UK Housing market **Now with rather important graph added**

So whats going on with it ? (in plain English)

I know PaulM said in the other thread that prices dropped another 2.5% last month and that is also backed up by an article in todays Times....

House prices fall at fastest rate for 17 years



Robert Lindsay


The slump in Britain's house prices accelerated in May to the fastest level since the Nationwide began records 17 years ago.
The price of an average house fell 2.5 per cent in the month, making the seventh consecutive monthly fall in prices, the longest downward slope since the housing recession of 1992.
In the year, 4.4 per cent has been wiped off the value of homes, the biggest annual fall since December 1992 when the price fall reached 6.3 per cent.
The price of a typical house is now £173,583, £8,000 less than this time last year.
Related Links

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• Nationwide reveals steep drop in house prices

Fionnuala Earley, the Nationwide's chief economist said that it should be borne in mind that rising house prices up until last year means that even now prices are still 5 per cent higher than two years ago and 10 per cent higher than three years ago.
She added that she hoped the Bank of England would now resolve to cut rates: "Problems in credit markets have clearly been the trigger for changing fortunes in the housing market and while it is never wise to place too much weight on one data point, the apparent speed of the adjustment may lead the Bank of England's MPC to look more closely at the balance of risks to inflation in the medium term.
"Stronger than expected inflation appears to have shattered hopes of an early cut in the Bank Rate in June, but more downbeat economic and housing market data could lead more MPC members to join David Blanchflower in voting for pre-emptive cuts."
She said there was now mounting evidence of a downturn in the housing market. "The Bank of England reported an 11 per cent monthly drop in house purchase approvals in March to reach a seasonally adjusted 64,000 - the lowest since records began in 1993. RICS estate agents reported the most widespread regional falls in house prices in the history of their series.
House price expectations also fell into negative territory, as the Nationwide Consumer Confidence Index for April reported that consumers expect prices to fall by 1.7 per cent over the next six months.
Nationwide’s figures deal a blow to tentative hopes of a recovery after the British Bankers’ Association earlier this week reported a small rise in the number of loans for house purchases, to 38,704, in April, although this remains 39 per cent below a year earlier.
Meanwhile official inflation has hit 3 per cent after spiralling oil and food prices, and isexpected to soar further still later this year - reducing the chances of help through sustained interest rates cuts because the Bank of England has a 2 per cent inflation target.
Despite the steep falls in prices, Ms Earley said homeowners were unlikely to feel the pinch as badly as they did in the early 1990s when hundreds of thousands of householders who had bought at the peak of the boom in the late 1980s ended up in negative equity - their homes worth less than the amount they had borrowed.
She said fewer homeowners bought at the top of the market - which came in the second half of last year - and most have put down a larger deposit than their 1980s counterparts.
Many borrowers had also learnt from the experience of the early 90s by opting to repay capital on their loans rather than just interest. In 1988 85 per cent of loans were on an interest-only basis. In 2007-2007 only 30 per cent took out interest-only loans.
Nevertheless, Howard Archer of Global Insight described the 2.5 per cent May plunge in house prices as "a real shock ". He said it would fuel concern that we were now headed for a sharp correction in house prices.
"It now looks more likely than not that house prices will suffer double-digit falls both this year and in 2009," Mr Archer said.
"On top of this, unemployment is now starting to rise, which along with many homeowners having to re-mortgage at higher rates, is increasing the likelihood that a significant people will have to sell their house for 'distressed' reasons.
"Those people who took out 100 per cent or even 100 per cent plus mortgages within the last 18 months or so at the tail end of the housing market boom are particularly vulnerable."
He said people could not rely on the Bank of England cutting rates for help. "Even August may well prove too early for another interest rate cut to occur, as the Bank of England is unlikely to act until it has sustained, clear evidence that wage moderation is continuing and that reduced demand is undermining companies' pricing power," he said.



So what effect does this have on all of us ?

People who are in rented accomodation now but looking to buy (That would be Nikki and myself,last 4 years,long story after we both left our partners). Is this good news for us with prices dropping ? Again,PaulM has been saying how bad things are going to get, will the housing market get as bad as late 80's (I think) when house repossessions were a common thing ?

What about people who have just bought a new place or buying now ? How are they going to be ?

[GotaFancy?]

If you're currently renting (and in secure public service jobs ) then this is great news for you - indeed from a completely selfish and financial view you want a full blown crash - it's not beyond the realms of possibility that house prices could lose over 50% of their value - if you get onto the housing ladder then, and prices then recover to what they were in 10 years, you can double your (borrowed) money in 10 years.

