OK This has been 'getting my goat' for ages and just in case anyone
else feels the same, here's a thread to vent your feelings & views!!

So then...House prices currently...
1. Are they truly realistic?
2. Do you see a crash and burn possible in the next 12 months?
3. Is it lulling people into a false sense of wealth that really
is just an illusion?

My thoughts are they are not realistic and as controversial as this
may be, I hope some type of re-dress does occur sooner rather than
later - although a crash and burn scenario seems a little harsh!

This can't go on surely?? The last two booms didn't, is it different this time?
I can't see it, sooner or later be it through interest rates or
economic factors (unemployment) it has to change. The longer it goes
on the further people will have to fall financially.

It is causing an illusion of wealth?
Well when I speak to friends who are younger who don't remember
the last crash and haven't experienced
15% interest rates on mortgages (which I have) and they can't imagine
having to tone down their lifestyle to pay higher mortgages, or can't
imagine a time when thier homes wont just automatically go up every year...
YES IT'S CREATING AN ILLUSION!!!!!

Any typos please excuse - the bunny's not 100% today!!

Many re-possessions if I remember rightly going back to the last crash
happened because people paniced and just handed back the keys to whoever
their mortgage lender was. Sometimes this was done AFTER they had ripped
out the new kitchen etc they had put in recently or had removed as much
as possible that could be removed from the property.

The result was a bigger fall in prices on a local level - we were in
Buckinghamshire at the time - as the banks etc were forced to put up
for sale a lot of properties in a bad state at inevitably lower prices.

Why did they just hand back the keys?
Often because they were scared as to how much they were in arrears and how
long they would have to pay it back for. Many were not 'generational'
mortgage payers, by that I mean they were ex-council tennents who had
no family back-up or support on tackling a problem like that, many had
no-one to chat to. If you have come from a family where house purchase
is the norm. you can always find someone who can either sympathise or
had 'been there and done that' AND survived to tell the tale. These people
(many of them) didn't have that back up, so panic set in, fuelled in some
cases of talk of 'millstones' around peoples necks etc from those who hadn't
taken up right to buy and were still paying rent, from what I was told
at the time.

Could that happen again? Yes I think so, there are many more who could
easily panic if things went pear-shaped for them.The self-certified thing
is really new territory as before - I think - it was only the very successful
self-employed who could raise a mortgage, the rest were not able to.

People had nowhere near the level of personal debt then that they have now.
Plus all the buy-to-lets that could flood the market, as second and third
home owners and small-time landlords just sell & may depress prices as
depending on the type of tennents they have had and whether they bother to
tidy up the properties before selling it could automatically lead to
lower asking prices based on condition.

And as we all know, once that starts,it tends to spread like wildfire.

as has been posted before , the main contributary factors to the last crash were mass redundancies leading to high unemployment , which meant people just didnt have the money to pay the mortgage, and also very high interest rates , round about 15 or 16 %. this isnt the case now .i dont expect a crash , just a readjustment because many first time buyers cannot afford the prices being asked. without first time buyers , no one else can move on up.

I'm nervous about it. After the last crash the general wisdom was that property prices would never go back up and the 'advantage' of investing in B and M was over. How short memories are. I agree that it needs something like interest rates but it's like the rest of the financial markets now, it just needs some uncertainty or some worry somewhere and then panic will set in.

We're also doing very nicely (thankyou) on consumer credit fuelled by the back-up of the massive equity profit behind us. If interest rates do go up or we reach the limit of affordability (repayments or house prices) then things will flatten, I don't believe that they'll stay flat, I think they'll then fall.

Also I live in the frozen north (well, Yorkshire) and the small property development thing is now becoming endemic, in my office of 30 about 20% of people now own second houses!! If the market flattens that could be a catalyst for lots of these people selling and a downturn?

Sorry, I don't sound overly cheerful!

There's a split of views on this thread between cheerful optimism
and the un-cheerfully somewhat pessimistic, that's the point of being
able to have your say bignose so don't worry and I doubt tempting fate
is a real problem with this!!

Don't know about prices in Yorks. but I am a little familiar with Nth.Notts.
just down a tad on the map from you,as I did have some time living there.
(Bunnies tend to move about a bit!!!)
It has gone totally silly frankly in that area,in the last couple of years,
as wages are still awful compared with down here in the South or in
large cities like Leeds, yet a home that was 110,000 about 3 years
back is now pushing 185,000 and there is no end in sight.

big nose... you live in yorkshire and then apologise for not sounding overly cheerful. i thought that was considered a virtue in yorkshire????( only joking.)

