The House Price Crash Thread

[bickster]

but there is no high demand thus prices falls

natural market conditions really

There is plenty of demand, its just that the demand can't be financed, two different markets, one is hindering the other

[ianrobo1]

of course and as soon as the credit markets loosen up whenever that will be the increases will be there

and thanks Gringo, it kinda backs me up, not a crash yet, an adjustment and as I have said a fall is not neccessary bad as if they they fall more than 10% the first time buyers will be back to get the market stoked up again

prices at 7 times average wage are just not substanable

[Gringo]

of course and as soon as the credit markets loosen up whenever that will be the increases will be there

Any idea on timescales for this as it's not going to be anytime soon.

and thanks Gringo, it kinda backs me up, not a crash yet, an adjustment

What backs you up - biggest price falls since '92, 5 consecutive months price falls? Or are you calling this the bottom of the market :shocked: - as you say, not a crash, YET.

and as I have said a fall is not neccessary bad as if they they fall more than 10% the first time buyers will be back to get the market stoked up again

No they won't because:

1) they don't have the 10% deposit saved up

2) they're waiting for the price to fall further - as I said, once we hit tipping point the rush to home ownership abates and people start waiting for the market to bottom out.

[bickster]

And the knock on effect of that is higher rental prices as there will be a larger demand for that sector of the market

So who is winning here? The people who aren't buying their first house will be paying more in rent

[Gringo]

And the knock on effect of that is higher rental prices as there will be a larger demand for that sector of the market

So who is winning here? The people who aren't buying their first house will be paying more in rent

Well the landlords are getting squeezed as well as mortgage companies raise their LTV and rental coverage requirements, so they can't take equity out and are forced to put up rents to cover their new mortgages..

So the winners are the banks who fkd it all up in the first place, though savings rates are going up, the margin between savings and lending rates are (generally) larger than they have been for a while.

[bickster]

Well the landlords are getting squeezed as well as mortgage companies raise their LTV and rental coverage requirements, so they can't take equity out and are forced to put up rents to cover their new mortgages..

So the winners are the banks who fkd it all up in the first place, though savings rates are going up, the margin between savings and lending rates are (generally) larger than they have been for a while.

Zackly

[PaulMcgrathsknees]

Rental market gets cheaper when houses are more expensive.

Rental market gets more expensive when housing is cheaper.

Don't ask me why, but it does! Backwards I know. I suspect it is because landlords need to get rental money coming in? Weird. But I'm a financial dummy!

double digit percentage falls for 2008 and 2009

[snowychap]

Mortgage approvals reach new low

The number of new mortgages being approved for house purchase hit a new low in April, according to figures from the Bank of England.

Just 58,000 such mortgages were approved, the lowest since the Bank began reporting the figures in 1993.

That was 8% fewer than in March and nearly half the level of lending that was approved a year ago.

Mortgage lending is expected to slump this year because of the credit crunch and a shortage of finance to lend.

Both the number of loans approved, and the amount of money offered to borrowers, has now fallen for 12 months in a row.

...

Simon Rubinsohn, the chief economist at RICS, warned that this downturn would have a big knock-on effect on the wider economy.

..more on link

B&B sees loss in wake of downturn

Losses and a warning of tougher times ahead have sent shares in UK mortgage lender Bradford & Bingley tumbling.

It made a £8m pre-tax loss in the first four months of 2008, against a £108m profit in the same period last year.

B&B blamed problems with its buy-to-let mortgages as home-owners struggle to repay loans.

....

Britain's biggest buy-to-let lender needs to shore up its finances now that the UK economic climate has deteriorated further and a global credit crunch is restricting borrowing for consumers and lenders.

...more on link

Nationwide raises mortgage rates

The volatility of the mortgage market has continued with another change in rates by a major lender.

The Nationwide building society is increasing the price of new fixed-rate mortgage deals by up to 0.3% on 3 June.

The rise in borrowing costs comes shortly after the lender announced that it had been scaling back lending and house prices were 4.4% down in a year.

It said that consumers should expect "frequent changes" to the cost of fixed-rate deals.

...more on link

[Salsa Party Animal]

Glad it hit people who buy property to let hard. But this doesn't change the fact it is still too expensive to buy a house or leave home. Single people these days have no hope to buy properties unless they are very rich.

