Don

The Aus & NZ forum is full of anecdotes about the market being dead and would-be sellers finding it very tough to even get viewings, then when the offers come in they are well below asking.

Migrants selling up are a pretty good source of info as to what is really happening out there.

Badge

Im trying to keep up with this and I havent read it recently but Mike is saying I think it WONT drop 40pc.

BM

MikeStanton

Or a 60% chance there won't be a price crash

MikeStanton

I wasn't asking you to predict or speculate. I asked for an example of similar market conditions - high housing prices, low interest rates and good economy - that have resulted in a crash.

I'm still waiting for an example.

MikeStanton

I won't waste my time trying to make you laugh. However, I suggest you revisit basic economics. Everyone knows the housing market is cyclical. What you have failed to show is that a set of conditions very similar to the current environment has resulted in a housing crash. Hence, your views are purely speculative.

The time element of a crash is also important. 'Crash' is used when people can't exit a market fast enough without suffering a large drop in value (say, at least 20%). The bursting share bubbles of '87 and '00-'01 are good examples.

Although I totally disagree with your estimated 25% drop in 2 years : let's amuse ourselves by saying it is true. What sensible investor would hang around for 2 years as their investment reduces in value by 25% over 2 years? 2 years isn't a 'crash' period, it's a 'collision in slow motion'. Plenty of time to move out of property and into assets with higher returns - making a large part of the 'crash' irrelevant to the ex-property owner.

MikeStanton

A few posters on this site does not constitute a representative sample. For example, what of the people that have not posted on this site?

Don

[QUOTE=MikeStantonAlthough I totally disagree with your estimated 25% drop in 2 years : let's amuse ourselves by saying it is true. What sensible investor would hang around for 2 years as their investment reduces in value by 25% over 2 years? 2 years isn't a 'crash' period, it's a 'collision in slow motion'. Plenty of time to move out of property and into assets with higher returns - making a large part of the 'crash' irrelevant to the ex-property owner.[/QUOTE]
It takes months to shift out tenants, months to come to terms with a lower value than anticipated for your asset, in which time the mkt has gone down again and start anew, bit of a vicious circle here.

For the people who live in their own house: takes a wee bit of big balls chutzpah to sell at mkt price and move into rented - not many do.

Quinkana

Have a look at this report:
IMF: Chapter II: When Bubbles Burst

There's a fair bit of meat to read through but it does identify housing booms and busts:

"To qualify as a bust, a housing price contraction had to exceed 14 percent, compared with 37 percent for equities. Housing price busts were slightly less frequent than equity price crashes. In 14 countries with real residential housing prices between 1970:Q1 and 2002:Q3, 20 housing price crashes were recorded (compared with 25 equity price crashes). This corresponds to roughly one bust a country every 20 years."

I still say that the 1980's is a good enough example - during the boom economic conditions were not too rotten (of course else why a boom), at least in the relative terms of the times.

A significant difference compared to today is lower official inflation but that could change.

So did you find an example of a housing boom during economic conditions similar to today which did not subsequently crash?

Don

I see from Q's IMF report that the authoritative definition of a house price crash or bust is about 14-30% decline over about 4 years.

dunroving

Seems that you don't need to be an economist to realize that after such a ridiculous rise in house values, and interest rates being at such historically low levels, there's a high likelihood that prices/values will drop either in real terms, or relative terms (i.e., not rise in line with inflation).

The big money question is when it will happen. People have been predicting this since I was in the U.K. in 2000. Since then, the doomsayers have become more and more likely to be correct - but if you'd listened to them back in 2000, you'd have lost out on over a 100% rise in prices in some areas.

Badge

Like Dugongs I have been pessimistic about property since 2000 , in fact I was the only person I ever met in my modest circle of acquantainces who saw it coming or ever talked about, or was prepared to talk about it....but then, generally, the people I asked who then denied a future crash were also home owners...

incidentally, I am interested in what determines the length of a crash , and the final house price ...is it soley income ratios..

also what effect did the ERM debacle cause in 1992...did this lengthen the misery which played out to c1996..question is this an indicator we are now happily without...

apologies for punctuation, i am having problems with this South American keyboard..

Badge

jerry brewer

Hi
As a property owner a so called crash if it happens it will still mean i get more than i paid for my house,
And if it does crash I will pay less fees when i next move, to the estate agent to sell my house , less stamp duty , etc.

If it is the same analysists and accountant types that predict how engineering firms are run nowadays, ( I wouldn't trust them to do a weather forcast ) Don't hold your breath.
It appears some firms can make money by predicting a crash / worrying event , Then everyone wants to pay for an analysis of what might may happen,
good work if you can get it ..

there is always a light at the end of a tunnel somewhere.

back in 1974 starter homes cost about 14K, hell of a way it would have to crash for a lot of people.
anyway work out in real terms how much rent would have paid , in relation to mortage payments,
this 'saved' figure (£'s) would give a big crash cushion, before you were out of pocket on paper.

Now endowment mortgages that is a real worry !!!!!!!! but another subject.

Cheers
Jerry

arnie2oz

The annual increase is still projected to be around 13% for 2004 - it's just the rate of increase that has decreased.

http://news.ft.com/cms/s/1d089640-fb...00e2511c8.html

However, that doesn't explain why we've only had one viewing in 8 weeks having dropped the price 5% from what was considered to be an easily achievable price!!! :scared:

So WHO knows what's really going on??????

ladylisa

back in 1974 starter homes cost about 14K, hell of a way it would have to crash for a lot of people.
anyway work out in real terms how much rent would have paid , in relation to mortage payments,
this 'saved' figure (£'s) would give a big crash cushion, before you were out of pocket on paper.



You are so right, why is everyone getting their knickers in a twist. The average mortgage is 25 years, in that time any property will rise in value anyway. My father in law who is now 72 bought his first house for £4500. and sold his last house for £600,000, he only owned 3 houses all his life. Thats the reality, everyone should stop looking at short term issues. As far as I can see it if you can afford your monthly mortgage payment then your ok.

I have a house in England which has huge equity, however even if the pesimists tell me that the property ladder has broken, then so what I can pay my mortgage and I plan on keeping my house anyway. The only worry if for people that cannot afford their monthly mortgage payment once the interest rate has increased.

Don

- Because buying or selling at a 'good' or 'bad' point in the cycle has huge implications for your personal wealth.

Admittedly, if you are going to live in the UK in your own house/s for (say) 40+ years, selling and buying when you trade up, simultaneously in similar area, the cycle is of much less relevance.

But a) buying/ selling as an investment, b) choosing to sell to rent at a high point then buying back in at a low point, c) going to live abroad, d) coming back to live in UK, are 4 obvious situations where your financial situation and how much house you can afford will be significantly impacted by what's happening in the housing cycle.