Just make sure you have a large deposit saved up - 100% mortgages are gone.....

People getting onto the housing ladder now are probably doing so at the wrong time and will more than likely see a large drop in the value of their property. If they have a large mortgage, then they could easily see themselves in negative equity......

[Karel]

It totally depends on how you have played the housing market. We were desperate to move this year and upgrade, but just saw the first signs of a slump and hung on. If not then this would have maybe led to negative equaity, as they really are falling fast. Spreadfair are even doing a market on house prices and they predict a sharp fall in the next 3 years and bookmakers rarely get it wrong.

Something had to happen, with rising living costs, there was just no spare cash around and hopefully it will give people a chance to maybe get their first foot on the housing market.

Please tell that to my teenage step daughter.

[AJ]

same all over though, I'm delighted with house prices falling, we plan on moving around jan - feb. We reckon house prices will be back to where they were 3 years or so.

[PAULM03]

Been coming for ages, they were overpriced in 2005. We'll get 50% falls in the UK no problem. The only way it can be avoided is if we get a healthy dose of wage inflation to bring the house price/salary multiples in line without house prices actually falling much. Although this is unlikely

I feel like I've done so much research on this over the last 12 months I could write a book, it all started when we started thinking of moving at the end of 2006. I was loloking at mortgage deals and the benefits of renting over buying etc. and ended up learning about USA sub prime and Alt-A, collateralised debt obligations, residential mortgage backed securities, UK sub prime, monoline insurance, interest rates, Libor and how the whole boom of the last 8 years is built on sand and engineered purposely to stave off a recession post Enron/9-11/dotcom bust. It's an immense subject when you get into it.

Truth is what is happening is MUCH worse than a simple fall in house prices. When you borrow you are promising a proportion of your future productivity to the bank. The bank has to estimate future productivity in order to determine how much it can lend. The entire western banking system thought they could circumvent this by devising exotic financial instruments that mitigated the risk of default. They were wrong and we're all going to pay for it.

That's why there'll be no tax cuts, no interest rate rises despite rampant inflation, no serious wage increases and a general decline in the standard of living. If you come out of the other side (probably around 10 years) you'll be fine and dandy and probably better off than you are today. There's going to be a world of pain for many though.

[Cassius Marcellus]

Originally Posted by gazza271

So whats going on with it ? (in plain English)

I know PaulM said in the other thread that prices dropped another 2.5% last month and that is also backed up by an article in todays Times....

WTF are you doing reading The Times ?

You after promotion ?

[PAULM03]

Again,PaulM has been saying how bad things are going to get, will the housing market get as bad as late 80's (I think) when house repossessions were a common thing ?

Sorry Gaz, missed this bit at the end of your post.

Will it get as bad as the last crash? It's already worse. I think were about 15-20 months off peak repossesions and I can't see it being less than 100k (last crash was 70k).

The big factor is mortgage resets. People coming off cheap 2 yr fixed rate deals. There's some problems with this:

1. The cheap deals have gone, your mortgage will go up even if you do qualify for a good deal

2. The rules have changed, you will now need some equity to get access to a good remortgage. That's difficult for anyone who has bought in the last couple of years on a 100% mortgage (the people who most need to remortgage)

3. Liar loans. Fraud was rife within the mortgage broking industry, dodgy wageslips, fictitous self-emplyed income, and outrageous salary multiples on top. Banks are going to be checking much more thoroughly this time round

People on a 2 year fix at say 5% might find themselves stuck on their banks variable rate due to not being able to remortgage, which could be around 8%. If your on an interest only mortgage that's going to increase your outgoings by 60%. Someone paying £1000 a month now has to find £1600

All this will drive prices down further, in addition to the big killer, which is the end of 100%. House prices are an average of around 180k. That means to buy an average house you now need to have around 20k sat in the bank. How many first time buyers have 20k in the bank? Maybe in times gone past but we're a consuming culture, we have record debt, there's no money left for deposits. Well on average anyway.

As house prices fall so lending becomes even more restricted and sentiment gets worse, till nobody wants to buy.

if you;re renting sit tight and don't worry about it. The time to buy is when you're having a pint in the pub and you either hear someone say:

'I'm never going to get out of negative equity'

or

'House prices will never go up again'

Should be in 5-7 years time and you'll bag yourself a bargain.

