The House Price Crash Thread

[trekka]

I love the Beeny Bags!

[snowychap]

Bank tipped to cut interest rates

Well, we'll know at lunch time.

The Bank of England's Monetary Policy Committee (MPC) is expected to cut interest rates amid signs the global credit crunch is hitting the UK.

Analysts are widely tipping the MPC to announce that it will trim rates from 5.25% to 5% at midday on Thursday.

Such a move would be the third cut in interest rates since early December.

But the credit crisis, which makes funding mortgages more expensive for banks, may mean they do not pass on the full reduction to borrowers.

Homeowners on variable rate mortgages expecting to benefit from any cut could be disappointed, industry experts say.

Funding problems

"I don't think we can be sure that lenders will follow any cut in base rates," David Anderson, chief executive of Co-op Financial Services said.

"Lenders are funding mortgages from money markets and money markets are not always following reductions in the base rate. Therefore they may not be able to pass on any cut," he told the BBC.

Due to the uncertainty in the financial markets and a shortage of funds caused by the global credit crisis, the rate at which banks lend to each other has remained high.

Many mortgage lenders have had to withdraw their most competitive deals in recent weeks.

However, the UK's biggest bank, HSBC - which relies less on the markets to fund its mortgages - bucked the trend when it said on Wednesday it would match some homeowners' fixed-rate deals.

Housing slowdown

Analysts say data showing falling house prices will drive the Bank of England's decision, despite continuing inflationary pressures.

The Halifax, the UK's largest lender, said on Tuesday that house prices fell by 2.5% in March, the biggest monthly decline since September 1992.

Meanwhile the Council of Mortgage Lenders said the number of mortgages taken out in February fell to 49,000, the fourth consecutive monthly decline.

MPC members will also have to take account of the fact that inflation remains above the government's target of 2%, with energy and food prices rising.

The most recent available data showed that Consumer Prices Index inflation was 2.5% in February, up from 2.2% in January.

But the International Monetary Fund said on Wednesday that it expected slower economic growth in the UK to reduce inflation, confirming expectations of further rate cuts.

And here's a prediction from last month (March 19th):

So I predict rate cuts in April and June, and to hell with inflation.

[Jon]

And here's a prediction from last month (March 19th):

So I predict rate cuts in April and June, and to hell with inflation.

would that not make the BofE a political entity?

i thought its remit since the (labour) government gave it control of interst rates was to keep a check on inflation, and if inflation got beyond a certain level it would be brought to book.

If it is now making moves to lower interst rates solely to boost the housing market, would this not be counter to it's intended aim, and also a political move to boost the housing secotr under pressure from the govt?

I'm confused.

[snowychap]

I think that the 'independence' of the BofE ought to have the suffix 'to a point'.

I will admit that my predictions about interest rates were based on the whole 2% inflation target thing (i.e. that after the Feb cut, I thought there'd be two or three months of no movement) though as noted in my post some more prescient observers didn't fall for that old one.

I'm not so sure that the rate cut is too much about boosting the housing market (even though that's the report and what those connected to the housing market will feel). I think it might be more an attempt to soften any slowdown in the economy.

Still confused?

Yep. Me, too.

[Awol]

*accuracy warning*

Isn't the cut essentially going to be used to top up the coffers of banks after recent loses? I didn't think it would be passed on to consumers/mortgage holders at all? May well be wrong..

[Gringo]

Never one to blow one's own trumpet, but....

I suppose how do you define a crash. My rule of thumb would be 20% decline in real terms over a two year period. This would be enough to lock many households into negative equity and cause the market to lock up for the next few years as happened in the 80s.

Hamish McRae: It's back to the world of proper saving and borrowing for homes – and the better for it

If we have a crash, which I would define as a fall of more than 20 per cent over the next two years, then there is a huge problem. There would be an obvious difficulty for people with negative equity and for people who could not service their debt. There would be an even more substantial problem for the economy as a whole because that sort of hit would cut consumption and in all probability push us into recession.

So as we have a split 60-40 on whether we will have a "fall" in prices, and finally have a concensus on a definition of what constitutes a crash, who reckons we will have a 20% fall (in real terms) over a two year.

I vote aye - already the city centre shoebox market is down 10-15% - new build developers are offering 10% (hidden) discounts, soon the headline prices will be affected and then momentum builds - with prices falling and motgage availability increasingly restricted, people will bide their time before entering the markets.

And here's a prediction from last month (March 19th):

So I predict rate cuts in April and June, and to hell with inflation.

would that not make the BofE a political entity?

Yup. This is the second test of the banks independence. The first was northern wreck, which they passed in terms of showing independence and laying the blame at the FSA and treasury's doortsteps. If they cut rates now without any public change in their remit, then we can surely say that the remit has been informally changed.