[johnvillan]

Crash: The housing crisis is just beginning

Iain Macwhirter

Published 05 June 2008

As Britain wakes up to the nightmare of negative equity, we are facing a housing recession far worse than that of the early 1990s. Iain Macwhirter has a warning: don't buy a house now, at any price. Just say no. You have been warned

Kingston Quay in Glasgow is one of the smart dockside developments that were supposed to help regenerate Britain's older industrial cities. The blocks don't look bad, with generous balconies and double-height penthouses. But the truth is that you can hardly give these flats away. A two-bedroom flat, bought for £215,000 in September 2005, recently sold at auction for £79,000; another went for £86,000. Nine others did not sell at all. "Live the dream," said the promotion for these developments; wake up to the nightmare of negative equity.

This story is being replicated in every city in the country as the housing crash gathers momentum. In areas of Manchester and Leeds, and even parts of London, thousands of new-build flats are being offloaded at auction for 30 per cent less than they cost to buy, according to the auctioneers Allsop. The paradox of Britain's slump is that it isn't being led by a sub-prime underclass in run-down areas - although repossessions are rising fast everywhere - but by the "luxury" end of the market. The biggest falls are for the dinky flats bought by urban professionals as "starter homes", or by well-off parents, such as the Blairs, for their children and as pensions. If you have had the misfortune to invest in any of these, look away now, because what follows could seriously damage your wealth.

Let's get the numbers out of the way first. There is no longer a scintilla of doubt that there is a major, national housing correction under way. Nationwide registered a record 2.5 per cent fall in May alone. Analysts such as Morgan Stanley think there could be a 25 per cent decline in two years. The International Monetary Fund estimates that British house prices are overvalued by 30 per cent. A crash is defined as a 20 per cent fall over two years, so fasten your seat belts. The Financial Services Authority (FSA) says a million people face losing their homes over the next 18 months. Northern Rock was the first banking casualty; the buy-to-let flat specialist Bradford & Bingley is the second; others will follow as this second mortgage-related financial shock shreds banking balance sheets and undermines confidence in the financial system.

Even the government accepts that prices will fall by between 5 and 10 per cent this year alone, as the housing minister Caroline Flint's see-through cabinet briefing papers revealed recently (although, curiously, she didn't see fit to tell the country the news herself). Indeed, the government is still actively encouraging first-time buyers into a market that it knows is collapsing. Ministers should be doing precisely the reverse: warning young families not to take on mortgages for flats that will assuredly land them in negative equity.

But the government still believes that, as the property porn queen Kirstie Allsopp puts it, "house prices always go up". In other words, it believes in fairies, and that money grows on trees. Now comes the big bad wolf to the door, and the last thing anyone should think of doing right now is buying a house. At any price. Just say no. You have been warned.

Tens of thousands of relatively high-income homeowners in south-east England have placed their futures in jeopardy by taking on unsustainable jumbo mortgages. You need only look at estate agents' windows to see that the sums don't add up - London prices average £320,000 and are out of all proportion to ability to pay. Gross median full-time earnings in London last year were only £587 a week, according to government statistics. Many young families took out self-certification "liar loans" at five or six times their income as the only way to get on to the housing ladder. Now the banks are forcing them to remortgage at a higher rate and demanding large deposits. Real fear is stalking the capital's nappy valleys.

This is going to be far, far worse than the housing recession of 1990-92. Fuelled by irresponsible bank lending, UK house prices nearly tripled in the decade to 2007 - a more lunatic rise even than in America. British prices have been running at nearly eight times average earnings against a historic average of 3.5. This was never going to be sustainable. But right at the moment the bubble burst, in August 2007, a combination of related events conspired to turn this boom into an epic bust that is likely to consume the British economy and lead to a depression. You may think the credit crisis is over, but the real crisis is just beginning.

First, the banks found that because of the US sub-prime mess they couldn't borrow cheap money on the international markets any more, so they cut back on lending and increased rates. Banks such as Northern Rock, which had been offering "suicide loans" of up to 120 per cent loan-to-value, stopped lending altogether. Not surprisingly, people stopped buying. The number of first-time buyers in March was the lowest ever recorded, fewer than 18,000 in the whole of the UK.

