Tableland

Nothing if you are protected, but many people who bought in the last two years are not in a good position right now, expecially if they borrowed 100% or more on temporary low "teaser" rates. As you correctly point out, prices in the UK have gone up 180% in the last few (8??) years - what's 30% off?

Tableland

Vash

16% increase in a year is worse then ridiculous - it's dangerous. To put it in perspective, house prices have crashed about 8% or 10% (I'm reading conflicting reports) in the last year, and the whole country is wetting its pants.

If it went down as fast as it went up, say, 16%, there would be a major crash. Stupid rises like this are of course a major contributor to housing crashes.

northerner

Got to love the armchair experts

Centurion

Why are the prices of armchairs going to rise ? Better get myself down to IKEA

Tableland

I agree. Or you could ask Morgan Stanley and Merrill Lynch and the IMF as they all say the same thing. I recall "armchair experts"predicting a 10% drop this time last year and they were roundly mocked.

Now 10% has come off. House prices are toast, and this is because of pretty simple economic factors that nearly everyone can understand, except those in denial or the greedy.

asprilla

Well, good luck waiting for that 30% to fall off house prices....

DownUnderPaddy

I feel the same way. If our house dropped 30% on its current valuation right now, it would be at exactly the same price as when we bought it just over 3 years ago.

but.....our outstanding home loan balance today is now 100k less than it was 3 years ago, so even with a 30% drop today our value to debt ratio would still be at 1.3:1

In actual fact, for our value to debt ratio to drop right down to 1:1 (where our house value matched our outstanding loan balance), we would need to see a 57% drop in our current house price.

I can live with the odds of that happening !!

A no brainer for us....even with that enormous correction in pricing happening, our mortgage is getting smaller by the month and in hindsight it was the best decision we ever made.

In the meantime we watch rental prices go up, and up and up.....

If, on the other hand, we had bought our house here in Melbourne just 12 months ago, at the price it was valued at then, we would be very nervous right now of facing possible negative equity if there was such a massive price correction, but thankfully that is not the case.
This would be the exact same situation for someone in the UK I would think ?

northerner

But 10% hasn't come off. And for every 'expert' which says everything's going to drop by 30%, there's another who says things will remain stable and then slowly grow - so who knows?! Certainly not me and, dare I say it, certainly not you either.

Either way it doesn't really bother me - houses are a long term investment and will always go up and down in value.

Cheers,

Graham

Amazulu

Exactly. Nobody knows what's going to happen - be it an 'expert' with an MBA from Harvard business school, the OECD or someone on British Expats. I love to read about and study economics, and one thing I have learnt is that most 'experts' get it wrong, but only the good ones admit it when they are.

Tableland

Well it's already come off Californian house prices and property there was over-valued to a similar percentage as Australian stock. People waiting there didn't need luck and neither will people waiting in Australia. Several leading financial institutions have forecast a major drop of between 25% - 30% off these prices, but I guess you know better.

I'll enjoy catching up with you in 2010 to talk about who was right.

Tableland

Over the last 12 months, 10% has come off UK prices as a matter of recorded fact. Meanwhile, Australia (which is several months behind the UK in the credit crunch) is starting to show the same symptoms the UK had just before the slide.

Its arse just might be saved by falling oil prices, but this is unlikely for two reasons: 1) the oil increase only played one part out of several in the house market slide, and 2) the credit crunch has already instilled extreme caution in buyers. Frankly, you would have to be an absolute moron to borrow seven times your salary to buy a house in this uncertain market. And because only a small percentage of the population are absolute morons, the majority of people are now simply sitting with their money in the bank and waiting for prices to come down.

This in itself will cause a crash, or in other words fear of a crash causes a crash.

I mkust say it is fascinating actually living now and taking all this denial in because I have often wondered how people got caught out in the crashes of the 1830s, or 1870s, or 1890s, or 1930s, or 1970s, or 1990s, but now I can see how - they think it simply cannot happen "here" and cannot happen "now".

The arrogance of people to presume house prices can never drop again in all history is an amazing spectacle. Just look at the above decades - do people seriously think the 1990s was the last time houses will ever crash? They are currently more over-valued in real terms than the 1820s, 1860s, 1880s, 1920s, 1960s , and 1980s.

You do the maths.

I add in edit Graham that my post is not specifically aimed at you - your post just gave me reason to think about all this generally, so I'm really referring to anyone running round saying "it can never happen here" to anyone who will listen, when I suspect what they are thinking is "I don't want it to happen to now and I might be able to convince myself it will not happen if I say it out loud enough" etc.

Amazulu

What about the other 'leading financial institutions' that have not forecast a 'major drop', rather a soft landing?

Nothing is certain.

Tableland

I agree broadly that nothing is certain in this market, and despite what my posts might look like, I am skeptical of "financial insitutions". My strong feeling that the market is coming down is based more on a reading of market history and the general attitude of buyers right now plus the fact they cannot get the (ridiculous) amount of money out of banks any more to "buy" the properties.

Have you seen a graph of average house prices? It is so far above trend a correction is inevitable. Pretty soon they're going to have make A4 paper bigger to fit it in. Too much money being lent to too many people at too low an interest rate for too long.

Amazulu

I partly agree with you - there has been too much excess. On the other hand, by the very nature of their business, banks are greedy. Somewhere down the track - albeit in a few years time - banks are going to start taking risks again. It probably won't be at the same level as the past few years, but it will be back.

The very nature of modern capitalism, the desire to make more and more money, will ensure this happens.

DrWho

Not so sure... I thought after the debacle of the early 90's that it could never happen again but here we are, and it's just as bad as far as the irresponsible lending goes... people have some short memories...