Can’t wait for the big crash

[HPcrashingdown]

I can’t wait for prices to come back down. It’s absolutely ridiculous how mental prices have gone. I will be just waiting with my hefty deposit ready to buy my forever home. It will be great.

Nice houses.
Although as a PP said, most people are not swimming in the £1.5m + pond.

@C4tastrophe never said they were but you asked to see the link as you didn’t believe what I was saying.

They know

developments currently underway were planned before all this. amp.theguardian.com/business/2023/mar/02/taylor-wimpey-plans-job-cuts-amid-downturn-in-uk-housing-market

I they do know what’s happening but are trying to squeeze out that last exquisite drop of profit.

I bought my flat in early 1987 with the equity I split with my ex. Like you, I have been hearing talk of a crash ever since then. If prices go back to that level then we've bigger problems on our hands than just the property market tanking.

So a poster makes a claim, you rudely ask her to post a link to prove it, then you are dismissive of what she posted.

What exactly is your problem?

We are heading into a mini recession and no where near the financial crash in 2008. You will be holding onto that deposit if think there is a massive down turn. Interest rates will reduce again by Q4 at which point affordability will be increased, which drives supply and demand.

If the argument that interest rates drive property values was truly valid, it would apply to other classes of goods that are usually bought on credit, too.

Imagine someone saying "I can’t wait for luxury car prices to come back down. It’s absolutely ridiculous how mental prices have gone. I will be just waiting with my hefty deposit ready to buy my dream car. It will be great." and expecting to get a Mercedes S class for 50% less than the list price last year. They'd be laughed at. And that's in a world where the supply of cars is increasing ... the supply of land is fixed.

Their delusion stems from the false belief that it is possible to tell owners what their property is worth ... and that this act of telling will persuade that owner to sell at that lower price. Whereas in reality, it is the highest price that any buyer can pay that sets the value, not the price that @deadhighbungalow or @HPcrashingdown or their friends want to pay.

Incidentally - there was a thread on the other forum about meeting up in person, but the regular posters all chickened out. Apparently too great a risk of someone coming for them ... or their mums won't let them stay out past 8pm. One or t'other.

This is a really daft thread and bound to wind some people up.

I do agree, however, that house prices are far too high relative to levels of income and have caused and continue to cause huge problems in society, disadvantage the young and create inter generational breakdown, encourage many people (generally the young) to take on ridiculous levels of debt, are causing a reduction in the fertility rate and have also reduced the productive economy of goods and services and encouraged speculation. Despite this, there seems to be far more sympathy for poor house owners, a minority of whom would go into negative equity in a big downturn, compared to those stuck in insecure renting, unable to move out of their parents's house in their 30s, having to postpone having a family or living in poverty because of the costs renting.
Prices have already come down. They will continue to come down, buyer demand has reduced a lot and supply is up. There are, no doubt, areas or parts of the market bucking the general trend and staying buoyant but in other areas, prices have fallen by 10-15% already (without taking general inflation into account).
Whether it's better to wait depends on personal circumstances. It's much more pleasant to be in your own home, after all.

@Mark19735 - no one has suggested that house prices will reduce nominally by 50% in a year although 50% real terms is possible in 2-4 years depending on what happens with the general economy.
I'm no expert on cars but I believe that the prices of some have indeed come down eg Teslas, used cars too, I think.

@Emmagr1 'mini recession' with bounce back is highly unlikely. What makes you think that interest rates will reduce at the end of the year? That's also highly unlikely. Rates are expected to increase more in March and gilt yields have been ticking up again.

@FormerlyPathologicallyHappy of course the developers know that 'there is a crash coming'. They have all been announcing reduced sales and plans to build a lot less houses. Persimmon openly expecting to sell 40% less homes this year. That's a lot and they will be erring on the side of optimism.
www.ft.com/content/2f60650d-94ac-4936-805e-5202cf0266fd

I work for a bank and the information comes from bank economists. Look at the Bank of England prediction and you will see what I mean.

Demand comes from the banks willingness to lend. You will acknowledge that there is an affordability tightening which will limited demand and increase supply, driving down price.

