House price crash

[bimble]

You cant "lose money" on a house can you. People say this but people are wrong. If your house is worth 20% less so is everything else usually.

How do you mean, because inflation?

People are definitely going to be selling houses for less than they bought them for and that’s (imo) going to feel so strange that it’ll send hard to predict shockwaves through the system we’ve grown used to.

 

[existentialist]

This is why I'm not convinced of a big crash. There are people wanting to buy.

But people get very wary about buying in a falling market, especially when the notion of Negative Equity rears its head. A fall of 25%-40% could - as it did in 1991 - create something of a stampede out of the property market, which pushes prices lower. I'd argue that we're more vulnerable to this now, with more property being held by BTL landlords, rather than people owning the roof over their own heads.

 

[pbsmooth]

oh good, thought i was going to do a big bump but here you all are already.

I reckon with my crystal ball - that there'll be about a 30-40% drop in house prices by sometime next year, I think its happening now, but doesn't show up fully yet because understandably will take a while to filter through especially into the brains of sellers, that their house is 'worth' much less than they bought it for, that's what the delay is.

So (imo) a truly massive 'crash' incoming, far more than just a correction to the last couple of years of madness.

If that does come to pass what will the effects of it be for the, you know, country in general that's what I cant figure out.

30/40% drop?! No chance. Zero.

 

[Riklet]

How do you mean, because inflation?

You own a house right? And lets assume you probs have a mortgage and savings. i dont mean to nose or interrogate you here, so dont answer!

If your house is worth 20% less 2024 and your mortage is £400 more a month what difference will it have made?

Youll probably just still have your house and be a bit poorer. But if you cant afford it and you sell easily and you probs will sell cos you live in some nice country area where rich people want to live, not some shit part of Wakefield or something... then you'll still get enough money to move. So yes you got 20% less perhaps but your onward property is worth less too and meanwhile due to the economic crisis youve been spending less and paying off your mortgage and maybe even saving a bit just in case.

So like I said before. You will probs either own your house or buy another place. the people buying yours will almost certainly be fairly well off in order to buy. And the number of nice houses available means that despite a falling market there will always be decent demand.

So how have you "lost" money in said hypothetical situation? The people losing are the people being fleeced for rent who cant afford to buy ever at all.

 

[existentialist]

Probably because we’ve built so fucking little

This. And at why that might be (clue: Tory support - the Red Wall - is significantly predicated on otherwise-Labour voters who bought into the Tory dream of ever-increasing property values, with obvious consequences)

 

[bimble]

30/40% drop?! No chance. Zero.

well, ok, let’s see. not betting my house on it obvs.

 

[pbsmooth]

Interesting read

How house prices made Britain an inheritocracy

The rise of the mortgage-free classes is creating a new generation of winners and losers, as parents who have the means pass on their wealth earlier

www.thetimes.co.uk

 

[Artaxerxes]

This. And at why that might be (clue: Tory support - the Red Wall - is significantly predicated on otherwise-Labour voters who bought into the Tory dream of ever-increasing property values, with obvious consequences)

It's a whole mess of issues, starting with Thatcher and then Blair. By the time Cameron turned up the course was set. The can has been kicked for so long that it's starting to actually break the United Kingdom and enforce inequality.

Planning laws are also a big part alongside NIMBYism and a distrust that anything built will genuinely benefit the local community

 

[existentialist]

idk i just cant get away from the feeling that cheaper houses and higher rents sound like the perfect conditions for landlords.

There's an upper limit on what people can/will pay for rent. As ever, out there somewhere is a tipping point.

 

[bimble]

You own a house right? And lets assume you probs have a mortgage and savings. i dont mean to nose or interrogate you here, so dont answer!

If your house is worth 20% less 2024 and your mortage is £400 more a month what difference will it have made?

Youll probably just still have your house and be a bit poorer. But if you cant afford it and you sell easily and you probs will sell cos you live in some nice country area where rich people want to live, not some shit part of Wakefield or something... then you'll still get enough money to move. So yes you got 20% less perhaps but your onward property is worth less too and meanwhile due to the economic crisis youve been spending less and paying off your mortgage and maybe even saving a bit just in case.

