The Last Housing Crash, Part 2

Could we have a breakdown by property type as well? It would be interesting to see if (for example) the largest houses lost (proportionately) more or less than the "average 3-bed semi (if a 3-bed semi is still the average). What about flats? The other interesting case is to see what, if any, were the differences of the time a house spent on the market before it sells.

Also, spare a thought for those who bought at the last peak in 1989. Once again, if you adjust for inflation, the Halifax index didn't match its previous top until May 2002!

As I made £5000 on a spread bet last month betting against the London Housing Market (ig index) I am firmly in the bear camp. House prices are clearly over priced for one simple reason.... average Joes cant buy average houses. Low interest rates make housing look more affordable, but the cost of the house still has to be paid for, and low interest rates just mean that there is low inflation... so the capital will not be destroyed by inflation... it has to be paid for out of hard cash. The small fall seen in the 1988-1995 ignores the fact that high inflation destroyed the capital value. If inflation remains low, house prices will fall slowly to normal income ratios over 10-15years, as people are slower to drop house prices than inflation destroys the value. This happened in Japan, seeing 70% real term falls. And dont kid your self that its different this time as there " is no more land". Japan has many more people, and much smaller livable area.... it still happened This has happened in Ja

I'm afraid you need to stop waiting for someone to make it easy for you to climb on the ladder and ... climb on. If you look at house proces over any serious length of time they steadily increase. If you buy property now then a few years down the line you'll be pleased you did at some point instead of looking at even higher prices and thousands more you've thrown away on rent. Start playing off YOUR loan with your money asap. Invest in land, they aren't building anymore, in fact a proportion of it in the UK is slipping into a permanent water feature - another reason why property (not in a flood plain) will not be falling in price! A for comparisons with Japan, US ... whats the point? You can but a gallon of petrol for 10 pence in america and land is not exactly at a premium is it there, There's billions of acres of wasteland and desert. So wheres the comparison to be drawn. Japan - well, I seem to remember Japan has had some serious ( I mean SERIOUS) financial issues for a long time, and we're not talking a 1/4 percent hike in the base rate. Wasn't it in negative inflation freefall? I just don't see that looking at Japan, seeing something happen, and then drawing the same parallel for the UK is at all relavant.

As I said yesterday, I got on the ladder in 1990 and regretted it for ages. I paid over the odds for a place that was too small and could not sell it for any price that would not have swallowed up my deposit on the next house. Luckily the Halifax let me keep it and rent it out while I was also buying my new house. If I had not had the income to be able to do this I would have been stuck.

The market is much more complex now than it has been for any time in living memory. And that is because of globalisation. The world is getting flatter. Developed countries (like the UK) will find it increasingly difficult to attract or retain higher paying jobs - we just cannot compete! In my opinion no western country will see the kind of growth we have had in the last 20 years. Most will see generally property price adjustment as our dispposable income reduces. We will probably see short growth surges in some of the developing economies. If western European countries have growth at all it will be no more than single figures for many years.

As I recall, it averaged just over 1.5% 12/90 to 12/92

Trying to forecast future housing market trends from what happened in the 1990's is a futile exercise. Remember the warning on financial products: Past performance is no guide to the future!

oswizuk - as I understand it, a lot of BTL owners will have less incentive to sell after April (if the changes do go through). The new 18% only benefits those who have been in the market for a short time - those who haven't would previously had benefited from taper relief and therefore paid less in CGT. As for yields being ruined, all the signs are that rental income is on the up due to increased demand (migration, and yes - the cost of buying right now) and interest rates are going down. So I wouldn't bank on a BTL meltdown just yet. Also - whilst you may view BTL as a bad for this country I am of the opposite view. I remember studying a theory for my economics degree in the early 90's on how the lack of private rental property was a inhibitor to the economy - restricting the movement of labour. I still remember trying to get somewhere to rent when I went hunting for my first job in London in 94 (pre BTL boom) - it was a nightmare - but I certainly wasn't into buying at the time. A healthy supply of rental property (BTL) is good for the economy and good for individuals who need to rent. The market has issues but I agree with strebor19 - it's not about to implode. My personal view is that buying is worth the pain - and as soconnel says, it's about making sacrifices. My parents bought their first house in the 60's - saved for a deposit, bought 2nd hand furniture, used the bus instead of buying a car, went on holiday in the UK (if they went at all), rented half the house out etc etc. I'm not trying to do the "northern gents" scene from Monty Python - simply pointing out that it's never been easy starting out and getting on the ladder; and those that think that is has are deluding themselves (and others). Getting somewhere good to live isn't easy and I don't think times are any different now than they ever have been in that respect. So endeth the sermon - the propery market, like the stock market will survive, if you want it go for it and don't try and time it, and be prepared to be in for the long run with a bit of pain now and then! I'm off for a beer.

