The House Price Crash Thread

[claret+blue_watch]

Don't listen to Hazel Blears. Don't buy a house By MoneyWeek Editor Merryn Somerset Webb Sep 03, 2008

Imagine an environment in which house prices had fallen 10.5% in a year. An environment in which the risks to the market were considered to be so extreme that even the biggest lenders in it were too frightened of negative equity to lend money to anyone without a 30% deposit. One in which mortgage approvals have fallen 70% since this time last year and in which a mere 21,000 houses are recorded as changing hands in July (that's down from over 100,000 in July 2007). And one in which every single commentator and analyst expects house prices to keep falling for some years to come. An environment a bit like the one the UK housing market finds itself in, perhaps.

Now imagine buying a house in that environment.

You might laugh. But there is someone out there doing just that - Communities Secretary Hazel Blears. I don't mean that she is thinking of buying a house for herself. No, it's you she imagines buying a house - so much so that she's prepared to bribe you into it. Or that's what she told the Today programme this morning, anyway. If a couple in their twenties came to you for advice "would you seriously say 'buy now'?" asked her interviewer incredulously,"even with the market as it is?"

Her answer? Yes, she would. If a couple who couldn't get a commercial loan (i.e. who were considered by the mainstream lending industry to be not well off enough or not financially stable enough to be eligible for one) came to her and asked her advice, she'd say to them "It's your dream… Go for it."

Then, she'd offer them the chance to do just that via the new HomeBuy Direct scheme whereby they'd get to borrow 30% of the price of the new house they want from the government and an appropriate housebuilder, interest-free for five years. The idea, I suppose, is that lenders would then consider them to have a 30% deposit and offer them a loan for the remaining 70%.

Why stamp duty change is little incentive to buy a house right now

There's more. Just in case the HomeBuy Direct concept isn't enough to lure our young couple into the market, the government has announced it is to temporarily lift the stamp duty threshold to £175,000.

Tempted? You shouldn't be. The stamp duty business can be easily dismissed. The maximum possible saving here would be £1,750, small beer when it comes to the total cost of buying a house. What incentive can that possibly offer when prices are falling at 10% a year - and forecast to be down a good 30% from their peak by the time all this is over? Buy a house for £175,000 and there's every chance you'll be down £17,000 by this time next year, regardless of how much stamp duty you do or don't pay. Buy a house for more than that and you don't get anything off your stamp duty anyway.

The HomeBuy Direct scheme has 'gimmick' written all over it

The HomeBuy Direct business can be just as easily dismissed. It comes with very little detail for starters. You get the 30% somehow from the taxpayer and from the housebuilders. Then, despite the fact you couldn't afford to borrow it in the first place (that's why a real bank wouldn't lend it to you), you have to pay it back at some point. Worse, you don't know how or when.

All we know so far is that you will have to pay a 'fee' at the end of the five years. Of how much? And to whom? Who knows? The whole thing has 'gimmick' written all over it. And the timescale doesn't help. Five years may seem like a long time, but in a housing market crash it isn't. Let's not forget that it took six years for the market to hit bottom in the last crash and a long 11 years for prices to regain their previous peaks. Buy now and you could easily be in negative equity for a decade.

So why would Hazel want you to buy a house quite as much as she does? Either it is because she is very stupid, has no idea how markets work and has bought into the absurd idea put about by her government over the last decade that home ownership is a good thing in its own right, regardless of the cost to individual or to country; or it is because she is an exceptionally unkind person who is putting the short term interests of the big housebuilders ahead of those of would-be homeowners (remember, the HomeBuy Direct scheme sticks you with the houses they don't want). Either way, don't listen to her. And don't buy a house.Don't listen to Hazel Blears. Don't buy a house By MoneyWeek Editor Merryn Somerset Webb Sep 03, 2008

Imagine an environment in which house prices had fallen 10.5% in a year. An environment in which the risks to the market were considered to be so extreme that even the biggest lenders in it were too frightened of negative equity to lend money to anyone without a 30% deposit. One in which mortgage approvals have fallen 70% since this time last year and in which a mere 21,000 houses are recorded as changing hands in July (that's down from over 100,000 in July 2007). And one in which every single commentator and analyst expects house prices to keep falling for some years to come. An environment a bit like the one the UK housing market finds itself in, perhaps.

Now imagine buying a house in that environment.

You might laugh. But there is someone out there doing just that - Communities Secretary Hazel Blears. I don't mean that she is thinking of buying a house for herself. No, it's you she imagines buying a house - so much so that she's prepared to bribe you into it. Or that's what she told the Today programme this morning, anyway. If a couple in their twenties came to you for advice "would you seriously say 'buy now'?" asked her interviewer incredulously,"even with the market as it is?"