Apoplexy in No 10

Even before the housing slump, buy-to-let investors were losing money because of low rents; now many are being forced to sell, as the banks require them to remortgage at rates of up to 9 per cent. Overall, mortgage lending this year is expected to fall by nearly half, to £60bn, an unprecedented contraction of the market. Estate agents across the land are shutting shop - not that many tears will be shed at their plight. Nor at the loss of the hard-sell property club Inside Track, which promised to make you a millionaire overnight and has now gone bust, leaving many of its clients with huge losses.

The FSA and the police are now investigating 70 separate valuation scams across Britain whereby surveyors fraudulently overestimated the value of thousands of new-build homes. In cities such as Manchester, organised criminals had recycled drug money into property to such good effect that some of them gave up the narcotics trade and turned to property speculation. Now they are regretting it.

What can the government do? Well, Gordon Brown thought he could revive the market by in effect handing £50bn of public money to the banks through the Special Liquidity Scheme and by leaning on the Bank of England to cut interest rates. Not so. The banks took the £50bn in Treasury swaps in April and promptly put mortgage rates up even further. Then in May, Mervyn King, the governor of the Bank of England, announced that there were likely to be no more cuts in interest rates this year because of rising inflation.

This caused apoplexy in No 10. Brown wanted King to emulate Ben Bernanke of the US Federal Reserve, who slashed rates from more than 5.25 to just 2 per cent in eight months. But King stood his ground, and is right to do so. As anyone who goes to the shops knows only too well, the cost of living is rising faster than at any time in the past two decades. Cutting interest rates now could start 1970s-style hyperinflation.

There has been much debate about the causes of the recent global inflation in commodities, but in the end, in the circular world of economics, it all comes back to housing. It was the attempt by the Federal Reserve to revive the US housing market that ignited the current commodities boom. It hoped that slashing interest rates below inflation would encourage people to put their money back into houses. It didn't. Instead, the big investment houses, the pension funds and thousands of in dividuals ploughed their cash into oil, food - anything that looked as if it might become scarce. Roughly 60 per cent of the recent increase in the cost of oil is down to speculation.

In the US, cutting interest rates has actually made house prices fall faster. The increase in gas and food costs has made consumers tighten their belts and avoid mortgages like the plague. US residential property prices fell 14.4 per cent in the first quarter of 2008 - the fastest drop ever recorded by the benchmark Standard & Poor's/Case-Shiller index. Ten million face negative equity. To top it all, the inflation explosion has forced the Fed to admit that the next movement in US rates will probably be up, though not before the presidential election. Talk about a rock and a hard place. Increasing interest rates in a downturn is what turns recession into depression.

How long will the slump last? Certain demographic factors may prolong the housing depression. The baby-boom generation has now reached retirement age and many couples are relying on their homes as pensions and legacies. If they want to keep their wealth intact, they will have to sell soon. This could lead to an unprecedented number of larger houses coming on the market just at the moment when younger families can't borrow the money to buy them.

Pyramid of credit

The recent house-price boom in Britain has also been fuelled by immigration, much of it from Poland. With the British economy weakening and the pound falling in value, however, many eastern European migrants are returning home. There is still a shortage of houses in Britain, but we are about to find that the shortage is not as great as we thought.

Are falling house prices a bad thing? All things being equal, a return to sanity in the housing market is good for everyone, even estate agents. But we are facing a serious economic dis location here, not just a correction.

It was brought about by the astonishing short-sightedness of central bankers and politicians in Britain and the US who kept interest rates artificially low for more than a decade. A huge inverted pyramid of credit was built on top of the expectation of yields from British and US mortgages. Believing that house prices would rise for ever, and that even if they faltered the Bank of England would cut interest rates to reinflate the bubble, the banks began to lose any sense of financial risk, and started to relax credit standards and lend irresponsibly. Private-equity firms were allowed to borrow huge multiples of their real assets. Banks started to hide their lending in off-balance-sheet devices such as structured investment vehicles.

As house prices fall, this all turns into reverse. Loans de-leverage, derivatives degrade, margin calls are missed. The total value of British residential property is about £3trn. Nearly £1trn of this will now disappear over the next few years if prices fall by 30 per cent. This will have a profoundly deflationary effect, leading to falling high-street sales, business closures, personal bankruptcies and rising unemployment. Mortgage bonds will default, causing further bank crises. Britain depends heavily on the financial services for jobs and 40,000 are about to go in the City alone, according to J P Morgan.