Oh come on! No-one with any sense will be taking the BOE's predictions seriously. Their predictions over the last year have been total garbage. It's really naive to think that inflation will come down as quickly as they are projecting.

'Demand comes from the banks willingness to lend. You will acknowledge that there is an affordability tightening which will limited demand and increase supply, driving down price'
Of course I acknowledge this. That is the main reason that prices are coming down now. Other reasons may appear later in the year.

@rainingsnoring - I think you'll find there's plenty on the other site that appear to genuinely believe that 50% and 60% drops are imminent.

I found out this week everyone in my company is getting a 9% pay rise next month. Depending on how you rearrange the equation, that either means any mortgage I may sign up to (and therefore the house I buy with it) is 9% cheaper than it was a month ago, as I'll need to work fewer hours to make the payments (does that really count as a 'big crash' though?) ... or that there is now 9% more headroom in my budget to allow me to absorb price increases and outbid anyone else who has their eye on my dream home.

Stagnation over a long period does seem the most likely scenario, but time will tell. With big inflation-matching pay rises, there's plenty of upwards pressure to counter the downwards pressure of increased interest rates.

@Mark19735 I have no idea about HPC because I have only had a quick look on a couple of occasions in the past year or two after people on here kept mentioning it.

Congratulations on your upcoming pay rise. I think your maths is a bit off though as you haven't taken extra tax into account (obviously I don't know your salary but this would be a lot of you are a higher rate tax payer or on the borderline). Taxes are due to rise again in April as bands remain frozen. If you compare your spending potential to the month before, you will have more, of course, but not if you look at a year ago as the rise is still sub inflation and the cost of everything has risen a lot in that time plus mortgage rates have risen considerably. You also haven't taken the level of lending that banks are prepared to make which has definitely fallen in some cases.

You seem very optimistic about big inflation matching pay rises. A lucky minority are in this situation but most others have had real terms pay cuts (born out in all the stats). The government and BOE are very openly doing their absolute best to hold down pay. Imo, there is no likelihood that public sector workers (a large percentage of the workforce) will get pay rises anywhere near the rate of inflation. The BOE have also been open that high pay rises are likely to lead to more rates rises.

My own personal opinion is that we will have another large financial crisis but I appreciate that this isn't what most people foresee, at least not openly.

I don't believe house prices will crash in the same short time frame that stock markets can. However a 30 - 50% real drop, taking inflation into account, can't be ruled out as very low fixed mortgage rates are unwound over the next 5 years.

30%- 50% drop is scaremongering. Please don't take what you read online as fact. Inflationary pressures are expected to ease ( maybe not quickly) and wages will increase. Whilst it's not likely to be a level playing field, this will ease liquidity issues.

The impact on house pricing is based on demand. Demand is driven by the banks affordability assessments, interest rates and LTV criteria.

HPI is predicted at 10% downturn. Read reports from the banks or PMI not mums net.

Banks undertake an affordability assessment to factor base rate rises. Those of low interest rates have previously passed the acid test. It's therefore likely they can afford 3% rise in base rate. Please don't think properties will flood into the market as they won't. Banks don't foreclose easily and fixed rates will start to reduce.

Those calculations were not based on inflation running at 11% x

Oiltrader I agree with your point and the banks don't have a crystal ball. However 11% is the peak and expected to reduce alongside a wage inflation.

We are halfway to 30% already (11% inflation and 4% drop) and wage inflation is just that, inflationary.

The house price index and price inflation are two separate ways things!

'Real' drops are an accounting fiction. They are still price increases, just at a lower rate than wages. And, the reason the INCELs over on HPC don't like wage rises is because it helps everyone - including those who bought recently with large mortgages. Pay going up means the proportion of income required to service and repay a mortgage goes down. And it means buyers can afford to bid more to get their dream home.