Her answer? Yes, she would. If a couple who couldn't get a commercial loan (i.e. who were considered by the mainstream lending industry to be not well off enough or not financially stable enough to be eligible for one) came to her and asked her advice, she'd say to them "It's your dream… Go for it."

Then, she'd offer them the chance to do just that via the new HomeBuy Direct scheme whereby they'd get to borrow 30% of the price of the new house they want from the government and an appropriate housebuilder, interest-free for five years. The idea, I suppose, is that lenders would then consider them to have a 30% deposit and offer them a loan for the remaining 70%.

Why stamp duty change is little incentive to buy a house right now

There's more. Just in case the HomeBuy Direct concept isn't enough to lure our young couple into the market, the government has announced it is to temporarily lift the stamp duty threshold to £175,000.

Tempted? You shouldn't be. The stamp duty business can be easily dismissed. The maximum possible saving here would be £1,750, small beer when it comes to the total cost of buying a house. What incentive can that possibly offer when prices are falling at 10% a year - and forecast to be down a good 30% from their peak by the time all this is over? Buy a house for £175,000 and there's every chance you'll be down £17,000 by this time next year, regardless of how much stamp duty you do or don't pay. Buy a house for more than that and you don't get anything off your stamp duty anyway.

The HomeBuy Direct scheme has 'gimmick' written all over it

The HomeBuy Direct business can be just as easily dismissed. It comes with very little detail for starters. You get the 30% somehow from the taxpayer and from the housebuilders. Then, despite the fact you couldn't afford to borrow it in the first place (that's why a real bank wouldn't lend it to you), you have to pay it back at some point. Worse, you don't know how or when.

All we know so far is that you will have to pay a 'fee' at the end of the five years. Of how much? And to whom? Who knows? The whole thing has 'gimmick' written all over it. And the timescale doesn't help. Five years may seem like a long time, but in a housing market crash it isn't. Let's not forget that it took six years for the market to hit bottom in the last crash and a long 11 years for prices to regain their previous peaks. Buy now and you could easily be in negative equity for a decade.

So why would Hazel want you to buy a house quite as much as she does? Either it is because she is very stupid, has no idea how markets work and has bought into the absurd idea put about by her government over the last decade that home ownership is a good thing in its own right, regardless of the cost to individual or to country; or it is because she is an exceptionally unkind person who is putting the short term interests of the big housebuilders ahead of those of would-be homeowners (remember, the HomeBuy Direct scheme sticks you with the houses they don't want). Either way, don't listen to her. And don't buy a house

Some analysis you wouldn't get on the BBC

[claret+blue_watch]

From The TimesSeptember 2, 2008

How not to help first-time homebuyers

If you don't own property already, falling prices are the best way to get you on the housing ladderRoss Clark

Imagine - if you are not one of the several million people who falls into this category - that you are a frustrated first-time homebuyer.

Over the past few years you have resisted the temptation to borrow six times your salary to buy a dingy one-bedroomed flat. Neither have you got together with a distant friend, or a stranger plucked off the internet, and bought a share of slightly brighter two-bedroomed flat. You would still like to own a home, but are happy to rent as you bide your time.

You should listen out carefully this morning, because the Prime Minister has a plan to revitalise the housing market - and he says it is for your benefit. According to the advance billing, this will revolve around a large expansion in shared-equity housing, where you buy half of a house and the Government buys the other half.

Mr Brown also wants to try to arrest the slump in house prices by giving councils money to buy up homes under the threat of repossession and to underwrite billions of pounds of mortgage loans. Another plan that was floated earlier in the year would have given buyers of properties worth less than £250,000 a stamp-duty holiday, saving a levy of 1percent on the house's value. Try as you might, you could have a problem working out how any of these measures will benefit you. The problem of unaffordability in the housing market is rapidly being solved without government intervention.

Background

House prices slide as sellers cut by 10%

Extra help for first-time homebuyers in autumn

When it comes to property prices, how full is your glass?

Mortgage hopes hit by Darling

According to the Nationwide Building Society, house prices have fallen by 10.5 per cent in a year. Why then, would you want to invest in half a house now when, if you wait for a year or two, you will be able to afford the whole house?

Moreover, why should you want your taxes used to bail out feckless homeowners who borrowed too much during the boom and, worse still, the greedy banks that lent it to them?

Even the stamp-duty holiday would have been only a temporary reprieve. Who wants to buy now and save 1per cent in tax when house prices possibly still have a further 30 per cent to fall?

None of the measures announced today will genuinely be in the interests of first-time buyers - it just sounds better if they are promoted in that way. In reality, they are a crude attempt to buy the votes of those who already own property and are feeling a little sick at the diminishing value of their investments.

Pour a bit of public money into the housing market, Mr Brown figures, and it might just be possible to re-create the glory days of the 1997-2007 property boom, when voters felt a warm glow from effortless wealth creation and began to believe his propaganda that he had put an end to boom and bust.

