House prices coming down

[Bruce Everiss]

[jonswain]

While I fully sympathise with everyone whose house has fallen in value or has been plunged into negative equity, I feel it is important to put the other side to this story.

My wife and i are a young proffessional couple currently renting in Harbury - a village we really like and would wish to bring up our family in however there is no way that we could afford to purchase here. Harbury prices seem to be significantly greater than other local areas to the extent that only those currently living here or willing to take out mortgages at huge cost can afford to purchase.

The current market realignment (or crash if your prefer) is a necessary evil to ensure that people can get onto the property ladder at reasonable financial cost and not with 5 or 6 times joint earning mortgages. Whilst I agree that it is the banks willingness to lend money to people who couldn't really afford it that has been a signifcant contributor to the huge increase in house valuations, some blame must be laid both at the doors of those who buy second homes to rent out and those who create the false market by crippling themselves finacially to afford to buy a tiny flat.

So when you are thinking about the loss in value of your home, spare a though for those of us that are shelling out rent every month that prevents us from saving for a house deposit with no prospect of purchasing even after the curent fall.

[Bruce Everiss]

When we moved into Harbury we rented the Rectory at 2 Vicarage Lane from the Church of England. We told the agent that we wanted a long term home and the agent told us that this is what the Church of England wanted too. So it surprised us when the friendly churchwarden nosed round and told us we would be out after six months to make way for the new vicar. She was right. So we moved to 17 Manor Orchard and told the agent, once more, that we wanted a long term home and about our bad experience with the Church of England. They emailed the owners in Canada who said that this is exactly what they wanted. So once more we were surprised when a for sale sign appeared in front of out home after six months.
Each time we move it costs about £3,000 and a huge amount of work and time. The Vicarage cost us more because it was bare and we had to buy appliances like a stove and washing machine. To have this forced on you twice in a year by liars is not very nice.

Back to house prices. The owners of 17 Manor Orchard were forced to drop the price three times to get a sale. It will still go down a lot more over the next 18 months. Here are a couple of recent BBC articles to show what is happening:

House price falls 'accelerating'
Full story: http://news.bbc.co.uk/1/hi/business/7637491.stm
".....The fall in house prices has accelerated in England and Wales, according to the Land Registry. Its latest report shows that prices fell by 1.9% in August, taking the annual rate of price deflation to 4.6%. The figures mean that the average property now costs £174,493; £8,320 less than a year ago, with £3,871 of that drop occurring last month................... But with prices falling sharply in August, its monthly survey is starting to catch up fast with the surveys of lenders such as the Halifax and the Nationwide who have both reported that prices are down by 11% in the past year............."

Large discounts by home sellers
Full story: http://news.bbc.co.uk/1/hi/business/7638028.stm
"Home sellers are being forced to accept offers on average 9% below their asking price, said the Royal Institution of Chartered Surveyors (Rics). The gap between asking and selling price is widening as the property market downturn worsens, Rics added. Property prices have fallen by 11% in the past year, according to major lenders, while sales have fallen by more than half. The available evidence suggests that prices and sales will fall further..............."

From what I have read on the subject (quite a lot as we are working on our timing for buying) the worst drops are still ahead of us as unemployment increases. After February next year the reduction in houses prices will accelerate. This will continue for about 18 months till they reach a stagnant floor about 40% down on peak prices. The main culprit was Gordon Brown who did nothing to reign in a very obvious bubble of house price inflation.

Just as unfortunate are owners of expensive cars. New Porsches are depreciating by 2 to 3 thousand pounds a month and Ferrari 430s by 4 thousand pounds a month. Most of these cars are bought using finance so very many owners are now trapped in negative equity and can't get out.

[Bruce Everiss]

This graph gives you some idea of how big the coming fall must be:

[Bruce Everiss]

[Bruce Everiss]

Now this is interesting: "In the second quarter of 2008, the median amount of equity that borrowers had was just 21 per cent, according to the Council of Mortgage Lenders." So they will pretty soon be in negative equity.

No wonder the major lenders are deliberately pricing themselves out of the market: http://www.timesonline.co.uk/tol/money/ ... 877378.ece

We are heading for a massive number of mortgage defaults and reposessions as millions of homes drop into negative equity.
The bubble was bigger than any previous and the bust will be bigger than any previous.
You really wonder why Brown didn't cool the market down two years ago.

So the poo that the banks are in now is only the beginning.
Potentially the level of defaults will be such that even the govenment can no longer bail people out.

Presumably the end game will be when the sovereign funds in Asia and the Middle East come rolling in and buy the jewels in the crown of our publicly quoted
corporations for buttons. Which is what the government is currently paying to try to prevent.

[Bruce Everiss]

Britain faces crisis as negative equity to reach 2 million
Full story http://www.timesonline.co.uk/tol/money/ ... 969314.ece


"Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash.

At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.

New research from Standard & Poor’s, the ratings agency, coincides with evidence that banks are aggressively seizing homes whose owners have slipped just a few hundred pounds behind on their mortgage payments.

It is a further signal that the financial crisis is now infecting the real economy as hundreds of thousands of families face the prospect of being unable to move house because their home is worth less than the value of their mortgage..............................................................."

[Bruce Everiss]

The House Price Predictor http://www.houseprices.uk.net/articles/ ... predictor/



Figure 3. Annual change in prices YoY. Comparison of the Halifax YoY and an estimated YoY using the Kalman HPI shifted forwards by six months, i.e. the red line is produced six months before the blue line is published and thus serves as a predictor. The graph allows you to estimate the degree to which the predictor is under- and over-shooting at the peaks and troughs.

[Bruce Everiss]

In CV33 (Harbury) there are now 35 properties for sale at reduced prices. The biggest reduction being 17 Manor Orchard at 17% reduction since first listing in April. From £315 to £260 thousand. A £55 thousand drop in 8 months.

http://www.propertysnake.co.uk/site/postcode/cv33

[Bruce Everiss]

House prices fall 14.6% amid 34-year sales slump.
Full story: http://business.timesonline.co.uk/tol/b ... 044707.ece

"The number of homes sold during 2008 has fallen to the lowest level since 1974 after a record 14.6 per cent decline in annual house prices in October.
Nationwide Building Society said today that house prices fell by 1.4 per cent in October compared with September, bringing the annual decline down to levels not seen since comparable records began in 1991."

So a £300,000 house (possibly not too far from the average in Harbury) lost £4,200 last month.
And the village became many millions of pounds poorer in just 31 days.