When the house price will reflect the impact of economy tanking

[rabbitcarrot]

just noticed a few houses have been added to rightmove in past couple of weeks, the price is still pretty much like pre-lockdown..

Just wondering when the property market will be adjusted to reflect the impact of economy shrink?

Until we actually know what the impact on the economy is, why would anyone reduce prices? They may end up having to reduce to buy but that may be because no one is really looking to buy at the moment. We have no idea what will happen with lending criteria or job losses yet. Only when we get a real feel for how deep the likely recession is going to be will that be reflected in house prices (unless people are desperate to buy / sell).

Not many people can move even if they want to. Until that is possible, we won't know. Demand might be higher as people are desperate to move but it could be lower as people may want to make sure that there is not going to be a second spike.

Could I recommend a Fixed Rate mortgage. Gives you piece of mind and rates are very low at present. I remember rates at nearly 15% but didnt have a large mortgage so it was OK but if you had a large, stretch yourself to the limit one it could be very painful.

I used Which? mortgage advisors and they were very good!

@sunglasses

Also, if interest rates stay lower than your fixed rate, you can buy out of it, can’t you? There is usually a fee but on balance I thought it could be ok?

You can buy yourself out but realistically if you have a large mortgage then its probably best to stay put. Interest rates are so low.

What a Fixed Rate gives you is peace of mind and the ability to budget for x number of years. Over the years I COULD have got something slightly cheaper but changing every few months and trying to guess what the market is going to do is just too difficult.

@newbie111 Thanks again!

If I was in your position and I had not yet found a 'forever home', then it's likely I would do the same as you and wait 12 months too. Sounds like you're clued up and confident in your decision.

To be devil's advocate though, it's hard to tell how long this is going to last for - as we do not know if there are any other surprises in store that will cause further chaos. Chaos theory etc. Markets don't like uncertainty - and there is a lot of uncertainty atm! Fingers crossed it will be ok!

It is buyers who continue to perpetuate the overinflated housing market.

Mortgage rates are going up a bit because the BOE cut its base rates. Why then have rates gone up? Well many banks and BS are now fretting over their profitability. They have slashed rates to savers to almost ZERO.

What do you think those savers are going to do? I know what ive done. Ive taken all my money and redeployed it.

Bank and BS profits are a function of how little they can get away with paying savers and how much they can charge borrowers. They are now having their cake and eating it as theyve slashed savers to near zero but are also putting up mortgage rates . Even if you have a tracker then sooner or later you will have to renew it and you will have to pay more.

There will also be an injection of new houses to the market due to;

a) all those who have and will die of COVID
b)BTL landlords continuing to dump properties
c) The continuing rate of new builds
d) people exiting the country due to fears of brexit
e)fewer people coming to live here due to economic contraction
f)fewer available buyers due to the economic contraction

@Arnoldthecat

Yeah - I can see how there's potential for an injection of new comes going to the market due to the reasons you've listed.

This was an interesting article I read at the start of the lockdown: 'How COVID-19 will impact residential development [Housing Today]'

Another attempt at the link: 'How COVID-19 will impact residential development''

*new homes (not new comes). Apologies about typos. Typing in a rush!

My house went on the market about 5 weeks before lockdown. We had an offer from someone last week who hadn’t even seen it, £55k below asking price. Too low for us, so we asked for an increase of £10k, but heard nothing since.
We think they were a chancer, and prob offered silly prices on a few things, hoping for a bargain.

@tigerbear - an increase of £10k on the £55k below asking price, or £10k above asking price?

Yeah - I think a lot of people are hoping for a bargain. There's a lot of news coverage about a potential housing market crash and people think sellers might become desperate or stuck etc. Some might need a quick sale though and that is where they might get a bargain.

@ChocoTrio asking price is £675k and they offered £620k. Before lockdown, our absolute min to accept was £640k.
Now, we’d take £630/635k

Those locked out of an overheated market have long been hoping for a return to sanity (preferably without Covid; nobody asked for this). That’s still a long way from a “bargain”. It’s still going to take a bit of time for asking prices to come down from cheeky levels across the board.

At the end of the day. House prices are affected by the levels of supply and demand. Interest rates, and mortgage availability will impact the level of demand. But it is quite clear at this stage there are a lot of people still wanting to sell. And a lot of people still wanting to buy. The whole market is at a freeze as no one can really buy or sell except those already in the middle of a sale and even then will be slow if they are able to continue. This situation of a completely frozen market is new territory and that is why noone can predict what will happen to house prices in the next 6-12 months.

