House prices

[Twiglets1]

Hi Guys, we got to the end of the last thread so need another one on this controversial topic!

And to respond to @CrashyTime I don't say "demand is strong" over and over again. In fact, I rarely comment on demand at all. My posts are more focussed on house prices and interest rates/mortgage rates.

And I don't deny economic "reality", I just don't exaggerate how bad the house price correction is likely to be. I have a running bet with @XVGN that property prices generally will fall about 5% in 2023 and another 5% in 2024 so I do believe prices are falling in most areas. Just nothing like the 30-35% crash predicted by some!

You have to appreciate that:

• a 5% increase in gross salary will typically result in an increase of your net < 5%. This is because income taxes are paid by bands https://www.gov.uk/income-tax-rates and the increase is taxed at your highest marginal rate
• A slow down in inflation doesn't mean your income catches up with all your previous increases. Let's say that you earn 100 and over 5 years inflation goes up by 5.5% a year (so ca 30% in 5 years) while your income goes up 2% a year (so ca. 10% in 5 years). In year 6 inflation finally slows down and your future salary increases do keep the pace with inflation. Except what used to cost 100 ow costs 130, while your 100 salary has gone up to 110 only

I haven’t seen anyone reputable predict a scenario in which house prices fall 30-40% in real terms over many years @rainingsnoring can you link us to an economist/property analyst predicting that?

And don’t bother mentioning that YouTuber Charlie guy yet again please. Not only is he not an economist or analyst but also his prediction in 2022 was a house price slide of 35% over 3 years in nominal terms NOT real terms. It’s pretty obvious to everyone now that he was wildly out but he grew his brand I’ll give him that.

Your idea of 'reputable' means someone giving mainstream views that are published by the mainstream media. That's not my idea of reputable. There is more intelligent analysis away from the MSM imo.

Ironic that you don't want me to mention the 'Charlie guy' and then you do so yourself.

@ParentOfOne yes, it's gross incomes, not net that are measured. I think it's a minority whose incomes have outpaced inflation, including those on NMW. The massive money printing during the pandemic, all the handouts plus SDLT holiday and ZIRP raised prices during that period. That's not the case now.

Are we to assume @rainingsnoring you can't find one reputable economist or analyst to support your opinion that house prices will "fall 30-40% in real terms but over a longer period" ? Despite your assertion that "some have predicted this scenario as the most likely."

It was quite a bold statement so I'm sure other people on this thread are also interested in the qualifications of those people who have predicted this scenario as the most likely.

@rainingsnoring this reminds me of a guy who used to post on the Money Saving Expert website. He spent the 2010s posting doom scenarios, giving all kinds of reasons why he'd never buy, because house prices were sure about to fall etc etc.

@rainingsnoring wild predictions there. Let’s say you were right for a moment and we saw a 30-40% drop over many many years (say 10-15 years) - someone would have already paid off a large part of their mortgage va staying renting over that period waiting for a drop and houses to become “affordable”

the last 25 years is absolutely relevant as many have bought and paid off their mortgage - what motivation would they ever have to sell up at a reduced rate? They wouldn’t

Exactly, @lm1981
It's unclear to me what @rainingsnoring 's point is. I don't think many people are advocating investing in a buy to let, are they? So we're talking about main homes here.

So what is the advice? Rent, don't buy? there can certainly be many situations where renting turns out to be cheaper, but:

• you need to think of protection in negative scenarios. There are many cases where people (me included!) who bought a house 5-10-15 years ago would not be able to buy a comparable house now. What I mean is that maybe renting can work out cheaper in certain cases, but by buying you are substantially increasing the odds you'll be able to remain in the same property longer term, odds which are much lower if you rent
• Even if buying and selling you make a loss, the comparison should be vs the cost of renting. There are many online calculators, eg https://smartmoneytools.co.uk/tools/rent-vs-buy/

@Twiglets1 -why do you always determinedly mis-read things that people who don't agree with you write? I am not going to waste my time giving examples because, as I already said, you won't take anyone seriously unless they are published in the MSM. I didn't say it was my opinion that house prices fall in real terms by a significant amount of a longer period. I said it was one possibility- please see the post. Do you understand the difference between real and nominal btw?

@ParentOfOne I didn't suggest that everyone should hold off buying- please see post. What I actually said is this 'no point in holding out in the hope of a crash but it all depends on individual circumstances. I wouldn't recommend anyone stretching to the max or overpaying recently/ now.'
So buy, if it suits your circumstances, but don't over borrow/ stretch. On the other hand, if you are living with your parents, you might be better off continuing to save.
My point is that those suggesting that any HP falls have ended are likely premature in drawing these conclusions.