I'm actually from Nottm so I still have to carry my passport in the peoples republic! They are normally fairly cheery, just all wear flat caps. Like they all wear pin stripe suits south of Watford.... ;)

I agree it has gone silly, we are still a hot spot. One I know of was ?160k ish 3 years ago and is now ?350k, why don't my stocks do that?

I agree with some of the sentiment that it was a corection but we are reaching ht elimits of affordability - even for people trading up - so it must slow??

Want to know where the crazeist place for house price inflation is at the moment.Where people are paying 10 20 30 40 50% above the asking price.Where people are camping out three or four days before a release of houses on new housing developements.Where houses are sold so quickly they have gone before you get the details.I am looking for a property there but i think i will give up.Its INVERNESS.

Wow, but possibly a really welcome boost for the city, as hasn't
it been on the quiet side for a few years after booming before that??
Mind you it is a pretty place - have driven through on the way to the
highlands and felt it looked a decent place to live - beautiful bridge!

Property prices are not going to fall drastically like the late eighties early nineties without a catalyst, ie high unemployment and high interest rates bith of which look unlikely at the moment.
Another factor that people have not mentioned is Europe, not saying we will join but if we do there is only one way house prices will go with sub 2% interest rates.
Major cities are being flooded by developers, hence yields are dropping on buy to let properties as there is too much supply, people geared to the max will struggle to rent and possibly sell.
I have been in property for 17 years and to buy 2nd, third properties 10 years ago you had to have chunky deposits at least 30/40% not now some BTL's are as little as 10% hence the increase in demand and increase in prices.
There are a lot of factors dictating that prices should keep on going up currently( shortage of properties, increasing amount of people living on their own etc) but balanced against this are FTB's not being able to get on the ladder and yields dropping on BTL's.
I live in the Midlands and prices are not rising as much as commentators make out.
Guru

Does anyone feel though there is a form of hidden agenda. While house prices have slowed or in some cases fallen in the south, prices continue to rise in the north,especially the north east.The north east is home to some very high profile companies take Sage,its new headquarter building at Newcastle is well out of this world,and stands very close to the airport.My point is that perhaps over time house prices will become uniform all over the country, to enable workers the benifit of moving anywhere in the country without the barriers of house price differentials becoming a major obsticle. Sage is going to need to recrute a lot of highly skilled people soon to fill its enormous new building if people come here knowing they can return more easily back to the south if things don t work out then people will feel more comfortable making a move north for a job.

I'd guess thats market forces rather than a hidden agenda. Maybe improvements in telecoms play a part - on the basis that it matters less where you live - or where your company is based - than it did say 20 years ago. Thats global too - I just a new pc and being deeply non technical spent about three hours on the phone to help lines. All the calls were taken in India.

A few points if I may.

There are classic bubble signs developing...I have had calls from people asking for mortgages on ludicruous multiples of income, presumably because their friends have told them that they must be mad to be renting, given how much they could have made if they owned property.

Nimbyism... could it be described as protectionism, not just because you don't want somebody building near your property, but also because more houses in the neighbourhood means the value of your own may decrease (as it's scarcity value decreases)!

Good point by brianboru about high employment rates, immigration and nimbyism keeping prices on the up. Another point that some may have missed is that the UK's massive divorce rate is a contributing factor to the requirement for a greater number of properties. As couples split up (in the case of about 40% of marriages), so the requirement for additional properties increases.

Good point by guru about EU interest rates being 2% (and maybe going down). How could the goverment agree to joining the Euro if they are so worried about house prices going through the roof. Rates of 2% in the UK are estimated to put another 25% on house prices.

The sting in the tail could be that we are now so used to low interest rates that if they increase we are in trouble. For example if interest rates go up from 4% to 5%, that is a 20% increase. To somebody borrowed up to the hilt (on a non-fixed rate mortgage),that is painful. There-again you could argue that the consumer now controls interest rates. The MPC may be too scared to raise interest rates too much because consumer spending (which in the UK means by and large the economy) would come to a grinding halt. In other words the MPC are trapped by the high indebtedness of society.

And closer to home it seems quite funny that when I scrutinise my share portfolio daily, and am delighted (or at least happy) when I see by portfolio has increased in value by ?100 in a day. My property over the last 3 months has increased at a rate of ?200 EVERY DAY, and that for simply parking my arse on the sofa!

Cheers to all
gk

For what its worth I think there will be a sharp correction in house prices; my problem is I cannot predict when.

Interest rates may rise to 4.75% by the end of the year, which will be a 36% increase from their low point last year. This will make lenders reluctant to offer high salary multiples, and dodgy self-certification mortgages, as well as reducing the disposable income of existing borrowers.

