Has the fall in house prices been a good or bad thing

[Power Lunch Club]

Right now it is universally agreed that the economy is 'Donald Ducked' and contracting at an alarming rate. The money just ain't moving.

The day to day ecomony of such things as food, electrictiy, gas and fuel are all falling, giving us cheaper goods in the shops.

However the price of our properties has fallen quite dramatically in the last year. The banks have acknowledged that many of our assets were over inflated in terms of what they were being valued at and now that the house market values have fallen...is this a correction that was needed or a real crash? Or has the prices fallen to far for people to feel that they now have something of value to fall back on?

 

[Brian McIntosh]

I sold my house for less than (what I thought) it was worth. The upside is that the one I've bought I got for less than the asking price. Saying that, house prices in Aberdeen don't seem to be being hit by the "credit crunch". I think that prices are falling back to where they should be, trouble is, some first time buyers can't get mortgages to buy the bloody things and it's these people that keep the market moving.

 

[Scottish Business Owner]

This correction to property prices has been coming for a few years and as Alison rightly pointed out too many people have been using them as a means to fund a lifestyle and an unsustainable one at that.

I think the south west will suffer the most but it will happen all over to some degree or another. I think it's a good thing, property prices simply couldn't continue to rise the way they were. It's a big reason why the banks are the way they are just now, lending on assets that weren't worth what they thought they were.

 

[Former Member 1]

The 'correction' in house prices is both necessary and inevitable.

Think about it in terms of houses as a product and how they meet the market needs....

What price the average 3 bedroom semi? £180,000? £200,000? And what's the reality of the average family's income? i.e. the people who 'fit' into that 3 bedroom semi?

Were I lecturing full time I'd be on about £35K. On that sort of wage over 25 years you can only sensibly borrow about 120-150K .... Some way short of the price of the 'average' family home. Even as a Head of Department on close to £50K you're talking about being able to afford £175K...

Now; those figures don't of course factor in things like people holding equity in property before the reach the 'family home' stage. And of course I've (quite deliberately) ignored dual incomes. But bear in mind the sort of job I've been talking about. Graduate positions with high levels of responsibility. Essentially management positions....

But that's NOT representative of the average worker. The average, as in the most often encountered worker drives a bus, delivers post, sells newspapers, sweeps streets, fixes washing machines does a million and one random things. As someone who spends about a third of his working week teaching I can tell you it sticks in my craw when I hear teachers whinging about how badly paid they are. Same with nurses and various others like the Police. By comparison with most people those of us who enjoy professional status and relatively secure well-paid jobs have it good. VERy good.

What's life like for a Postman on less than £20K a year? Maybe with a wife that can bring another £5K or £6K? Or my friend who works every shift he can to make £25K or so driving lorries. His wife can't work because they have a disabled baby. What of the guy who collects the tickets on the train? Or serves the coffee in the staff canteen?

There's something VERY wrong when you need to be a Policeman or a Nurse or a teacher to afford (or rather struggle to afford) a half-decent roof over your head. More so when you consider the personal risk, sacrifice and effort that achieving such a position entails. The pips are squeaking now because the middle-classes have been disenfranchised. And yet the situation has been brewing for a good decade or more. The rental market for instance was only ever so buoyant because of the lack of affordable housing at the REAL lower end of the market.

Painful enough now that young graduates and professionals can't find affordable housing. But that's the reality that's faced people further down the pecking order for half a generation. Indeed that and the asset-stripping of social housing are a huge part of what fuelled the boom in rent-to-buy which in turned helped inflate the property market that in it's turn fuelled the manic lending against thin air which has ultimately lead to the collapse... Not to mention the social consequences......

The 'greater fool' model is what we've seen at work for the past 30 years. The very same 'greater fool' model that saw lending of up to 100% of the face value on shares just before the great depression of the 1930's. The greater fool trading on price rather than worth.

In terms of actual worth (as opposed to price) that 'average semi' should be priced at £90K-£100K. Roughly about three times what the ordinary guy in the street is bringing in. That or there will need to be, in effect, more money printed. A massive rise in wages across the board coupled to a freezing of property prices....

