House Prices

[LGBirmingham]

House prices still seem to be rising? Does anyone else think this?

I agree and think it’s obvious that house prices will be higher in a few years than they are now, the only question to my mind is how long it will take as they are still falling now in most areas. If you look at historical house prices on a graph they rise & fall lots of times but the line of best fit shows the general direction of travel over the decades. Yet I have seen people on this forum deny even that house prices will ever recover (maybe visitors from the HPC forum here to mansplain their world view to the simple folk on Mumsnet).

The house price crash forum shows that many people do feel strongly that a huge crash is on the way. They were wrong before as you note but are entitled to their rather extreme views, as long as they don’t get nasty with expressing them. It’s interesting though that even most of them are moderating their language now regarding this latest “crash”.

I agree too. A crash would suit my circumstances but I just don't think it's happening

I think what Crashy means by reduced demand is that demand isn't just how many people want to buy a house, it's how how many people want to buy a house and have the funds to do so.

I'm completely making up these numbers so please forgive me, but as an example say when interest rates were lower a couple earning an average salary could borrow enough (and afford the repayments) for a £300k house. Let's say 50% of people wanting to buy could afford that. Suddenly, interest rates rise and banks tighten their lending criteria so that couple can now only afford £250k. Let's say now only 25% of buyers can afford that £300k house.

The very best houses at that price point might still sell for close to that price, but the ones that are less desirable or even just very average won't be able to because the pool of buyers that can afford that price has shrunk. There are now more houses priced at £300k than there are buyers that can afford that price (supply exceeds demand) so all but the very best houses will have to come down in price until they find a buyer that is able to afford them. It's not easy to just find more money when the banks are lending less, and the problem is the monthly payments not the deposit (finding the extra money every month rather than just saving a bit longer for a bigger deposit).

How exactly are you defining a crash @Lm1981 ?
Nominal/real/ percentage? That makes a difference. We are already considerably down in real terms, for example.
There have been times in recent history when people who sold/bought at certain times could have gained considerably. A FTB in the mid-late 90s, for example or someone who sold in 20026/7 and bought again in 2010/11. Of course, both these 'crashes' (or whatever you call them) were alleviated by loose lending and then ZIRP/ QE. The point that I, and some others have been making, is that these 'solutions' won't work in the same way this time. Of course, most people refuse to even consider this and assume that things will be the same as before which seems very short sighted.

@CountryCob -demand is not the number of people but the number of people who want a home AND can afford that home. Prices did not fall in 1990 or 2007 because 20% of people suddenly left the country.

I do follow the logic on amount of people able to buy but given supplies there do seem to be enough to keep things going. In 2007 I relocated but did not sell as prices achievable at that time too low. Rents were rising. It would be interesting if there were statistics about the reduction in certain types of property up for sale. At the moment there seem to be less than usual and that does explain some of the reduced transactions. It also indicates pent up demand. But you are very entitled to your opinion also

Overall, supply isn't low (see below). However, I'm sure there will be areas with a distinct lack of the sort of houses that people actually want and can afford to buy. eg homes under 200K in St Helens or semis in Guildford. Part of the higher supply is, no doubt, those who are holding out for peak market prices which they are now v unlikely to obtain. Some will eventually take them off the market, others are gradually reducing, some will accept much lower prices in the end. I agree with you that some markets have held up relatively well for various reasons, often and exodus of Londoners with funds, for example. Other areas/types of property didn't go up as much or have dropped much more.
In the end, though, it comes down to affordability, that is incomes and the cost and ability to borrow. As I have said lots of times on here, I expect a recession, leading to falling incomes and increased job losses. Banks have already tightened up on lending and credit is far more expensive than it was. All negative for asset prices.
I fully respect that you disagree and appreciate that you are always polite, when so many can't seem to deal with opposing views and resort to accusations and ad hominem remarks.

Thanks @rainingsnoring

The difference in real and nominal terms is interesting. The property we purchased earlier this year has just shown up on houseprices.io. It shows a 19% increase in nominal price since it was last purchased in 2017 but an 8% decrease in real terms. We paid maybe 5% under what it would likely have cost in mid 2022 and thankfully didn’t have to go through a bidding war.

