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.

Please go and buy a load of shares from the Shell and BP at the peak of the market and see what happens.

Already have plenty, thanks. Portfolio is nicely balanced for my age and proximity to retirement. Not as big a holding as I'd like, obviously but isn't that always the case?

@Mark19735 -'it seems you were making a point about people working in industries that provide goods and services that no-one needs or wants'
No, that is not the point I am making. I am making the point that when 90% of the population (or whatever) cut their discretionary spend (we can call it 80% discretionary rather than 50% if you like), that jobs in those sectors are at risk, people still employed earn less, etc. The money isn't available to spend because people, in aggregate, are less prosperous. Wasn't it Keynes who said that reduced demand could lead to prolonged unemployment. That is what is likely to happen so, imo which doesn't bode well for the whole economy including house prices.
And no, everything does not grow. Not on a finite planet it doesn't.

I agree with you about the odd way in which society rates different jobs. As a public sector worker, I would inflation busting pay rises. Sadly, it is not going to happen.

From a BOE report citing what I have said about people cutting their discretionary spend:
www.bankofengland.co.uk/about/get-involved/citizens-panels/insights-from-the-bank-of-englands-outreach-programmes

I bought in 2007. Prices dropped 20% in my area and didn’t recover til 2015. They increased about 25% in 5 years to 2020 and then 20-22 they increased a further 40%. The market here has stalled again, reductions coming in thick and fast. I’m also tracking a couple of other areas as we may relocate and it hasn’t slowed down there yet - the first few reductions this week but that’s all.

Before the interest rate increases I was looking to buy about £500k. That same monthly mortgage payment with increased rates caps me at £380k (and I’ll also be much more cautious in budgeting in further increases).

As for developers not being aware, around here they’re now giving you £2k a month towards your mortgage for a year. They weren’t doing that before interest rates shot up.

Oh Hello, deadhousebounce, don’t like the new username so much! Still it’s nice to see your happy face on MN again. Predicting catastrophe and telling people you know the value of their home better than they do.

We have the same diagnosis, but a quite different prognosis.

I think you are absolutely right to identify higher interest rates being the determining factor resulting in lower mortgage approvals; that housebuilders will see fewer sales; and that people who can't afford to buy, won't.

You are so close to getting it ... but the missing piece of your diagnosis is that the current owner of every single house in Britain also has a voice, has needs and wants, and has power. Confronting them with your "analysis" is not going to make them more inclined to take a haircut and swallow their losses, just so you can pay a price you think is fair. You still need them to want to sell to you at that price. There are some niche situations where an owner may consciously and deliberately prefer to sell for a lower price than they'd paid, but most will adopt a "wait a bit and see if HPI catches back up" approach. They won't be selling - there's no doubt about that - but you won't be buying, either.

It's a face off between vendors, who don't want to sell at reducing prices, and buyers, who don't want to pay inflated prices. All of the disagreements are around who will blink first.

Personally I think we are more likely to see a tipping point of vendors who need to sell (death, divorce, relocation, can't afford remortgage etc) than of buyers who decide they don't mind paying inflated prices, even assuming they can raise a mortgage against the property's value and afford repayments on the new interest rates.

I feel like I've spent the last six months listening to people say 'it'll pick up after Christmas...oh well maybe in the spring then' and 'prices won't fall...oh they are actually falling well they're still worth more than last year...oh we now have annual falls do we...well they'll pick up soon.'

I sold at Christmas and renting to see what happens.

If there was going to be a crash it would have happened by now.
Prices will fall a little more, stagnate for a while, then begin to rise. This year will be the trough.

@Mark19735 Again, some people will sell because they have to because of the three Ds or because their current home becomes unsuitable or the need to move are due to work. It won't be a question of want but of need. As @donttellmehesalive says, sellers will 'blink first' because there will be no buyers in many cases. We have a crisis of affordability, like in the early 1990s and in 2008 although for different reasons.