Cutting rates is probably the right thing to do in order to boost the economy, and some members of the MPC will undoubtedly be calling for a 50 points cut - but will this save the housing market. Not in the next few months. The banks made £30bn+ available on 3 month terms recently and this has had no effect on the Libor rates, so a cut in the BoE rates will have little impact also. Cutting rates is obviously the wrong thing to do in terms of weakening sterling and increasing Gringo's cost of living.

Banks are still whacking themselves, they don't know where their money is invested or where their risks lie. If the estimates of $1.2 trillion being the full cost of the sub prime failure are accurate, and with only $400bn being declared so far, we're only one third of the way into the bank write downs. And until everyone is confident that they have full disclosure from their counterparties, the interbank market is not going to recover.

[snowychap]

Bank lowers interest rates to 5%

The Bank of England's Monetary Policy Committee (MPC) has cut interest rates to 5% from 5.25% to spur the economy in the face of a global credit crunch.

It is the central bank's third cut in interest rates since early December.

Analysts said that problems in the money markets and recent dire news on house prices drove the decision.

But the credit crisis, which makes funding mortgages more expensive for banks, may mean they do not pass on the full reduction to borrowers.

Business groups welcomed the decision and called for further cuts to shore up growth.

"It is vitally important to ensure that problems in the financial sector and in the housing market do not damage wealth-creating businesses," said David Kern, economic adviser to the British Chambers of Commerce.

"Undue delay in acting threatens to reduce the effectiveness of interest rate cuts that the MPC itself has anticipated already."

Homeowners on variable rate mortgages expecting to benefit from any cut could be disappointed, industry experts say.

Never one to blow one's own trumpet, but....

All I can say to that is what I said in another thread:

self-congratulation is so unedifying

:wink:

[Gringo]

BoE lowers base rate, banks raise theirs

The UK's second biggest mortgage lender has announced it is increasing the cost of some of its fixed-rate products for the second time in two weeks.

Nationwide Building Society said it is raising interest rates on some of its fixed-rate products by between 0.12% and 0.32% from Friday.

The move comes despite expectations that the Bank of England's Monetary Policy Committee will slash the official cost of borrowing by 0.25% to 5%.

It is also just two weeks since Nationwide last increased the cost of its fixed-rate deals, raising them by 0.2%.

But the group is also launching a new three-year fixed-rate mortgage at a lower rate than previously offered.

Rates on the home loan range from 5.75% for borrowers with a deposit of at least 25%, to 6.45% for people borrowing 95% of their home's value - 0.2% lower than the old deals, although the arrangement fee is £100 higher at £599.

[ahamaad]

Aye, I also think that a 20% decrease in prices is on the cards, and this will seriously affect a lot of people.

One person here was claiming how wonderful everything was, how great his mortgage deal is, and how he has been so sensible blah blah blah

Unfortunately not the case for so many others. Reposessions will rise, and driven by rising costs of borrowing for a mortgage the housing market will take a nosedive.

[PaulMcgrathsknees]

Houses up for £240,000 currently only fetching about £215,000.

Ten per cent down already in some places. Estate agents recommending 7% reduction on asking prices.

[ender4]

i'm looking to buy a house, and so this might sound selfish, but i'm hoping for a bit of a crash!

also, i voted on the poll ages ago, when i didn't think there was going to be a fall in prices. Now i think there will be a 20% fall over the next 18 months.

[Sid4ever]

i'm looking to buy a house, and so this might sound selfish, but i'm hoping for a bit of a crash!

also, i voted on the poll ages ago, when i didn't think there was going to be a fall in prices. Now i think there will be a 20% fall over the next 18 months.

Ender4, same here.

Me & the family have been renting for 4 years now since coming back to the UK from living abroad.

Now heres a question for the VT experts, I am being made redundant at end of May and walking away with a reasonable payment, some of which is being used to buy season tickets for me and the boy, as hopefully with Trent's advice, I should be moving straight into a better job.

The Mrs has seen a house, been on the market for ages, do we dive in and offer on the property or wait a bit longer to see what the full effect of the "Credit Crunch" will be? How much under asking prices are properties selling for, and are there any websites that offer this info?

[tonyh29]

I've just brought a new house so expect a huge price crash anytime soon as i've just put mine on the market

[Risso]

If house prices are falling, I might have to consider a move back, as the prices over here are scandalously high, and show no signs of dropping.

[dundeevilla]

I've just brought a new house so expect a huge price crash anytime soon as i've just put mine on the market

Same here Tony. I'm shittin 'em.

[TrentVilla]

The Mrs has seen a house, been on the market for ages, do we dive in and offer on the property or wait a bit longer to see what the full effect of the "Credit Crunch" will be? How much under asking prices are properties selling for, and are there any websites that offer this info?

Me again. Personally I wouldn't wait mate. If its 'the' property that you want then I personally would go in and go in hard and fast. You are the perfect potential buyer as you are like rocking horse shite in the current market, effectivelly a first time buyer as you have no property to sell.