My definition of price rises is straight forward. If a house cost 250k in 2020 the figure of its worth in 2030 will be higher. Even if wages start to go up faster that benefits the person who bought in 2020 so way would they sale at a loss? Also other things go up in price so it’s not like houses are in isolation.

the real issue is the supply demand but also allowing FTBs to buy without a deposit as often they pay the monthly amount a mortgage will cost.

I do find that the phrase "in real terms" is used increasingly by people who predicted a big fall, now it seems that price falls won't be that dramatic after all.

I mean, it's not wrong to say that house prices have fallen further if you take inflation into account. It's just that when we first heard the rhetoric of "house prices are going to crash 35%" or whatever, people didn't add the phrase "in real terms" to their statement but now it's often used.

When house prices were rising they was equally less talk of what that figure represented "in real terms".

For the avoidance of any doubt, my prediction of 10% fall in 2023 and 10% in 2024 is in nominal terms. I'm assuming that your prediction of 5% in 2023 is also nominal?

Yes @XVGN my prediction for 5% fall in 23 and another 5% fall in 24 is in nominal terms.

Personally I think it's generally assumed people's predictions are in nominal terms unless they state otherwise. Thanks for clarifying your position though, at least we know we're on the same page

Thanks, so you are thinking in nominal terms.
However, I'm sure you can understand that, if a house sold for 250k in 2020 and sells for 260K in 2030 and inflation has run at 5% a year on average during those 10 years and wages have doubled, the seller has made a major, real loss. The cost of everything else has risen very significantly but the house has risen 4%.
You can make predictions in real or nominal terms but a nominal rise can be a large, real loss, when it comes to the actual purchasing power of the currency.

Are you defining 'a crash' as a 20% fall in nominal terms or something else? It would be good to be clear as the term 'crash' is subjective.

I do love a prediction thread...mine is that house prices won't be higher than the peak in August 2022 in nominal terms before the end of this decade

What they do between now and 2030 is anyone's guess. But I'd say gradual falls for the next 2/3 years, same as in the early 90s
Cost of everything has gone up, including the cost of credit, massively. If you don't think that will affect what people can pay for houses (ie what a bank will lend a buyer) I would like to know why you think that

That's fighting talk!

Put it on the spreadsheet @XVGN 😂

Can you link so we can investigate with PropertyLog, your area must be bucking the national trend for some reason?

"If you don't think that will affect what people can pay for houses (ie what a bank will lend a buyer) I would like to know why you think that"

I don`t think I have heard a good answer to that yet, most posters (on various forums) just trot out "supply and demand", although all the stats for sales, mortgage demand etc. show this argument to be total nonsense! It is almost as if people think by saying something over and over it will actually come true and economic reality will be denied!

I can`t make much sense of that, can you be clear about what is going to drive prices up? I think it was mainly about cheap lending, now that cheap lending has gone prices need to drop back a long way before "natural market forces" like wage growth, sentiment, demand etc. can kick in again to cause price rises.

"There is a complete lack of houses in this country and people need a place to live."

Why are sales down 50% and mortgage applications down 40% in that case?

Sales are down due to people being stretched and not being able to afford the deposit. That has cut off first time buyers to the market. Interest rates will likely settle around 2-3% once inflation is under control.

so many people are competing for rentals and they are paying ridiculous high prices. it’s almost equal to what a 100% mortgage would be, yet as they don’t have a deposit they can’t get a mortgage.

"so many people are competing for rentals and they are paying ridiculous high prices."

Not in the South West, rents are down 20%?

https://propertyindustryeye.com/rents-fell-last-month-as-market-returns-to-seasonal-patterns/

You seem to have missed the point of my first point.......the point is that the people who are "stretched" and cant afford the monthly payments any more still live somewhere, so your point about a "lack of houses" doesnt stack up at all!

The average mortgage rate between 1995 and 2022 is 5.62%, if you go back further it's a lot higher.

It's very unlikely that mortgage interest rates will go down to 2% or 3%

The past 13 years of low rates is an anomaly not the normal.

I believe there's a big recession coming, it's started already and is going to get a lot worse. The lack of first time buyers shows that FOMO has changed and there's currently no massive hurry to get on the property ladder.

For interest I just did a search.
Within 5 miles of my work address added or updated in the last 7 days.
51 new homes
37 reduced properties.
So I'd say falling as 42% of the search are reduced properties.
This is North Essex