This is in addition to the record levels of unsecured debt. which will be more difficult to service at higher interest rates. It may tip some BTLs who mortgaged their first house to provide the deposit for their rental house, or existing highly mortgaged buyers into difficulty.

Council tax continues to increase at above inflation, this year at some 6%.

Council tax relief on second or empty homes is being reducing from 50% to 10% from April. Which may put some of the 750,000 empty houses in the UK back on the market.

As house prices have increased, more houses are affected by the higher bands of Stamp Duty, which must deter some transactions.

The government has a budget deficit of 37.5bn this year with amounts only slightly less for the next few years always assuming that GDP growth is as the chancellor forecasts. If growth is less and the economy is nearing capacity now, then the deficits will increase. These deficits need to be addressed with either higher taxes or spending cuts. Either of which would adversely affect the housing market.

Oil prices are rising steadily because of various factors notably economic growth in China and India and the fact that identified reserves are not increasing at the same rate as consumption. This will affect petrol, electricity and gas prices and general inflation sustaining the interest rate hikes.

Yet salaries are only increasing at some 3% which after tax and NI is very close to the inflation rate. Inflation is low and appears reasonably stable, this will mean that existing mortgage debt is not being eroded by inflation, as has been the case in previous decades.

This leads me to believe that despite the demographic influences the current rate of price inflation is unsustainable and that existing levels may even be unsustainable going forward.

House buyers are rather like the Taliban. You think they are firmly entrenched and can resist any set back, but if you keep bombing them with extra costs you will eventually reach a tipping point and suddenly one day they wont be there.

Once they disappear prices will dip, everyone will hold off waiting for further price decreases, chains will increase in length, negative gazumping or price renegotiations will appear and heavily mortgaged BTL operators with poor yields will scramble to get out.

Prices must then fall.


If you are mortgaged up to the eyeballs don?t worry, I?m probably completely wrong and in any event Brown/Blair will make certain there is no crash this side of an election.

This thread has produced some brilliant responses, thanks to all
who have contributed so far, the 'vote' seems still fairly spread
on whether the correction will or will not come.

One thing that does occur to me is this:
Considering the responses on this thread, I seriously wonder if,
had the 'man/woman in the street' been running the political/financial
show on interest rates, mortgage criteria, release of land for
building etc, would 'we' ordinary folk have allowed the whole house
price/debt/mortgage situation to get to where it is now?

"House prices rose strongly again in March and are now expected to gain 15 percent rather than nine percent in 2004, the Nationwide building society says, adding pressure on the Bank of England to raise interest rates"

I find it difficult to believe but one must keep an open mind.

On the "release of land for building etc" - councils are in a no win situation - it costs them more to service a new home and its occupants than they recieve in tax or government grants so they're not too keen to pass planning. I also get the feeling that when they do have to allow building they prefer big expensive homes to a larger number of smaller homes built in the same space.

What we need is a good house price crash. Not some little pullback like we had in the early 90's, but a good 80% collapse like Japan has had over the last decade. Once that happens it could be a good time to buy to let. Prolly won't happen this year, but once GeorgeW has had his election up go US interest rates to protect the dollar and then.......

What we need is a good house price crash

And all the people that get hurt? Doesn't bother you?

Zoltar

So what if the dollar strengthens ? Granted that may mean sterling falls (although the two currencies to a certain extent still move together). That would be great news for exporters. The MPC do not target sterlings value in setting interest rates, inflation is the main focus. They may take notice of it (like they do of house prices, wage increases, consumer spending etc) but it is only one factor of many. It does not necessarily mean that interest rates will rise in the UK.

Infact if higher interest rates in the US choke off economic recovery there, the world economy will slow and this could lead in turn to falls in world (and UK interest rates). I think your point is a bit of a red herring!!

brianbro,

If you were a first time buyer like me and my wife I think you'd be wishing for a crash.

My wife is a secondary school teacher and I'm a design engineer for a consultancy. We both earn average salaries. We are currently renting a semi house approx 12 miles outside York. The house we are in are selling for 155,000. They were 70,000 3 years ago. Say no more! If we paid that amount we'd be living to pay the mortgage.

It's got to the stage now where based on sensible multiples of salary you'd need to be a company director just to buy a terrace house. Amatuer buy to lets have fuelled much of the market at these prices. A friend of mine as huge debt 250,000 (he earns around 35,000) on rental property. If rates rise too much he's shagged. It's a precarious situation I feel.

Rate rise in April next...maybe if they raised it by 1% it might
bring a bit of sanity back, create a bit of a reverse in prices
but not enough to create a complete crash - it sounds horrible
I know but there's a lot of people out there who need shock
tactics before they will stop accruing more and more debt.