If the house has been on the market a while then that combined with the constant headlines about credit crunch and market slowing will result in one very nervous vendor. You could hold on and you could wait to see if the market drops dramatically but personally I don't think they will fall as much as many people are predicting.

I know many posters on this thread will say otherwise but I suspect that the bark will be worse than the bite in this current stagnation of the market. By waiting a few months you may get a bit of a lower price but you may also lose out.

Another factor is your mortgage, do you have this in place? If you do and you have a offer in principle you can afford to play a bit of a waiting game if not you may find even though prices have come down in a few months that a mortgage is harder to come by or is more expensive.

It all comes down to personal circumstances I guess and with yours I can understand why you may opt to wait but it really is a buyers market out there for the first time in years and years.

[snowychap]

Me & the family have been renting for 4 years now since coming back to the UK from living abroad.

Now heres a question for the VT experts, I am being made redundant at end of May and walking away with a reasonable payment, some of which is being used to buy season tickets for me and the boy, as hopefully with Trent's advice, I should be moving straight into a better job.

The Mrs has seen a house, been on the market for ages, do we dive in and offer on the property or wait a bit longer to see what the full effect of the "Credit Crunch" will be? How much under asking prices are properties selling for, and are there any websites that offer this info?

You could take a peek at moneysavingexpert.com and this link is to their housing/mortgages page (I can't speak for the truth of what is on there - just that, as mentioned earlier in the thread, Martin Lewis' website is pretty good. :winkold:).

There is also a forum on that website and a section specifically for house buying, selling and renting.

From a quick scout on there, the best advice I can see about offers is not to look at it as a percentage below asking price. It is to consider what it will be worth to you. What you can afford, what you could expect to reasonably afford in the short and medium term.

As long as you don't take a risk and don't overstretch yourself then there shouldn't really be a problem.

It shouldn't really matter to you, if you are looking at buying a family home for a reasonable period, what the market looks like in the next couple of years. The mortgage availability is more important and I'm not about to predict that .

I'm sure someone more clued up than me about the specifics of house buying and motgages will come in with some better stuff but this is my 2p.

[TrentVilla]

With regards to mortgages, the best thing at the moment is to go to a truelly independant mortgage advisor (ie, not one who sits within a building society/estate agent and claims to be independant) as they will find you the best deal and often deals that aren't available to joe bloggs public.

[leviramsey]

A good rule of thumb for pricing an initial bid on a house purchase is to estimate what you'd be willing to pay to rent it.

Multiply that figure by 1.5 and then subtract any carrying costs of the property that you wouldn't have to bear if you were renting (insurance on the building, if in a jurisdiction (not the UK, AFAIK) that assesses taxes based on property value then property taxes, a reasonable allowance for maintenance). What's left is a reasonable mortgage payment. Plug that into an amortization calculator to get a loan amount (if taking out an adjustable rate mortgage, I'd suggest for conservatism to just compute based on a fixed rate a couple of points higher and use your higher rate based payment to repay the mortgage (so that while interest rates are lower than your high estimate, you're paying down the principal balance faster and thus reducing the impact of interest rate swings down the road; if interest rates fall then the benefit of this prepayment of principal really snowballs)), add in your downpayment and subtract the transaction fees and voila, you've got a reasonable starting offer.

[leviramsey]

Don't worry too much about that... I expect that the UK housing market will collapse fairly shortly. While the lending practices were nowhere near as reckless as they were in the USA, the underlying fundamentals (price to income, consumer debt levels to income) are far worse than they ever got in the USA and got worse faster than they did in the USA. When that happens, I expect that the BofE will try to prop things up by slashing rates (something they've generally avoided thus far), depressing the value of the pound.

I'm taking a long look at shorting the pound (probably against every currency, but I'd pay particular attention to going long on the dollar and the yen on the other sides of the trade... the dollar provides a decent hedge against the pound not falling and we should see the borrow-yen-buy-pounds carry trades unwind anyway this year); I don't see the Eurozone doing too well either, with shorting baskets of Euro heavy industry stocks (the auto industry in the guise of the DJ Stoxx 600 Auto ETF looks particularly appetizing as far as short opportunities go).

On the long side, I like sugar and cotton, which should see increased demand if oil prices rise and in any event are likely to see supplies constrained (Brazil and India, the two largest sugar producers, are currently producing sugar at a slight loss, which means that current production levels are not sustainable at these demand levels) in the short-to-medium term.

On 28 January, that ETF I shorted closed at 29.96 euro. It's most recent close was at 30.03 euro, so it's basically sideways (before currency exchange).

Shorting the pound against the dollar is equivalent to buying dollars with pounds... on 28 January 1 pound bought $0.50. As of yesterday the pound bought $0.51 so another slight loss on this trade. The yen trade hasn't done exceptionally well either: declining from 213 yen/pound to 203 yen/pound.

No idea on how the commodities trades did...