So like I said before. You will probs either own your house or buy another place. the people buying yours will almost certainly be fairly well off in order to buy. And the number of nice houses available means that despite a falling market there will always be decent demand.

So how have you "lost" money in said hypothetical situation? The people losing are the people being fleeced for rent who cant afford to buy ever at all.

It’s not about people being made homeless though. If you have a house now you will probably still have a house when the music stops I agree, but either a smaller one if you move or a worth less money one if you stay put. Doesn’t change anything about my prediction of massive price crash though?

 

[pbsmooth]

 

[Riklet]

It’s not about people being made homeless though. If you have a house you will still have a house I agree. Doesn’t change anything about my prediction of massive price crash though.

But what does a massive price crash actually mean? In terms of the economic conditions... I just don't see it.

And if you have a house and just one in the end its not really about making money just about somewhere to live like you say.

In Canada they have banned property sales to non resident foreigners and they are debating this in Portugal. This would be an excellent place to start for the UK. Then we could move on to taxing and then confiscating empty property.

 

[bimble]

View attachment 363988

That’s so stark. So a 40% drop would just take us back to the mid 2000s or so, and bring us more in line with some of those less crazy countries.

 

[Raheem]

View attachment 363988

Wow, so in 2016 an average house in Germany was worth less in real terms than in 1970.

 

[8ball]

Wow, so in 2016 an average house in Germany was worth less in real terms than in 1970.

Kicking myself for not buying now.

 

[bimble]

Home ownership has been discouraged in Germany, rental rights strengthened, kind of the opposite policy priorities to here.

Reasons for the low homeownership rate in Germany

Germany has the second lowest share of homeowners of all OECD countries. This is driven by housing policies that produce incentives to rent. New studies show that alternative policies could increase the homeownership rate and reduce wealth inequality.

www.bundesbank.de

 

[Artaxerxes]

That’s so stark. So a 40% drop would just take us back to the mid 2000s or so, and bring us more in line with some of those less crazy countries.

Yes prices and demand (pent up demand) are so high that we've years of "the house prices have slumped" stories when they've really just not grown at the usual 5% a month that it'll take a massive epoch ending crash to make them affordable again.

I can see houses drooping 10-20% if I'm feeling optimistic but that's still to much and the problem with any crash is its those on the end of it (like me) or those who aee already struggling that will suffer. The majority of those with houses will be fine, and many will prosper.

Especially because decades of overheated rent prices have destroyed the ability of most people under 40 to save money. All this combined with the impact of COVID and the energy crisis will mean renters and first time buyers are going to be hit hard.

 

[8ball]

Yes prices and demand (pent up demand) are so high that we've years of "the house prices have slumped" stories when they've really just not grown at the usual 5% a month that it'll take a massive epoch ending crash to make them affordable again.

I can see houses drooping 10-20% if I'm feeling optimistic but that's still to much and the problem with any crash is its those on the end of it (like me) or those who aee already struggling that will suffer. The majority of those with houses will be fine, and many will prosper.

Especially because decades of overheated rent prices have destroyed the ability of most people under 40 to save money. All this combined with the impact of COVID and the energy crisis will mean renters and first time buyers are going to be hit hard.

If your house drops in value won't you just keep paying the mortgage until things bounce back?

 

[not-bono-ever]

Germany has structural differences that mitigate house price swings

 

[muscovyduck]

The thing driving house prices up over the last 15 years or so, which is BTLs, is disappearing. But that doesn't necessarily mean there's now a force driving the prices back down

 

[Riklet]

Prices would have to drop like 40% to take most property outside of London even back to 2011 levels.

that's not going to happen.

 

[Artaxerxes]

If your house drops in value won't you just keep paying the mortgage until things bounce back?

Probably but it means I'll have lost some equity and the risk I can't sell it for the same price I bought it. Which is fine to an extent because I just needed a place to live and I couldn't deal with the rent struggle - similar places to this are as much in rent as mortgage - but it will still ultimately be a kick I don't need.

