Are MN homeowners as deluded as HPCers?

[Cybercynic]

Last few days there has been spike in the number of posts on potential house price declines. In the UK prices have already dipped more than 3% since August. I find it amusing that many HPCers are frequenting MN to report such news and potentially express glee on those that have bought.

However, even more amusing is the response of home owners suggesting how prickly they are to the remote possibility of house price declines. (PS: I am a homeowner and bought 20 years ago. While I have made equity gains over the years, I support overall declines in prices otherwise I feel my kids will be forever renting in this country).

While I hold no brief for doomsayers and think most of those are crazies, I believe the homeowners on this forum are turning increasingly prickly at facts and they offer the following standard responses to prospect of price reductions:

Response#1: House is not an investment it is a home. OR if you buy for long term you will always be okay

Counter: Ok then stop worrying about what doomsayers say. Let the prices decline by 10-25% and be okay with it.

Response#2: UK prices will never go down because it is an island and we just 'love' immigration

Counter: Please check out what is happening in Australia and New Zealand. Both factors apply there and they already have >10% yearly declines so far and more is expected

Response#3: If prices decline I will simply refuse to sell. Nobody can force me to sell.

Counter: Yes, you don’t need to sell because you can refuse to participate in the market. However, that does not stop price decline just as prices went up even when you refused to sell your own property in a rising market. House prices are determined at margins. Valuations are based on comparable transactions (whether you sell or nor). Unless there is a sellers strike announced similar to the train strike next week, not sure how this argument stands.

Response#4: There wont be any re-possessions

Counter: Agreed there will be few repossessions. It takes a long time to repossess and therefore, Banks will work with borrowers to find ways to make sure homes are not taken away. But one does not need forced sales to price declines. Australia, Canada, New Zealand, Sweden have all seen declines in the last 1 year without repossessions. And as I said earlier, UK has had declines >3% since Aug. And we are not even in recession yet officially. House prices are a function of affordability and I for one do think that era of <1% interest rate is over and average will hover around 4-5% for some time and with those rates you cannot have rapid growth.

Response#5: If one hopes for price reductions throughout, one must be a horrible person 'cause some people will feel pain

Counter: HPI has caused more pain to generations. And therefore, please explain a situation when we can have affordable housing without price declines. Affordability either comes with consistent wage growth and that aint happening without rampant inflation and resulting interest rate increases. So please let us know what advise they have for the younger generation to become home owners and who want affordable housing. And please do not suggest council housing since you will need to first check the govt finances to make that suggestion

@rainingsnoring

Agreed. Theoretically you can inflate away mortgage debt, but this puts the Country into more debt. So why people think this is a good idea is beyond me.

This thread died for a couple of weeks ... but I was just chuckling to myself about the latest HPC thread in which they're all lamenting how the MSE website has banned talk of a housepricecrash. Claiming it's a conspiracy to artificially prop high prices and keeping themselves busy doxxing Martin Lewis. Thought it worth a bump for that alone.

What's telling is how completely unaware they are about how their own forum functions and is governed. They are adamant that admins on every other forum are supressing their 'truth', and yet the only forum on which I've ever had posts edited by the moderators or arbitrarily deleted (with no acknowledgement) is HPC.

MN is extremely tolerant in comparison.

House prices still on the rise. Inflation expected to decline rapidly, wages increasing too now. I can't see a massive crash happening in house prices. The HPC posters will have to stick to their wishful thinking. Last year I said I expect house prices to fall about 10% maybe more, I'm not so sure now.
news.sky.com/story/house-prices-rise-higher-than-expected-in-january-alongside-pent-up-buyer-demand-12787874

I'm pretty sure this is asking prices. Not achieved prices.

I'd like 1 million pounds for my studio... unfortunately doesn't mean I'm going to get it.

If wages are rising lets say at 5% (probably more) for the next 2-3 years, wouldn't that hold up prices? For example a couple are buying in the SE they each earn £50k...
Yr 1, joint wages are £100 = £400k mortage
Yr 2, wages are now £105k x 4 = £420k
Yr 3, wage are now £110.25k x 4 = £441k

That's a really poorly written article and you have misinterpreted it.
The Rightmove data is purely looking at asking prices on new listings, nothing to do with sold prices at all. Also, Rightmove only look at new listings and completely ignore all the many reductions that are easy to see if you search pretty much any area at present. The asking prices are actually going down because of the reductions but they ignore this. It's obvious why RM are presenting ridiculously incomplete data which attempts to show things in a positive light.

@Didyousaysomethingdarling so many other factors to take into account in addition to wages. Interest rates are a major one, how willing the lenders are to lend (this dried up in 2008), how high inflation is (other costs), recessionary pressures. If all other factors were exactly equal (which they obviously won't be), theoretically they could borrow more in Year 3 compared to now.

But if wages increase, doesn't that instigate inflation which is combatted via interest rate rises? Thus affordability is impacted.

I haven't misinterpreted it. Asking prices when listed have increased. Demand is increasing too, supply of new houses being listed is reduced.