What makes people think the government have run out of ideas to prop the market up ?
What makes people think SME will crash workout goverment support?

Lots of people haven’t really got over the shock of house prices doubling in 2001, but the typical cycle suggests we should be preparing for them to double again not crash. There is a lot the government can choose to do to stop mass repossessions and families bring made homeless. Labour will win the next election. Their strategy will be different again.
The trouble with trying to predict the market is that only a tiny portion of people ever get it right and the chances of it being you are minuscule so it’s better to live your life as it suits you at the time.

@ChrissieKeller61 I agree re the props.

I think the government won't let the market fall more than 5-10%.
5-10% could easily be 'scapegoated' as being solely down to Covid.

They would then use props, some of which have been used before;

• Stamp Duty Holiday

• Help to Buy on older properties, as well as Help to Buy for newbuilds.

• Pension Backed 25 year mortgage (mentioned pre-election).

• CGT holiday for those selling 2nd homes to get the market moving!

I believe there is no longer government appetite for rocketing house price growth.

I think nominal (below inflation gains) will be their aim. This way people will see their houses going up in value and be confident about spending in the wider economy. Whilst in real terms house prices will be quietly becoming more affordable for the young (the governments new target audience).

I believe there is no longer government appetite for rocketing house price growth.
Oh I think there is ... free money gets spent and if we can’t travel the money gets spent in the UK. It’s actually the perfect solution, cheap money being borrowed against inflated house prices. No need to take them up on the stamp duty holiday, nobody is moving but the economy benefits anyway

Interesting points.

Theory: when London's house price growth rocketed, it may have made homes less affordable but it also increased the city's desirability everywhere else (lots of foreign investors etc.). London has a reputation of being one of the most expensive cities in the world, so it makes people feel 'richer' if they have property or connections in London. Maybe that experience will set some sort of precedent going forwards. Brexit might mean it is more important than ever to make Britain appear more desirable and as a 'rich' country. Don't know - just a bit of speculation.

Generally, countries with high property prices are viewed as being affluent and attractive on the global scale. Examples: 'Property prices around the world in 2020' and 'TOP 5 COUNTRIES WITH THE MOST EXPENSIVE REAL ESTATE'.

It seems that house prices dropping too much is not in the government's interests. They want Britain to do well internationally. Part of that is having real estate that looks 'rich' to maintain a reputation of being a 'wealthy' country.

@ChrissieKeller61 House prices go through boom and bust cycles and have done previously. In 2008, despite the government's best efforts, prices fell by 15% on average.

This is fairly normal and the current hyper-inflated bubble is typical of what happens to asset prices at the peak of a credit cycle. This is simply an economic fact. All governments will try to desperately prop up asset prices till a "deleveraging event" occurs. I referenced this video earlier but here it is again:

It's an easy to understand the role of credit and how if fuels "boom and bust" aka credit cycles. I highly recommend watching it because all these government "interventions" etc. are nothing but a form of credit fuelled growth and that always comes to an end with a deflationary event.

15% is hardly a crash though is it ? I’d call that removing the froth

I can't see how this won't be worse than 2008 & the gov had the capacity to slash interest rates then whereas they have less leeway now.

I think it's stupid so much of our economy depends on ever increasing house prices & I say this as a homeowner with equity. It's not good to have so much disposable income servicing rents/mortgage & makes us less productive.

There is definitely an issue of affordability in my area as house prices haven't changed for 6 yrs or so. Brexit brought them down a bit & they have stagnated.

The gov has helped ftb onto the market but everyone seems to forget about those on the ladder but stuck on it because their house hasn't doubled in value. So much of the housing market is driven by huge equity which is very hard to achieve for recent buyers.

@ChrissieKeller61 Sure. In economic terms, it's bringing property asset prices in line with natural inflation growth.

@doobiedop I agree. This is definitely going to be worse than 2008 as there are multiple factors which have made this current credit environment more "pop worthy" . With regards to your comment, "The gov has helped ftb onto the market", the "Help to Buy" scheme was not just limited to FTBs. That's why there was a significant acceleration of house prices from 2013 when the scheme was introduced.

Prices adjust once we know what buyers will pay and lenders will lend, really. There will be at a lag of at least the average time sales take to go through, eg at least 3 months, I suppose,but yes, it will be 12 months or so before you really 'feel' it as it were.

There's lots of unknowables as well - for example, with the whole working from home thing cause a lot of 'knowledge workers' with or thinking of having kids to go 'Screw London, I'll move to the midlands and work remotely so we can have a garden'. I think the existing young people exodus from the capital could be accelerated by this.