The house I'm sitting in now isn't worth the money. I bought it for buttons (about £20K) five years ago as an investment. It's worth in reality about £40K. The last valuation was £120K! And the place, quite frankly, is a dive. I'm waiting for prices to implode at which point I'll buy somewhere else and just stick this on the rental market. But in 20 years time when I come to sell it I really DON'T expect the price ticket to be much more than the current one.... and that's fine...

 

[Adventurelife]

They need to fall to get things back to some sort of balance.

Also we need to get away from thinking a house is an investment it is not it is a liability. A second house that is rented is an investment but the one you live in is a liability even when you have paid the mortgage off.

I hope it does get back to the average house costing around 3 times the average salary otherwise their is not much hope for the kids unless all of us who pass down huge chunks of cash to the kids to enable them to buy.

Experience of having property since I was 20 when I bought my first house and having seen the highs and lows of the 80's to today both in the SE of England and Scotland has re-enforced my view is that you should concentrate on what you do as a living to make money and not worry about house prices.

 

[Power Lunch Club]

This is also scary at the moment...for people trying to sell....just another sign of the grinding noises from the ecomony....taking away the fear will be the only oil we need to get it going.

One in five properties in some areas of the UK has been on the market for the whole of 2008, data suggests.

BBC NEWS | Business | 'Stagnation' hits property market

 

[Former Member 1]

This is also scary at the moment...for people trying to sell....just another sign of the grinding noises from the ecomony....taking away the fear will be the only oil we need to get it going.

One in five properties in some areas of the UK has been on the market for the whole of 2008, data suggests.

BBC NEWS | Business | 'Stagnation' hits property market

But that's usually because they're unaffordable. You can only really risk paying over the odds for a house if it's the last house you'll ever buy and all you'll ever do with it is pay it off and live in it. There's one near me that came on last year at offers over £280K. A ridiculous price for what it is.

3 bedroom detached house for sale in Holmlea Station Road Kirknewton, EH27 8DG, EH27

It sat with a sold sign on it for ages; then went back on the market as obviously the people who made the offer on it can't have completed...

Now this, in realistically affordable terms, is around a £200K-220K house... It's a house for a middle manager. NOT one for someone earning 80K a year which is what you'd need to be earning to afford it.... And there's more to affording something than just being able, by fair means or fowl, to lay your hands on the money for it....

It was LUNACY at £280K .....At £315K!

There are other houses in this village that look like rejects from the Brookside set and are 'valued' at over £600K.... Madness; sheer madness!

Now; frankly, if you've been fool enough to pay over the odds for one of these houses and are likely to be left trapped with negative equity then that is the inevitable result paying more than the damned thing's worth. NOT a problem if you're settled and living in the place. But if you hoped to use it to 'leapfrog' you forward to the next over-priced pile then hell mend you.

You see, at the heart of this, is EXACTLY the same mechanism that lead to the Wall Street Crash. People are playing games with nominal values that don't reflect the production of anything. In short these values don't reflect anything that has been 'earned' or created or has any factual worth.

What would be the effect if, tomorrow, the Bank of England were to simply double the number of notes in circulation? Would that make the country richer? Because that's pretty much what has happened with the housing market. People have been 'printing money' into the value of their house. Trouble is the VALUE of a house is in its function, and the function hasn't changed. Therefore there is no 'worth' in the 'value' of a house....

What's worse is that the nominal value has reached the point where it's unsupportable. My best guess is that wages would need to rise by about 30% while house prices remain frozen for an equilibrium to be achieved. And that's discounting the overall inflationary effect that increase in wages would have.