It's also a common fallacy to assume that the 'cost of everything' has gone up with inflation. It's not actually true. The cost of some items has gone up hugely, but those items represent a small fraction of my total spend. The cost of other items has barely changed, and the cost of some items has actually fallen. Bonds and Gilts are at their lowest prices in years. But the biggest reductions come in the form of expenditure avoided entirely. My spend on the family holiday to Disneyland I'm not taking the kids on this year will be zero. Had we gone, it would easily have been £4k. That's a massive difference in our planned v. actual household budget. I've not got any plans to buy replacement windows next year either. Or a new kitchen. I reckon 25% of my spending most years has been discretionary, and if prices for such items are too high and don't represent value or we need to prioritise other things such as heating or eating, we will just switch spending away from them. In recent years, 25% of my income has been going towards retirement savings. If needs must, that can be reduced too. The fact is, I could easily absorb interest rates rising to 15% if I had to. I wouldn't like it ... it would really cramp our style. But we won't be selling our house in a fire sale in fear of such eventualities either.

'30%- 50% drop is scaremongering. Please don't take what you read online as fact. Inflationary pressures are expected to ease ( maybe not quickly) and wages will increase' @Emmagr1

I don't think it's scaremongering, it's within the realm of possibility particularly in real terms. Of course the rate of general inflation is relevant when considering how prices rises/ falls. Personally, I don't take reports from biased sources too seriously and do my own research and make up my own mind. Economists are wrong so much of the time.
Inflationary pressures easing (disinflation) is not the same as deflation. Prices are still much, much higher than they were, particularly in essentials, expenses which can't be avoided. Wages will increase but there is nothing to suggest that they will increase in advance of inflation (indeed, the bankers whom you seem to rely on, have cautioned against this and said they would revert to higher rate rises if this were to happen).
As @oiltrader says, rates rises were not tested with very high inflation/ cost of living crisis, etc. I would anticipate lots of defaults. The banks foresee this and so do the government, it has been in the media. The government have been asking the banks to show forbearance because they know what is going to happen.
www.theguardian.com/business/2022/dec/06/hunt-to-urge-banks-to-aid-mortgage-borrowers-amid-cost-of-living-crisis

@Mark19735 -I'm not really sure where to start on your post. Real prices are a real thing because the £ in your pocket buys much less than it used to.
Your personal discretionary spend is a very different thing to the aggregate reduction in discretionary demand. The majority of the population have cut or will be cutting their discretionary spend. That might make essential bills perfectly manageable for most households but what do you think it will do to the ? 50%+ of the economy that is discretionary? How many people do you think work in discretionary sectors? What do you think will happen to their jobs and then their ability to spend?
There seems to be a lot of waffle about everything is going to get bigger and better or it's just a blip but it doesn't seem to be backed up by the facts at all.

We are going to have to agree to disagree.

If my pay goes up, and I am spending more of it into the economy, then there is more money in the economy. If banks take a bigger share due to higher interest rates, then the balancing figure is that they are paying more in interest to savers, who in turn will have more to spend. If government takes a bigger share due to higher taxes, then the balancing figure is that there will be more money for them to spend on whatever promises were needed to win the next GE. If the energy companies are taking a bigger share due to higher energy prices, then the balancing figure is that their investors will get bigger dividends, who in turn will have more to spend. Everything grows. Fella called Keynes had lots to say about it.

Switching spending from one category to another is indeed bad for the category switched from. But it is balanced by the benefits to the other categories switched into. People say high energy prices are bad ... but they are marvellous for energy companies and their investors. Buy enough shares in Shell and BP, and who cares what next month's price increase is - the extra dividends will cover it.

@rainingsnoring - it seems you were making a point about people working in industries that provide goods and services that no-one needs or wants. Didn't that happen before? You need to head back to the Eighties where those theories were last in vogue. And if Covid taught us anything, it is that the real figure is closer to 80% of the economy that is discretionary. The real issue is, why do all those lawyers, accountants, marketing execs and communications consultants cream off so much of the economic output under normal conditions, when it is the key workers, nurses, teachers, train drivers, care workers etc. who are actually providing all the essential services? Pay them more. At least 10% every year for the next three years. To hell with inflation - let it rip. And the housing crisis resolves itself along the way - bonus!