In Britain, homeowners are seeing the value of their properties fall at about £2,000 a month at the same time as the cost of living is rising and their wages and salaries are stagnant. Deluded by house prices, British consumers borrowed and spent like there was no tomorrow. Unfortunately, tomorrow has arrived and consumers are sitting on £1.4trn of debt, the highest for any country in the world. People can no longer defer their loans by remortgaging their properties, and the banks are demanding cash upfront. In the past two months, many consumers have taken out huge one-off credit-card loans, which explains the paradox of recent unsecured lending going up as spending goes down. Shelter has reported that at least a million people are putting mortgage payments on their credit cards - the height of economic madness.

The government is already overdrawn and unable to spend its way out of impending recession. Treasury finances will shrivel after a fall in stamp duty and tax receipts from the collapsing financial services sector. The nationalised Northern Rock has signalled that it won't be able to repay the £26bn it was lent by the government if house prices continue to fall.

No wonder Gordon Brown is looking gloomy. He once joked that there are two kinds of chancellors: failures and those who get out in time. He is no longer chancellor, but as First Lord of the Treasury, the Prime Minister is still in the firing line. The great housing bust of 2008, and the recession that follows it, will be Brown's lasting monument. And poor old prudence never got a look-in.

Iain Macwhirter is an award-winning political columnist for the Glasgow Herald

Housing by numbers

* 250,000 UK households in negative equity

* 50% fall in net mortgage lending expected this year (down from £108bn to £55bn)

* 12m mortgages outstanding in 2007

* 25% predicted average house-price drop during current crash

* 3,775 mortgage products available now

* 15,599 mortgage products available in July 2007

new statesman

[PaulMcgrathsknees]

That is a very dark read!

Interesting, but dark!

[bill]

Housing has always been a bit of a roller coaster. Hang on to a house long enough and the price ALWAYS goes up again. Don't panic. Just wait it out.

[tonyh29]

was talking to an ex colleague about the banks and their CDS rate (A CDS is a contract designed to insure creditors against a bank )

For example HBOS has to pay £11,600 for every £1m of debt ... 3 months back HBOS figure was £28,100 for every £1m

this would suggest the banks are getting back in order and that they may be prpepared to start lending money again , all be it not so easily as before ?? Could we start to see asmall house price rise as a result ?

[snowychap]

was talking to an ex colleague about the banks and their CDS rate (A CDS is a contract designed to insure creditors against a bank )

For example HBOS has to pay £11,600 for every £1m of debt ... 3 months back HBOS figure was £28,100 for every £1m

this would suggest the banks are getting back in order and that they may be prpepared to start lending money again , all be it not so easily as before ?? Could we start to see asmall house price rise as a result ?

No.

[ianrobo1]

not a rise but a stablisation of the falls

as i have said before falls make house prices more affordable for first time buyers, if the credit loosens up they will come back in, probably a year or so time

[Gringo]

not a rise but a stablisation of the falls

as i have said before falls make house prices more affordable for first time buyers, if the credit loosens up they will come back in, probably a year or so time

In a year - so that would be about 18 months of falls, so about a 20% drop. That's not stabilisation, that's a crash.

[JulieB]

I'm just sorting a mortgage for a client whose just bought a 3bedroomed house by auction for £56K, that was on the market

a few weeks ago with an agent for £94K!!! And NO it's not a repossession and it doesn't need alot doing to it neither!!

Scary or what!!

[jasthevillan]

That's because he thought you were a stalker Nick :-)

There isn't a simple cause and fix for the financial issues the world faces. We have just been given target sectors and countries based on analyst views, which is interesting reading to see where people think there will be money and where there will be belt tightening. There will always be upward sectors just due to the nature of the way that business is now run and the way the world operates. Dependency on house wealth is a risky process as is dependency on other countries etc.

The old adage about America sneezing is still a very true one.

Nick is the S T Vaughan of New Zealand.

[nrogers]

That's because he thought you were a stalker Nick :-)

There isn't a simple cause and fix for the financial issues the world faces. We have just been given target sectors and countries based on analyst views, which is interesting reading to see where people think there will be money and where there will be belt tightening. There will always be upward sectors just due to the nature of the way that business is now run and the way the world operates. Dependency on house wealth is a risky process as is dependency on other countries etc.

The old adage about America sneezing is still a very true one.

Nick is the S T Vaughan of New Zealand.

Am I really?

[snowychap]

Who is S T Vaughan?