'Something; has to give.... For sure the money supply needs to be freed up. But two things have to happen there. For one there needs to be a CAP on interest rates and secondly the banks should only lend against a realistic valuation of property based on realistic worth rather than a paper worth born of a market distorted by uncontrolled lending. Now; I'm, not suggesting that lending should be either expensive or hard to come by.. I think it should be freely available; even to the extent where couples are still routinely lent up to five times the main salary. But it would do no harm is that lending were capped to say nominal 1999 valuations for the given type and location of property, perhaps with a link to the mean industrial wage as a rolling multiplier.

....Of course that would take all the fun and bloated bonuses out of it for the city wizz kids...

 

[tichaonampofu]

Excellent topic and I thought I would add my two sense. The fall in house prices is actually a good thing. I was an Estate Agent for many years and in our books we call this a "Market Correction" which is ALWAYS NEEDED. The Property market is cyclical with periods of growth and contraction. The four distinct phases of the cycle are Recession, Recovery, Expansion and Contraction and they move in that order. While the market is now in the Recession Phase of the current cycle, the timing is perfect to reap big profits later in the cycle, in the Expansion and Contraction phases.

The main reason behind property prices increasing was the Buy To Let Market, specifically UNEDUCATED BUYERS flooding the market and GREED. "Property Porn" meant every Tom, Dick, Mary, Jane and John (I hope there is no one on the forum named Tom, Dick, Mary, Jane or John, if there is I do not mean to cause offense) wanted to get into the market. When I refer to uneducated buyers I do not mean people that have no formal schooling, rather uneducated in terms of no FORMAL / EXPERIENCE "schooling" in property or economics.

As an ex-Estate Agent you can call me "guilty as charged", but everybody wanted in, the energy in our offices between 2005 and the first half of 2007 was electric. But like everything in life it had to all come crashing down.

The truth is I personally believe this is fantastic news with prices falling, prices are correcting themselves and people caught up in negative equity will have largely bought at the peak and if it is their primary residence then they just need to hang tight. With interest rates at their lowest level I hope they were on trackers.

It is however now a great time to Invest as long as you can get the financing. I however strongly believe the Government needs to regulate Estate Agents and "Property Investment" companies very similar to financial services. This will help clamp down on some of the mis-selling.

 

[davidc]

Good or bad thing? I think both. Good that prices will return to being realistic, but bad for the people that will lose their homes. Bad for us and the next generation that will have to pay for this in our taxes. I take a long term view that my portfolio is worth less at the moment, and will continue to decrease for the next? As I never intend to sell it makes little difference as again I have a simple lifestyle that I can easily afford.
Another bad point to this is the (understandable) doom and gloom that everyone is feeling. We are all in this together, and let's keep our chins up and think positively. :thumbup1:

 

[peteark]

Too many mistakes made in 40 years to think there is one quick solution.

Norway did not join the EU, their workers pay 40% tax, booze is £8 a pint yet their economic structure works well. Of course they have the added bonus of their oil, but rather than other countries they plan forward by building their assets now for the time when the oil runs dry.

In comparison when the UK have buoyant times and its high wages increases, low inflation and party time.

Looking back, they should have never allowed zillions of immigrants in, they should have taxed people heavily and had a sensible pension scheme like the Germans. They should have made the UK ultra expensive and adjusted wages accordingly. Chavs do not holiday in Norway, they cannot afford too.

Bring back heavy punishment for crime, in Norway the drink driving limit is 0.1 the UK 0.8 (I think) If you get caught in Norway say goodbye to your family for 4 months. Speeding well that's an arm and a leg. Violent drink related crimes, minimum a year.

Turn prisons into prisons and do away with this 'a la Butlins'

In Germany its common to see old ladies out sweeping the street outside their home, in the UK they are petrified to leave the house.

Joining the EU another howler

You really could go on and on, the UK is a boom and bust country, where public opinion counts for too much and law and order well they dont have a chance, 20 years and it wont be knives it will be colt 45's. Remember the street parties during the Golden Jubilee? Now the only street parties you see are if Pakistan win the cricket world cup

 

[Adventurelife]

Too many mistakes made in 40 years to think there is one quick solution.