Why do you keep going on about people making losses? Many won't be making losses. You may have a suggestion (one that is replicated up and down the country) such as this. Couple in their 30s bought house for 500K 2021/ early 2022. Couple in their 70s bought for 50K in 1993. Health of couple in their 70s deteriorates significantly and they need to move near their DC or into a care home. They are only able to sell in 2003/4 for 400K. Still a huge increase from the level they bought at. Younger couple's house also now worth 400K although, fortunately, they can keep up the mortgage payments and do not need to move.
Anyone who needs to sell in the relative short term (next 5 years) would be foolish to 'wait and see if HPI catches back up' because it won't at the moment unless we get hyperinflation within this short time period in which case all bets are off!

@Londongent we are only 8 months into this housing downturn ( you used the word crash). These things take time. If you look at the previous downturns, they happened over several years, not 8 months.

Bailey continues his dovish ways but he will either have to follow The Fed who remain hawkish or trash the £ (obviously they have a large history of doing this but at present they are raising rates). Hunt may try to stick something in the budget for home owners; he is a property investor after all and this bunch are unashamedly self serving. It wouldn't surprise me but would it be enough and how would markets respond, never mind the electorate?

I think a gentle correction would benefit a lot of people and hurt comparatively few. The government would be mad to reinflate the market with some budgetary nonsense. It's just kicking the can down the road. Although they won't want to be held responsible for a biblical crash and might find a way to step in then, should that start to look like a possibility. Lenders have been told to do everything they can to keep people in their homes. I don't think we'll see sweeping repossessions as we did in the 90s.

@rainingsnoring that's why I said there won't be a crash. A downturn, yes.

You mean because the Tory government will do absolutely anything they can to 'save the housing market'? I thought you said earlier that if there was going to be a crash it would have happened already.

In 2008, there was a massive intervention- ZIRP and QE which continued for many years until high inflation made it impossible to continue further. House prices still crashed 20% in nominal terms over 4 years or so from 2007/8. They won't be able to intervene on that scale again. There is no leeway to do so. If they really tried, they would absolutely trash the £ and cause hyperinflation and then very few people would be able to eat and the economy would collapse. House prices really wouldn't be top priority anymore.

Btw, I'm not sure what your personal definition of a crash vs a downturn is. That's all pretty subjective.

@donttellmehesalive totally agree that intervention would be mad but that's this government for you. I think there will be more agreements made for people to stay in their homes and effectively rent from the bank instead of a landlord.

@rainingsnoring - that's my point. If in your scenario the couple in their 70's sell a house for £400k that they originally bought for £50k , then they have still made a massive profit. Not as much as the person who sold last year for £500k, but still a tonne of money. It is smaller HPI, not a HPC.

I also disagree that the house that sold for £500k last year is now only 'worth' £400k. First, it isn't even for sale. Second, when and if it does get put on the market, it will be the buyers on that day that determine the size of any offers. Third, the current owners clearly valued it at £500k, so that's the start point ... not a different amount paid for a different house by different buyers at a different time. No two houses are identical - they all differ, and there is normal variation in negotiating skills and motivation to get on and proceed that explains the 20% up/down price volatility far more strongly than a systemic crash.

Also, don't forget that interest rates were at 7% for ten years leading up to the GFC, and even afterwards there were people who had fixed at 7% but didn't remortgage because the fees were bigger than they believed the payoff from switching to SVR would be. Nobody told us in 2008 that 1% rates would last fifteen years. I had a five-year fix that ran until 2012. With hindsight ... not one of my finest decisions. But financially crippling? Not at all.

Just as nobody has to buy ... it is very rare that anybody has to sell. If no-one meets the expectations of the owners, they'll stay put, if it's their home, or keep it and rent it out, if they've inherited it. But owners still hold all the cards.