There seems to be two debates, firstly are houses a good long term buy and secondly is there a strong chance of a recession. The answer to both seems to me to be yes. A house costs should be measured as Ownership costs (mortgage, repairs and insurance) - renting cost otherwise paid = real cost of buying a house. renting over a five year or greater period, it should be, otherwise don't buy. A recession makes moving up less costly and moving down less financially beneficial for those without sufficent retirement funds. I own a three bedroom house and my wife and two children are happily packed into it. If prices fall enough, I for one will move to a larger house. As I will buy into key blue chip shares if they fall much lower. If there is a mild recession or no real slow down we will save for longer before we move. Houses don't always go up in value, the question is are they worth the extra cost over renting in the capital accumulation and accommodation security they offer. For me they are, if you are buying now at the current prices and use the above formula I would say they are overpriced and recommend renting in a share house and saving very hard for later. The new growth area is Asia, they make things and we open doors. They have surpluses and we have deficits, the money we borrow to buy houses and the goods they made is often lent to us by the same Asians and the Middle Easterners. No Economics degree needed to know our growth rates will slow as theirs increase, so I agree wholeheartedly with the earlier comment growth in house prices will moderate over time. I am a house ownership fan, I like the security and am able to do most DIY myself, so costs are not that great. I have a garage where I repair my own car and a garden where I grow enough vegetables to make my Grandfather (ex-farmer) proud, when he and my Mum taught my wife and I to grow vegetables and garden their smiles where worth more than the holiday forgone to get the deposit. These beneifts must be added to the emotional If there is a recession shoudl be sell, rent and buy back at a discount. There are a couple fo problems to answer first: 1. Transaction costs are high to sell. 2. The recession is not sure or easily judged, excessive time out of the market may result in lost capital gains of none ownership. 3. Renting is at the Landlord discretion and you may move several times, more costs emotionally and financially. 4. Buying costs to return to property ownership will be expensive. On balance if you own a house you are happy with and don't own a recession crystal ball, I doubt if you woudl actually make much money selling, renting and re-buying.

Everyone seems so negative about property right now, we all need a home and I think its a blip we will see. Go Back to Boom and Bust 80's cause government removing tax relief from both potential property buyers, mirus tax relief for one buyer only, media frienzie a bit like today, headlines late eighties buyers are flocking from the the south to buy up all properties, outcome boom the government steps in interest rate up up up around 16 % housing market bust. In the nottingham area now if a couple borrow 4 times anuual income a house can be purchased no problem, I have no sympathy for buyers loaning above that or the lenders. I still believe the housing market is a temporary problem we all need a home. Housing Rentals Very expensive so that has to be built in, let face it how much would you loose renting a house lets say £750 pcm for 5 years - £45000 down the drain ! Then there's population increase, people living longer,imigration etc. Suppose my other point would be areas are different yet negative comments are general. Finally all financial institutions will recover any loss by charging the rest of us in some way,which makes the credit crunch a fallacy as in the states.

I agree with FazerSix - when counting their losses/gains, homeowners must factor in what they would be paying if they did not own their own home - which normally means renting. So Typically, even if your landlord never increased the rent, house prices would need to fall by more than 6.5% per annum, year-on-year, before renting becomes a cheaper option - quite apart from all the other benefits of home ownership. As long as a homeowner is able to sit tight when prices fall over a year or two, owning beats renting every time!

I find it amazing the number of people who talk about the press and TV media talking the market down. You just need to look at the number of property TV shows and magazines of the last few years for evidence of how much they have been talking it UP. Location, Location, the Sarah Beeny property development shows, A Place in the Sun, Homes under the Hammer, So You Want to be a Property Deveoper etc etc - need I go on? And don't get me started on the so-called property "experts" wheeled out by the news programmes - almost inevitably these experts are from the Halifax, Nationwide, or an estate agents - all of whom have a vested interest in a rising market. If they predict a "cooling market" or a "soft landing" you can bet they are battening down the hatches behind closed doors. So the small handful of programmes and news items about a possible slump are just going a small way towards addressing the imbalance of years of optimistic cheerleader reporting ("Go Market, Go!"), and they are at last returning some sense of realism to the market. And one comment to XMFGoogly - a housing price slump actually makes it EASIER to move up the housing ladder (so long as you didn't buy at an inflated price just before the slump and are now in negative equity) as it reduces the distance between your current property and the next one up. As a simplistic example, if the price of a one-bed flat is £100k, and a two-bed is £150k, you need to get together another £50k to buy the 2-bed. If prices go up 10%, your flat is now at £110k, and the 2-bed is £165k, meaning that you would now need £55k to make the move - so prices rising have made it even harder to move. But if prices fall by 10%, the flat is now £90k and the 2-bed is £135k, and you now only need to get together £45k to make your move.