The thing driving house prices up over the last 15 years or so, which is BTLs, is disappearing. But that doesn't necessarily mean there's now a force driving the prices back down

The thing driving prices up is we haven't built enough fucking houses for thirty years and densifying cities is a dirty word combined with the captilist trifecta of airbnb, BTL and victimising social housing

 

[bimble]

Prices would have to drop like 40% to take most property outside of London even back to 2011 levels.

that's not going to happen.

Happened in Ireland, a short while back. 35% crash, briefly over 50% in Dublin ..

 

[8ball]

Happened in Ireland, a short while back. 35% crash, briefly over 50% in Dublin ..

Whoah. 50%!!

 

[bimble]

nerding out, but it’s really interesting isn’t it this stuff.

Why Ireland's housing bubble burst - Works in Progress

Ireland’s housing bubble and bust has become emblematic of what not to do in housing debates around the world. The only problem is nobody agrees what actually went wrong.

worksinprogress.co

 

[kabbes]

To get to a proper crash (like, over 20%), you have to have people being forced to sell. Otherwise, what you get instead is all the volume disappearing from the market (ie no sellers and no buyers) rather than a crash.

I can see those forced sales in the regions where people paid silly money for second homes. The cost of funding those mortgages and council tax and energy bills must now be hurting badly. I don’t see it in the big urban regions, though, unless other energy prices and food carry on rising at 2022 rates, which is not the current prediction.

Even the changes in BTL won’t force loss-making sales. Landlords might want to sell but if they can’t get their price, they’ll prefer to pay the extra costs and make it up eventually in rent, not take a bath on the sale.

 

[bimble]

To get to a proper crash (like, over 20%), you have to have people being forced to sell. Otherwise, what you get instead is all the volume disappearing from the market (ie no sellers and no buyers) rather than a crash.

I can see those forced sales in the regions where people paid silly money for second homes. The cost of finding those mortgages and council tax and energy bills must now be hurting badly. I don’t see it in the big urban regions, though, unless other energy prices and food carry on rising at 2022 rates, which is not the current prediction.

Even the changes in BTL won’t force loss-making sales. Landlords might want to sell but if they can’t get their price, they’ll prefer to pay the extra costs and make it up eventually in rent, not take a bath on the sale.

There's lots of reasons people would be forced to sell though aren't there?
Like having to move, for instance because no longer able to WFH, and thats before you even look at mortgage default rates, which the FCA says they are very worried about..

More than 750,000 UK households at risk of mortgage default, says reg…

archived 11 Jan 2023 16:55:28 UTC

archive.ph

 

[bimble]

Mostly i find it weird that anyone can look at this and think it looks normal and will stay more or less the same.

View attachment 363988

ETA the only line thats close to us in that chart is Canada where house prices are crashing, having dropped almost 20% so far over the past year.

 

[kabbes]

Mostly i find it weird that anyone can look at this and think it looks normal and will stay more or less the same.

That graph is indexed from 1970, which is why it looks so weird. Most of the divergence happens pre-2000 though. If you redrew it only showing the last 25 years, the UK wouldn’t look dissimilar to the other countries.

For example, this is the UK compared with some other countries during the decade to 2021:


This is 2007-2016:

There's lots of reasons people would be forced to sell though aren't there?
Like having to move, for instance because no longer able to WFH, and thats before you even look at mortgage default rates, which the FCA says they are very worried about..

More than 750,000 UK households at risk of mortgage default, says reg…

archived 11 Jan 2023 16:55:28 UTC

archive.ph

Yes, there are reasons people can be forced to sell. Even post-2008, though, which was the last big housing shock, the drop wasn’t as massive as predicted because the numbers forced to sell weren’t as large as expected. Right now is likely to be about peak unaffordability for mortgages — energy prices are coming down, mortgage rates are peaking, wages are going up (in absolute terms, if not real terms) and inflation is heading down. If people can afford their mortgage now, most of them are likely to be able to continue to afford it (unless another geopolitical shock comes along, of course).

And people just don’t move if they can’t get the price they want. They commute, they make do. That’s exactly one of the reasons why high house prices are so bad for everyone — they prevent literal social mobility.

 

[bimble]

cripes, look at Turkey: https://www.globalpropertyguide.com/Europe/price-change-10-years
oh, its just inflation isn't it.