'If in your scenario the couple in their 70's sell a house for £400k that they originally bought for £50k , then they have still made a massive profit. Not as much as the person who sold last year for £500k, but still a tonne of money. It is smaller HPI, not a HPC.
I also disagree that the house that sold for £500k last year is now only 'worth' £400k...'

@Mark19735 -you really are economically illiterate; your whole post is nonsense. You don't even seem to grasp what is being discussed.
Look in a text book or online and read up about basic economic facts and inform yourself before talking total nonsense again and again.

The owners do not hold all the cards in a declining market. If you were correct there would never be any downturns at all but look at what is happening internationally. Multiple house markets are turning down as interest rate rise. I suppose you think this is pure coincidence.

No - I just don't think that an average sales price of a group of houses that did sell is a determinant of the future sales price of a different house if and when it is next put on the market.

I've managed to buy and sell many houses over my life. But you keep quoting your 'basic economic facts' to explain why you can tell me what my house is worth. In the meantime ... it's still my house and I'll sell it when I chose, for a price that I am comfortable with, and that transaction won't require or involve you or your analysis.

Houses are a disinflationary asset, not an inflationary one. They are intrinsically linked to cost of credit and money supply. We’ve had disinflation for 40 years that has now ended.

You cannot compare 2008 and the 90’s with where we are today. The nearest comparison would be the 1970s.

The difference being that house values have far exceeded earnings since then. The UK average wage is £33k, the average house price is £295k. The cost of credit is now x4 what it was previously and we are now going into a global recession.

It really doesn’t take Einstein to work out what will happen next, just as it has started to with Australia, Canada, Sweden, Germany and the US. We’ve only just begun to tread down this path, and inflation could be here for the rest of the decade. Mean reversion can take years.

To argue ‘people just won’t sell’ is delusional. The forced sales will dictate the market, just like those who own outright dictate the rental market (over leveraged BTL landlords can’t pass on their cost in rent otherwise they will just have voids).

I don’t say I refuse to sell my BP and Shell shares, because I think they’re worth more. I take into consideration the wider financial conditions (windfall taxes, recession etc) and take profit and sell them at market value.

@Mark19735 no one cares about your house or it's price, or your wage rise or investment portfolio or pension. Or Disney holidays or replacement windows 😂

We're talking about all the other houses in this country.

Prices of properties for sale in my area (bournemouth, Poole and Christchurch) are currently dropping. Landlords are selling up, sales are going through but generally lower than asking price.

I think they will continue to drop as buyers will wait and see rather than fight over properties like they did last year. No one wants this to end with people having their property repossessed like in the 90s but the government needs to stop propping the market up.

@rainingsnoring I'm thinking along these lines www.a-pp.co.uk/blogs-property-correction-vs-property-crash/#:~:text=What%20is%20a%20crash%3F,such%20as%20an%20overall%20recession.

It's touching that you seem to believe that the average wage earner will be buying the average house at a price determined by what a bank will lend them. In reality, the average wage earner will be renting their home, and the average house will be owned as part of a portfolio by people considerably richer than the average wage earner. These people's primary interest is maintaining the value of their estate. They don't maintain the value of their estate by running for the exits and ditching their assets in a fire sale. I agree that buyers will wait out. But eventually, all the pressures that drive HPI will bear down on them, and they'll blink first. Not all of them, granted - there'll be a new generation of posters on HPC no doubt. But enough of them will to balance the downward pressure on prices from increased interest rates. Nice houses in good areas will still be fought over.

You are either an estate agent, landlord, delusional or all three.

The housing market moves in chains you need a first time buyer at the beginning of the chain to enable the asset rich boomers selling houses to one another at the other end.

We’re not talking about magic beans here, it’s the cost of credit availability and supply. The banks will only lend to people at their earning multiple of affordability. That affordability has fallen off a cliff.

If the housing market corrected up to 40%, you would only be going to 2015 levels. You will be free to refuse to acknowledge that your house has corrected by that amount if you have no intention of moving. But there will be forced sellers and they are the ones that dictate market value.