[chala]

Originally Posted by PAULM03

I feel like I've done so much research on this over the last 12 months I could write a book, it all started when we started thinking of moving at the end of 2006. I was loloking at mortgage deals and the benefits of renting over buying etc. and ended up learning about USA sub prime and Alt-A, collateralised debt obligations, residential mortgage backed securities, UK sub prime, monoline insurance, interest rates, Libor and how the whole boom of the last 8 years is built on sand and engineered purposely to stave off a recession post Enron/9-11/dotcom bust. It's an immense subject when you get into it.

Paul could you point me in the direction of some of the stuff you've read? I want to get myself more clued up on the subject, as it's probably the most important decision you'll ever make. I'm looking to move out with the girlfriend at the end of this year, but whereas we were originally looking to buy, I have said to her now that we should rent for atleast a year to see what's happening with the market.

You said there's a problem with people coming off cheap deals looking to remortgage, but all I've heard is how their still offering good deals to those who remortgage, but not to first time buyers?

[Ebor337]

This may sound like i'm being a moron (i'm not honest(?)) but I can't see the big deal (maybe to my detriment). . . Sure house prices are falling, and admittedly, we got a 100+% mortgage, but here in York, my friends are paying £400 each to rent a place, some in a house share with randoms. . . . Between me and the missus, we pay £1000 per month mortgage to LIVE in our home.

I think you can get too bogged down in the here and now. . . these things are on huuuuge cycles. If you can get by now, you'll reap the benfits in the future. I don't understand why people don't want to spend 50%+ of their income on their home. It's where you spend at least 50% of your life and where the amazing things happen in llife.

Our ancestors probably hard far greater hardships to dal with but still left us (lucky enough) a legacy of an estate/property.

[PAULM03]

Originally Posted by Guy Fawkes

This may sound like i'm being a moron (i'm not honest(?)) but I can't see the big deal (maybe to my detriment). . . Sure house prices are falling, and admittedly, we got a 100+% mortgage, but here in York, my friends are paying £400 each to rent a place, some in a house share with randoms. . . . Between me and the missus, we pay £1000 per month mortgage to LIVE in our home.

I think you can get too bogged down in the here and now. . . these things are on huuuuge cycles. If you can get by now, you'll reap the benfits in the future. I don't understand why people don't want to spend 50%+ of their income on their home. It's where you spend at least 50% of your life and where the amazing things happen in llife.

Our ancestors probably hard far greater hardships to dal with but still left us (lucky enough) a legacy of an estate/property.

Maybe your friends can afford £800 a month but £1000 a month would be stretching it? £200 a month isn't a trivial amount to a lot of people. Not only that if you do your research you can rent a much nicer house for £800 than you can pay in interest to buy an equivalent house. When we moved into our current place it was valued at £200k, we rent it for £600 a month. That's a bargain, and money in the bank for us.

Are you a couple with kids? What would happen if you had a sprog and had to find another £400-800 for nursery?

If you've got a 100%+ mortgage, you are in instant negative equity (it's not IO is it?, if it is you're REALLY up shit creek). That doesn't just mean your house is worth less than you paid it means you're dead stuck. Can't move up or down, can't move if you lose your job, no equity to remortgage, and already paying out 50% of your salary just putting a roof over your head. The reason why people generally don't spend 50% of their joint income on their home is because it's completely unsustainable for an average family, that's the reason why salary multiples were historically 3-3.5. It's what the economy can sustain.

[Ebor337]

No, true Paul, we don't have a any children and we're (i'm!) only just thinking/planning of getting engaged. Kids obvioulsy has a massive on peoples outlook and I apologise if I came across unsympathetic. To be honest, not sure how we'd cope with kids, badly probably, but i'm sure we would, people always do, don't they?

And no, it's not IO (thankfully) but i think maybe the housing market here isn't as bad as other places, as this article talks about (i know its only the local rag!)

But, i do think, regardless, we'd "cope".

[PAULM03]

Originally Posted by Guy Fawkes

No, true Paul, we don't have a any children and we're (i'm!) only just thinking/planning of getting engaged. Kids obvioulsy has a massive on peoples outlook and I apologise if I came across unsympathetic. To be honest, not sure how we'd cope with kids, badly probably, but i'm sure we would, people always do, don't they?

And no, it's not IO (thankfully) but i think maybe the housing market here isn't as bad as other places, as this article talks about (i know its only the local rag!)

But, i do think, regardless, we'd "cope".

I know where you're coming from, 50% is easily manageable with no responsibilities. I think if me and sam had no kids we'd probably buy if we found the right place and hammered the seller down hard enough.