The moral hazard of bailing out the housing market is serious enough - by protecting borrowers and lenders from the consequences of their actions, the Government will simply be encouraging even more reckless behaviour in the next housing boom. But perhaps we should not be overly bothered about this, as any attempt to buck the housing market will be doomed to failure - just like the Tory Government's efforts in the early 1990s to buck the currency market under the exchange-rate mechanism.

The Government first tried to underpin the housing market in April when it swapped £50 billion worth of government bonds for mortgage-backed securities. The result? The banks said thanks very much but carried on as they were doing before - tightening lending criteria and raising mortgage rates.

The Bank of England's figures for July show just how seriously mortgage lending has collapsed - and demonstrate just how much the Government would have to spend to re-create the boom. In July 2007, lenders advanced a total of £17.2billion to homebuyers. In July 2008 they advanced only £4.3billion.

If the Government was going to step in and make up the weight of money that has been lost from the property market it would have to double income tax or close the National Health Service.

In any case, who really wants a return to the days of mass council-owned housing? When property prices were rising rapidly the Government did much to encourage the sale of council housing stock - the number of council-owned homes has fallen from 6.1 million in 1997 to 2.5 million today.

It did so for the same reason that the Tories sold council homes in the 1980s and 1990s - home ownership encourages self-reliance and diminishes the number of social ghettos. To force taxpayers to rebuild a stock of council homes now in a falling market is not just perverse; it would also rank alongside Gordon Brown's sale of gold reserves at the bottom of the gold market in 1999 as one of the most crass cases of public investment ever.

There are few problems so bad that a government cannot make them ten times worse by intervening. The housing market is no exception. Much as it will cause pain to those who bought too late into the dream of home ownership, the only sensible policy is to stand back and let the market find its own level.

Even the Murdoch press are highlighting the folly of this

[ianrobo1]

the first option of course the must buy mantra that thatcher started has been sucked inl by all major parties

[bickster]

I think it is clear what is difficult in understanding when the housing market gets to a certain bottom point the buyers start to flood in

happened every time and every time the house prices have stormed bak

Except in this instance the problem isn't completely because the prices are too high

You could reduce prices by 20% over night and the houses still wouldn't sell

No-one is lending any money, which is the majority cause of the probelm

See this move today imo hasn't really cost the govt that much as they weren't getting the stamp duty anyway as the houses weren't selling - Just another PR stunt in my eyes

[snowychap]

I wonder if the right to own one's own house will be enshrined in any proposed bill of rights?

[snowychap]

From the Times article:

...the same reason that the Tories sold council homes in the 1980s and 1990s - home ownership encourages self-reliance and diminishes the number of social ghettos.

It perhaps also encourages/promotes selfishness and diminishes the number of communities.

Why are areas of social housing automatically assumed (by some) to be 'ghettos'?

EDIT: Not to mention that to wrap up that particular piece of asset-stripping as some kind of policy of improving society (from the playbook of the one who believed that there was no longer such a thing as society) is verging on incredibly crass.

[ianrobo1]

the ones sold off certainly were not ghetto's it as the very best of the stock ...

of course the Tories never think of how those who can not afford mortgages will cope and those go into ghetto's to be forgotton

[snowychap]

UK house prices double-digit fall

UK house prices in August were 10.9% lower than the same month a year ago, according to the Halifax.

The lender said that property prices dropped 1.8% in August compared with July, leaving the cost of an average home in the UK at £174,178.

It said market conditions would remain "challenging" in the months ahead, despite government help for buyers.

House prices dropped across the UK, but some surveys have shown the Scottish market to be the most resilient.

[Awol]

Property market to remain stagnant until 2010

The credit crunch could last another 18 months, with the property market to remain stagnant until 2010, a leading British mortgage provider warned today.

Andy Hornby, chief executive of HBOS, said house prices were not likely to rise again until 2010 while lenders waited "to give the confidence back into the system for banks to start lending again".

Hornby - whose bank owns the Halifax and Bank of Scotland - said British banks would continue to suffer major problems in offering loans until they could once again raise significant sums on wholesale financial markets.

The HBOS chief said that US money-market investors would not resume channelling of money to UK banks for mortgage-lending until US house prices started to recover — a process he said was set to last well into 2010.

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"My personal view, for what it's worth, is that it will take 18 months to play through the system," Hornby said.

"It's going to take 18 months before US house prices have started to rise again - which is what's required for banks to have the confidence to start lending again. It will take a long time to play out."

Hornby said the UK economy would continue to see a considerable slowdown in GDP and a continuance in house price deflation, which is stronger than the early 1990s.

"To balance that.., I don't believe unemployment levels are going to get as high as they peaked in the early 1990s. That's going to be the very important underpin in terms of people being able to keep paying mortgages.