@Lm1981 if someone who has bought keeps their job and can continue to pay their mortgage, negative equity or a house being worth less than the purchase price need not be a major problem. The difficulty comes if they become unemployed and can't find another job or become unwell without insurance.
When making predictions that house prices only ever go up (the message which you repeat constantly), it's best to look beyond the last 25 years. It's possible, even likely, that things will change. Even in 1990, many people sold for less than they purchase for because the had to. I think even @Twiglets1 said she did but was then fortunate to receive money from family. Obviously not everyone has this option.

@rainingsnoring Thank you, it's much clearer now. I generally agree with the "buy if it suits you but don't overstretch" message.

However, when you reply to @lm1981 , you mention the difficulties a house buyer would face if they become unemployed. Well, I'd argue that in those cases they'd face even worse difficulties if they are renting:

• long term rental contracts are rare. Rent is likely to go up more often than mortgage rates are likely to change
• many mortgage lenders do not reunderwrite you if your fixed rate expires and you move to another one with the same lender, as long as you have always paid on time. This means you don't have to disclose you're out of a job if your partner still has one and/or you have enough savings to cover a few months without salary. The same does not apply when renting, you almost always have to disclose to a landlord that you're out of a job

Of course buying only makes sense if you have a reasonable expectation of staying put for a few years, I'd say at the very very least 5-6. Otherwise the fixed costs of buying become just too high, plus the inflexibility of making it harder to move elsewhere for work or other reasons.

Publication in the authoritative end of the mainstream media, including high quality journals, is what makes someone reputable. Someone with a blog or a YouTube channel and no endorsement from a university, established institution, or publication with editorial standards is far more likely to be a crackpot.

@ParentOfOne I agree with you that renting is a very insecure option in the UK because the governments have failed to regulate the market. It's much better in many European countries but terrible in the UK. Renters who can't afford the rent are certainly very vulnerable and often become technically homeless for a long time, which is devastating, particularly for those with children. It's hard to know which is better but possibly losing your own home and potentially losing an awful lots of money alongside it is possibly even worse (unless you get financial help from family). I've said on previous threads that most younger people in the UK (those without wealthy parents) often have two poor choices; borrow a huge amount to buy (well in excess of a couple of generations ago) or rent in an insecure market.

@NewFriendlyLadybird I don't agree with your conclusions here. The BOE, for example, made extremely inaccurate predictions about inflation rates several times recently when many others without any degrees in Economics, including myself, had predicted high inflation since late 20. Prior to the GFC, Ben Bernanke was telling everyone that things were fine and that the economy wasn't in recession. It was already in recession when he made these comments. These are just two examples but there are so many others.

Give it a rest with your, as usual, incorrect assumptions @Twiglets1.

Well I obviously have upset you @rainingsnoring so I will leave it there.

Yes completely agree with your entire post

I think this stagnant phase with real term falls because of inflation everywhere else is the most likely outcome. Probably best for everyone as houses will feel cheaper as wages rise but people won't get stuck in negative equity.

I agree with others that a real terms drop of 30-40% in prices is high though. I don't have faith that are wages will grow enough to make that a reality.

I think stagnation of prices is a really good thing though.

At least that’s one thing we can hopefully all agree on in this thread, that stagnation of prices is a good thing.

Definitely. It won't happen, but imagine some form of government legislation to keep house prices as they are now - this would help twofold:

-No loss of existing "value" for home owners
-As wages increase, affordability increases

Would property cease to be an investor haven, with no flipping etc, and put more of a focus on property ownership in terms of being a secure home rather than profit opportunity?

I think in principal that would be a great idea. But any legislation would have to take into account someone who bought a house they needed to gut and entirely redo, plunging loads of money into it. It wouldn't be fair for them to only be able to sell it for the same as they bought it.

@KaftasCastle Yes I think it would as it would remove a big bonus of BTL - the expected significant increase in monetary value of the asset when the Landlord eventually sells up.

I’ve seen lots of LLs on Mumsnet state that is where they get most of their profit from rather than rental income, which often seems to be swallowed up by their mortgage repayments & upkeep of the property.

The caveats and complications would be multi layered and complex!

I like the idea, as a general one.

Avoiding negative equity while increasing affordability; certainly not likely in our economy, sadly.

I meant to say upthread - part of why I don't see a significant crash playing out is that far too many very wealthy individuals have skin in the property game.

As well as what I've already harped on about - demand.

I also don’t think that realistically the government will attempt to legislate to keep house prices stagnant. It would be too complex in my opinion and I guess a lot of the electorate would be against the idea.

I’m not sure it would even be possible to interfere with market forces to that degree. But its an interesting idea & would be good for society in the long term if it could be done.