The family is the game changer though. Looking at it purely financially, by having kids we lose half a full-time wage and pay around £5k a year in nursery fees, so we 'lose' around 20k a year. But we've decided to take the pain now and have sam at home most of the week. When we don't have nursery fees anymore and sam can work full time we'll be loaded, the skintest years will be behind us and we'll be ready to buy. Hopefully it will more or less coincide with the trough.

With regards to the article you have to look at who's writing it: An estate agent. They're one of the biggest vested interests in the game, they're duty bound to tell you the market is in good shape, it's their livelihood.

The numbers tell their own story though. 7 months of falls (a record) and record lows of mortgage approvals (the best indicator of which direction prices are heading in). House prices are now guaranteed a serious haircut.

[PAULM03]

Anyone with an idea that London might be immune from all this might like to check this:

http://www.ft.com/cms/s/0/31e40ee4-2...nclick_check=1

It's going to be carnage.

[PAULM03]

BOE mortgage approvals data out today.

Yet another 'lowest on record'!

April 2007 approvals: 113,000
April 2008 approvals: 58,000

January, February and March were all record lows for approvals and this is now the worst 6 months on record for mortgage approvals.

Why is this important? Approvals are THE key indicator of where house prices are heading. Look at the graph below:



There's a direct correlation between the number of mortgage approvals and annual house price inflation 6 months down the line. The red line on the graph is the prediction given by this correlation, the pink and blue lines are the actual HPI (house price inflation) figures reported by the two leading mortgagees, Halifax (pink) and Nationwide (Blue) as you can see they match pretty closely over the last 15 years or so.

The prediction then is for House prices to have fallen around 17% by the end of this year. It doesn't sound much but trust me, this is going to be pretty gruesome. And its barely started yet. Wait till the repos and forced sales start coming through.

[PAULM03]

Halifax data out today. Prices fell by 2.4% last month. We're now back to late 2006 prices. When it was all done I was hoping for a return to early 2004 prices, I think we might eventually see a return to 2001-2002 prices at this rate.

http://www.hbosplc.com/economy/inclu...dexMay2008.doc

[Valiant23]

2001 prices?


Around that time (2002 to be exact) Sam and I nearly bought a "doer upper" for £38,000...the same house has been bought and sold two or three times. The last time we noticed it had been sold (last year?) I think it went for about 4 times that amount.

[Galronix]

As we all come from from different parts of the country, what the average price of a 3 bed semi??

Around here in Dartford it's anywhere between 240k & 280k

[Cassius Marcellus]

The last house we bought in east London was £140k (2001) Three years later sold it for £245k. Price madness.

Mrs CM, who works for the Halifax, said that prices in east London have dropped these past few months. What was £250k is now on the market for £230k. 1 bedroom flats are still over £100k though.

The house we have now is worth about £170k because we're right out in the sticks. No shops, no pub, no takeaways, three buses a day, that unbelievably go from wherever they start (??) all the way to Yarmouth, that's about 90 miles from us.

The same size house in Wisbech or Kings Lynn is worth over £230k.

What you pay for a 4 bed detached house in east London now, would get you a detached 4/5 bed out here, with double garage, plus 3 or 4 acres of land.

Mind you, when the ice-caps melt we'll all be 20 feet underwater, but who gives a fcuk, I'll be dead by then.

[gazza]

From todays BBC......




Thousands facing negative equity


By Richard Scott
Personal finance correspondent, BBC News


Lenders are more reluctant to lend to borrowers


More than 23,200 people who took out 100% mortgages in the year to 31 March could face negative equity, according to figures obtained by the BBC.
Falling house prices mean the amount borrowed could be greater than the value of their properties.
The data from the Council of Mortgage Lenders comes as figures show the housing market is slowing down further.
Separate housing figures suggest the number of transactions per estate agent has hit a 30-year low.
These figures from the Royal Institution of Chartered Surveyors come as banks are imposing stricter requirements on borrowers, in the wake of the credit crisis.
Turned away
If a house loses its value it is not necessarily a problem unless the owner has to move, or cannot afford to pay the mortgage.
In a rising market banks are prepared to lend 100% mortgages as there is little risk of them not getting their money back.
But as prices have been falling, the risks have increased and lenders are turning borrowers away if they don't have a deposit.
There is a warning that the situation may deteriorate further. "House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead," said Michael Saunders, head economist at Citigroup. He had predicted that house prices would fall by 15% in 2008 and 2009 but now he says that drop could be even greater.

[Pobby]

Have a look at the house price spreads on spreadfair.

http://www.spreadfair.com/

The average price of a house in london is £305K at the moment according to the Halifax.

Spreadfair show them falling every quarter until 2011 when they predict about £220k.