However, Hornby said he was confident that the market would recover in the longer term once US house prices started rising again, though he made clear he did not expect growth to return to the high rates seen in recent years.

"I believe it will be growing again, if you are talking about a three to five-year period," he said.

"I do believe markets correct over time and I believe asset-backed securities will have come back into some kind of normal trading environment and therefore wholesale markets will have unblocked.

"However, I don't think the growth in credit will be as strong as we saw in the previous cycle. I think banks' models will be altered for the long term."

Asked if the package of measures unveiled last week by Prime Minister Gordon Brown to assist those affected by the difficulties in the property market would have an impact, Hornby said: "These small initiatives will help the market, but there is no magic bullet.

"Nothing is going to change the core correction mechanisms that always happen in markets as supply and demand balance over time. I don't think individuals' behaviour is going to be massively affected."

Hornby's comments come in the same week that London’s index of leading blue-chip shares, the FTSE 100, suffered a 7% fall in value, its largest since July 2002.

The pound sterling dropped to a two-year low against the dollar, after the Organisation for Economic Cooperation and Development forecast that the UK economy would fall into recession this year.

Chancellor Alistair Darling had earlier said that Britain and the world were facing economic times that “were arguably the worst they’ve been in 60 years”.

[snowychap]

Development agencies to fund housing rescue scheme

Regional development agencies, whose role is to boost investment, business and infrastructure, are being forced to help to fund the Government's recent housing rescue scheme.

The nine agencies will have to divert money from regeneration towards housing rescue even though they do not have any responsibility for housing, The Times has learnt.

They will be made to contribute £300 million over three years towards the programme, which enables councils and housing associations to take stakes in properties where the homeowners get into financial difficulty.

The RDA's annual funding from the Department for Business is £2.2 billion, but it is already being reduced to £2 billion progressively under cuts imposed in the last Comprehensive Spending Review.

A spokesman for North West Development Agency, which chairs the group, said: “We want to support the housing moves, but we don't currently have responsibility for housing so it will mean taking money away from regeneration and other things.”

The RDAs are also concerned that they will not be able to get as much money from Europe because of the new demand. All European funding must be matched pound-for-pound and the less they have available to match, the less they can receive.

Concern among the RDAs has emerged as they may also face new responsibilities to do more for manufacturing under the Government's imminent manufacturing strategy.

....more on link

[Gringo]

Negative equity could hit 1.3m, says study

Up to 1.3m households could be plunged into negative equity if house prices fall by 25-35 per cent, according to a report.

A study by City analysts at Bernstein said fears of negative equity were growing because house prices had fallen 12 per cent this year and significant further falls were expected, according to the index collated by HBOS.

____

Bruno Paulson, analyst at Bernstein, believed prices could fall by up to 35 per cent from their peak in 2007 with the extent of the drop depending on the depth of any 2008-09 recession.

But it's all their own fault for borrowing too much the poor deluded fools.

[ianrobo1]

yes it is ...

and if they don;t panic within a ew years will have loads of equity ...

markets do go down as well as up don't they ?

[Gringo]

Depressed housing market => Depressed economy => Longtime stagflation / recession

[ianrobo1]

thats the free market isn't it ...

any economy based on house prices is on real rocky ground as this thread has shown

[snowychap]

yes it is ...

and if they don;t panic within a ew years will have loads of equity ...

markets do go down as well as up don't they ?

A few years?

How long did the recovery take last time?

[ianrobo1]

about 3/4 years, I brought my house just on the upturn in 1997

and in those years now worth £120k

thats an average of 7k a year ...

hold on, afford the mortgage and should be fine

[Gringo]

What if you had bought the same house in 1991? You'd have paid close to the same price as you did in 97 and so the rate of return would have been 4k per annum and for five years you would have sat in negative equity unable to move house if you wanted to. Oh it's luck to buy in the upturn isn't, poor deluded fools that fail to realise when the upturn ends hey.

[ianrobo1]

but still in the long term you win ...

only speculators suffer in negative equity, as long as mortgage is paid whats the problem for most people ?

and yes it is partly luck but also partly being intelligent enough to knwo the market is at the very top, a lot of experts ere predicting a downturn at some point

[snowychap]

That's 3/4 years from when the market hits the bottom?

I think you might like to return to the graph on page two of this thread where it indicated that it took over ten years for house prices to recover the peak value last time round (it took nearly 7 for it to hit the bottom).

[ianrobo1]

so some peopel lose, are you gusy really suggesting that no one should ever lose ?

housing MARKET

goes down occassionally

if you believe the market shoudl be artifically held so the average price is 8 times larger than average wage, then shoudl we bring all the coal mines back then and support a failing buisness ?

or many other occassions, support the share market ?

etc.

you can not have it both ways,either have amerket and suffer maybe losses or have strict state control over it