Norway did not join the EU, their workers pay 40% tax, booze is £8 a pint yet their economic structure works well. Of course they have the added bonus of their oil, but rather than other countries they plan forward by building their assets now for the time when the oil runs dry.

In comparison when the UK have buoyant times and its high wages increases, low inflation and party time.

Looking back, they should have never allowed zillions of immigrants in, they should have taxed people heavily and had a sensible pension scheme like the Germans. They should have made the UK ultra expensive and adjusted wages accordingly. Chavs do not holiday in Norway, they cannot afford too.

Bring back heavy punishment for crime, in Norway the drink driving limit is 0.1 the UK 0.8 (I think) If you get caught in Norway say goodbye to your family for 4 months. Speeding well that's an arm and a leg. Violent drink related crimes, minimum a year.

Turn prisons into prisons and do away with this 'a la Butlins'

In Germany its common to see old ladies out sweeping the street outside their home, in the UK they are petrified to leave the house.

Joining the EU another howler

You really could go on and on, the UK is a boom and bust country, where public opinion counts for too much and law and order well they dont have a chance, 20 years and it wont be knives it will be colt 45's. Remember the street parties during the Golden Jubilee? Now the only street parties you see are if Pakistan win the cricket world cup

Hi Pete

I have been lucky that I have lived in Norway as well as Germany. My daughter was born in Germany. Both countries have a lot going for them but like everything a lot of negatives as well.

In Norway I seen more hard serious drinking than I have seen in some of the roughest towns and villages in Scotland. The gov has managed the wealth well though.

Germany is actually in a much, much worse state that the UK economically as is most of Europe. The main driver is demographics. Everyone focuses on the here and now, try looking 10 years ahead at the demographics of each countries population and you will find countries like Germany and France and in a really tough place. They have very generous pensions and workers rights but soon they will not be able to pay for them and unrest may follow.

The UK is in a very bad way at present but our demographics are the best in Europe and our crap pension system and higher amount of personal pensions gives us a chance , just a chance mind to be able to perform better than our near European friends and have a higher growth rate.

That said we do need to get away from being a service economy to a knowledge based one and I think that is where we may become unstuck.

Peter

 

[peteark]

Peter

That's funny I have also lived in Norway and Germany with my daughter being born in Hannover.

I agree with the drinking in Norway, one of the downsides of their 'nanny state' mentality.

Germany was always going to have difficult times, with the rebuild and integration of the East. The autobahns are now sorted but minor roads still poor. I was speaking to a Berliner last weekend, she said most of the population of East Germany would like to go back to the way it was, something I found remarkable.

 

[Adventurelife]

Peter

That's funny I have also lived in Norway and Germany with my daughter being born in Hannover.

I agree with the drinking in Norway, one of the downsides of their 'nanny state' mentality.

Germany was always going to have difficult times, with the rebuild and integration of the East. The autobahns are now sorted but minor roads still poor. I was speaking to a Berliner last weekend, she said most of the population of East Germany would like to go back to the way it was, something I found remarkable.

I lived in Neinburg about 1 hour north of Hanover. In Norway I lived in Lillehammer, Voss and up north split between Trondheim and Narvick.

It will take a few more decades before the old east is fully up to speed with the old west. What the gov there cannot grasp is the nettle of workers rights and pensions. It is totally unable to stay that way with the demographics going forward. They just seem to ignore the inevitable.

Did enjoy living there though:thumbup:

 

[peteark]

I lived in

Germany
Herford
Berlin
Fallingbostel
Gutersloh

Norway
Voss
Olen
Bardafoss
Stavanger - My current location

Yeah I find most places better than the UK

 

[DickW]

We bought our house 20 years ago for £45k. It's a classic granite built 3 bed 1.5 storey house about 160 years old but with a large kitchen extension in about 1/3rd of an acre.

In 07 we toyed with the idea of moving and had it valued at between £240k and £270k..

If we assumed that house price inflation had averaged out over the 20 years we have been here at say 5% then its real value should have been around £120k...

Ergo - Prices need to fall by at least 50% before we can possibly say it's a good thing.