@Londongent you said 'house prices still on the rise' which is either a misinterpretation or a deliberate misrepresentation. Asking prices for new listings on RM may have risen for any number of reasons (eg because more people in large houses are feeling under pressure due to energy bills and have decided to sell). Whatever the case, they have nothing to do with sold prices and certainly not when there are so many reductions after the initial listing.
You also said that wages are rising but left out the key piece of information that they are falling in real terms.
Buyer demand is very much down for obvious reasons. It is about affordability.

www.cnbc.com/2022/11/28/uk-property-demand-down-44percent-since-market-rocking-mini-budget-zoopla.html
www.theguardian.com/business/2022/nov/14/exodus-of-first-time-buyers-brakes-uk-housing-market

I'm not interested in HPC at all but do wish that people would try to analyse the data a bit better.

Inflation has peaked, gilt yields have dropped and therefore fixed rate mortgages are coming down. House prices may well drop in the short term but long term they still look like they are rising.

Yes, inflation has probably peaked, we don't know what gilt yields might do later this year but we do know that the BOE are going to continue to raise at present. Rates are not the only factor that controls house prices although a v important one. In 2008, for example, the BOE dropped rates to zero but house prices fell > 20% and stayed there for years.

Yes, house prices will continue to come down short term. Long term, no one knows what they will do relative to inflation. You may hope they go up long term but, the truth is that you don't know any more than anyone else does.

I think there's a missing step in these equations. The total amount of money available for purchasing houses within the economy has reduced in the last year, and may continue to decline for another year or more - that's pretty clear.

But this is just one factor. Yes, it is measurable, and to a degree the magnitude of this factor can be modelled, but it does not by itself fully predict all the possible outcomes that might flow from it. Whilst the option advocated by @rainingsnoring is that all the same people who previously had a budget of £Xk will now only have a budget of £Xk - Y% and that house prices must therefore drop to reflect this, there is another option. It is quite possible that all those people who previously had a budget of £Xk can't afford to buy anywhere any more at all. Instead, far fewer people will buy houses, but they will still be priced at £Xk, and those that do sell will be bought by richer people who had previously been looking in the £Yk bracket, but have had to accept that their reduced affordability means they will get a smaller, less desirable house. But they are still richer than the first lot, who still remain priced out.

Of course, these two extremes aren't the only options ... in reality, there have been buyers and sellers at both ends of this spectrum and distributed all along it since the dawn of time, and the difference between the boom years and the recession years is simply that the ratio of cash-rich buyers driving up prices to cash-poor sellers clinging on for the best price they can get changes.

But it is quite possible for the total amount of money available to purchase houses to reduce without there necessarily being any discernible change in aggregate house prices.

That is why I don't believe in a deterministic force that drives house values according to some formula which predicts a 'correct' price for any house, any more than I believe in astrology. Each house only needs one buyer who loves it, and is willing to meet the seller's asking price. In a nation of 67million, I'd always bet on a seller eventually finding that one.

The ONS release latest house price data later today. I am more interested in that than Rightmove, agents and others with an interest in talking up the market. Asking prices are up due to optimistic vendors. Enquiries are up 4% because there is always an upswing after the Christmas period but still down 30% on the same period last year. How are shares in the major housebuilders faring? That's quite a good barometer for what the markets are expecting.

Yes , I don't believe it. Supply is rapidly increasing in my area nothing is shifting the more supply the more choice buyers have. Globally house prices are falling so I don't know why people think the UK is immune. They will increase the base rate further , I do believe house prices will eventually rise but there will be a long period of stagnation after the drops.

According to the Office for National Statistics, Inflation eased to 10.5% in December. It was 10.7% in November and 11.1% in October.

nvestmentweek.co.uk/news/4062841/uk-inflation-drops-slightly-december#:~:text=UK%20inflation%20fell%20slightly%20to,peak%20of%2011.1%25%20in%20October.

www.investmentweek.co.uk/news/4062841/uk-inflation-drops-slightly-december#:~:text=UK%20inflation%20fell%20slightly%20to,peak%20of%2011.

Not really seen this on here. Not sure you can stereotype 10 million folks.

Inflation is 10.7 so well above target of 2 percent so rates will probably increase to 4.25- 4.5 by the end of the year.

Inflation was 10.7% in November but 10.5% in December according to the latest data, so it has been very slowly falling since the peak in October.
Agree that interest rates could be 4.5 by the end of 2023 but are predicted by many analysts to falling in 2024 so wouldn't personally be locking into long term high fixed rate deals at the moment.

No one knows for sure of course.

The ONS reports that average sold house prices fell 0.3% in November to £294,910 (they had risen 0.3% in October), an increase of 10.3% compared to the previous year.
I'm not against house prices falling as it would help me move to the next level on the property ladder.
However, it seems inflation has peaked, interest rates are not predicted to go as high as previously thought after the Kwasi budget. I think a lot of people will hold off on listing their house in the first half of the year (already seen a huge slowdown in my area, anecdotal evidence I know)
I'm just not sure I see what the big bang is going to be now that crashes the market. In fact I don't see that happening. If prices fall 10% from what they are now, I would be really surprised. Only my opinion, for what it's worth.