factor to the slow correction. In fact Govt and Bank of England have done everything posisble to put a floor under the UK property market because so many loans/mortgages were are secured against property in the boom years that if the price of property falls and too many people default on loans/mortgages the banks would collapse as they would not be able to sell property for a high enough price to reccover the outstansding loan amounts. Unlike previous slumps in property prices there has been relatively little pressure on prices from repossessions so far.

I don't think the prices will crash, because people are finding ways to afford them, so demand is still higher than supply.

Plus, if they fall, movement will cease. If people are faced with negative equity, they have no choice but to stay put, which reduces supply (compared to demand), which puts the prices back up.

I think there will always be rises and falls, but we're unlikely to see a truly market-changing shift in prices unless something happens to drastically boost the supply of housing or the government impose some kind of sanction on house ownership (which would cause sales and hence and increase in supply ...). I am not sure that either of these will happen anytime soon.

It is sad for you that you waited and the gamble didn't pay off.

George Osbourne's deposit guarantee scheme is supporting housing prices and even has the potential to fuel yet another housing bubble. Has UK not learnt from the sub-prime crisis in the US?

If interest rates rise suddenly, I think you will see a lot of homeowners (and businesses) in trouble and a correction in house prices.

It's all supply and demand isn't it? I'm just in the SE and not in the home counties. Even here, I see houses flying off the market. There certainly is a lot of demand. Have you been looking from pre-2007? We took the plunge at 2009. At the first half of the year, we were picky and looked at many houses that stayed on the market for months. Then we noticed all of them started getting offers around the middle of the year, and so we knew it was time to buy. We did, and would have never be able to afford the house we had before the crash. I don't know how much we could sell now, but when we re-mortgage in 2012, first direct gave us a higher valuation than we bought.

The fact is

1. there are many more much smaller families now. My neighbour is a divorcee with two children. In days gone by, her ex-husband and her would only have one family home. Now they have two. The increases the number of houses needed just for the existing population.
2. A lot of people in the north has moved south. How many people you know are from the north/midlands and now live in the south?
3. Immigration. But it's not really a reason where I live, as I don't know and don't see many immigrant families, other than ourselves!

Demand - British are still in love with the idea of owning our own homes; rental terms/protection are poor; population growth

Supply - far less housebuilding than is required

Cost of borrowing - record low costs to borrow money; people focus on current affordability; despite all the warnings people do not think "could I afford the repayments if interest rates were 7%, 8%, 9%...

My view is that house prices will fall very very hard and many people will lose their homes. But this will only happen when the BoE cannot prevent interest rates from rising sharply. People on fixed rates will be ok until those rates end of course, then will struggle to remortgage.

A far gentler landing for house prices could have been achieved by building, but there's been limited appetite for it.

The fundamental issue is that the public still view house prices as 'a good thing' and this is reflected/reinforced by the media. Strangely enough, even those people who realise that high prices will hurt their children more than they will benefit themselves, still think rises are good.

I live in Cheltenham and it is all about location, location, location. Prices have plummeted in some parts of the town but if you are near a good school prices have increased as little comes onto the market.

I can only comment on this for London, since it is the only place I've owned property.

Where I live, most of the nice houses are owned by an older generation, probably who've paid off their mortgages years ago. There aren't really any houses for new generations of people around so it is a wealthy few competing for houses that do come on the market. The main reason I could see for a sharp fall here is if a massive percentage of these owners go into nursing homes or die at the same time - there will always be rich people who can buy a few houses.

Again in the 'London houses in fairly expensive area category', one thing I've seen again and again when buying is intergenerational wealth transfer. These older generations of wealthy Londoners sitting on property wealth are able to help their children out with hundreds of thousands of pounds. Mortgage rates make a difference, but so does this. Obviously central London is driven by all sorts of other things.

It is all depressing, and quite annoying to be forced into basically betting on a load of difficult to measure factors when it comes to deciding whether to buy a house. :(

Low interest rates are helping to sustain the housing market. Repossessions aren't high. Interest rates won't be going up in the near future, therefore house prices will hold.

I'm uncertain what will happen medium/long term but we are a crowded island with stress on the housing stock. That may sound simplistic, but at this time I think it is that simple.

you can live in the midlands in a very pleasant area where prices have dropped by about 10-20% since 2007. You just have to be prepared not to live within day commute of London, but you can commute to provincial cities and work there.

rental protection is actually quite good for tenants who demand it and won't rent from slumlords. However the 'everybody needs to be in London' thing doesn't help.

where are you, OP?

The government can't afford to let house prices to fall. So many people would loose thier houses that it doesn't make economic sense for the country.

Rosesandlemons, you're right in that the government really really does not want house prices to fall. The part of the population which votes is also the part that owns houses (i.e. mainly older people with money).

However, the governments of the US, Ireland, Spain, Northern Ireland etc didn't want houseprices to crash either! There's only so much a government can do.

I do agree with others though. I think any real drop in house prices is years away.

Take a look at rightmove - you only have to look at many areas in the North East to see property prices aren't all sky high and still rising.
We are relocating to N.Yorks and some areas in our search radius are so cheap it's scary. Especially owners of new build high spec properties in these areas full of new development, currently these can be picked up for a song and I have no doubt many are in negative equity. Nothing wrong with them if you like that kind of thing but the Market has fallen and is awash with sellers but empty of buyers in this part of the country.

Because interest rates are so low. If they weren't, we would have seen more forced sales and repossessions by now, which would have lead to oversupply and lower prices. As it is most people are just about managing to meet their repayments at the moment, though I suspect it would be quite different if the rates were to rise again.

The trouble with this plan is that keeping interest rates low is fueling inflation and people are feeling the squeeze, as prices on everything else rise. This has a knock on effect on the economy in general, because they can only afford to spend on the essentials while their disposable incomes shrink year on year.

It makes me wonder how different things would be if the average family didn't have to spend such a large proportion of their income on a basic like housing. And who exactly is benefiting from house prices remaining so high?

Like many have said on this thread, I now do not think the long awaited property crash will happen(by some).
Very few average working types who are native to the UK, and more so London, can afford much in the way of homes.

I cannot put my finger on it, shortage of building, high immigration, low interest rates, high foreign investment buying???

But in the last few weeks I have given up on the idea of a rebalancing of home prices along with no longer posting on a once popular property crash site.

They would not allow it anyway (-;

I agree. The prices will just remain steady I think