Home—Blog—House prices are already crashing
Dec 09, 2010, 04:50
Posted byMerryn Somerset Webb
Comments (28)
The latest Halifax numbers showed prices falling by 0.1% in November and 2.1% in the last three months. The annual rate of price falls is now 0.7%. It is, says Martin Ellis, housing economist at the Halifax, "consistent with a relatively flat overall trend in house prices".
But let's not forget – as all too many people want us to – that "flat" actually means "falling" at the moment. With RPI inflation well over 4%, your house is losing value in real terms every day. Indeed, if you take inflation into account – which you obviously should – UK house prices are already down 20% plus on their 2007 levels.
The bulls might think house prices aren't going to crash, but on many measures they already have. And it isn't over yet.
Ellis allows that a larger supply of houses on the market coupled with a falling number of buyers has led to the recent price falls, but he notes that as "homeowners are becoming more reluctant to put their houses on the market" further falls are unlikely.
There is a problem with this argument.
Sure, there might be fewer willing sellers around than there were; and a lot of the people who do have their houses on the market aren't really motivated sellers, and so won't ever cut their prices to the levels today's buyers will pay. But the market isn't just about willing sellers, it is about unwilling sellers too. And with unemployment quite likely to rise into next year, and with the inflation numbers suggesting that interest rates won't be able to stay ultra low for as long as the heavily-indebted might hope, their numbers may soon start to rise.
The market is also about buyers. And with mortgage approvals at historical lows and bank funding worries hitting mortgage availability, they remain very thin on the ground. Add it all up, and it sounds less like "flat" and more like "crash" to us.
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(09 December 2010, 07:16PM) Complain about this comment
Absolutely right. I expect house price to bob up and down between 3 & 7% below inflation for the next 7 to 10 years. I also expect wage inflation to start biting in 3 years.In 10 to 15 years time 80% of the population will bring up the personal balance sheet and find that over 40% of their nett worth has disappeared. But, having said this, I know that property values generally move along with the central banks rowing of the economy (business circle) so I fully expect to recover to the peak again............Not for many years and probably not in my working life time!
(09 December 2010, 08:28PM) Complain about this comment
Merryn, you say that prices are crashing due to a combination of inflation and small percentage falls in value, but what is your view on 'affordability'? Will this improve? Many people seem to think that because the GB Pound has fallen in relation to many other currencies, Gold etc then house prices must have already fallen significantly?But the average UK worker (whose wage is probably not rising at anywhere near the rate of inflation) does not get paid in Gold, Yen or Oil, so surely regardless of the value of the GB Pound, affordability of housing (or lack of it) remains unchanged. Does this argument stack up?
(10 December 2010, 12:03PM) Complain about this comment
They ain't falling in my part of the World - huge denial.Asking prices are higher than 2007 and what is happening now is a house is on with one EA for 6 months, does not get any viewers so changes to another EA and adds 10% to the already ludicrous asking price.
(10 December 2010, 12:11PM) Complain about this comment
"Crash" is an extreme term that should be used with caution. "Gently falling" would be more accurate. And what about London? I see no evidence of a crash, more of a tug of war between sellers, who are overpricing their properties - a lot of ordinary stock - and refusing to lower their asking prices against potential buyers (like me), who will not pay these stupid prices. If these sellers give in en masse, then we can start to talk about a "crash".Extreme language doesn't help your case Merryn. It hints of desperation to help bolster the doomsday predictions of Money Week. I've been hoping for a crash for 2 years, but as long as the Govt supports shared ownership schemes and as long as Banks give slack to mortgage debtors and unless The Bank of England raises interest rates (which they are scared to do) I can't see a crash, in the real sense of the term, coming.They all let the market do its job on the way up, but are scared for the market to do its job on the way down.
(10 December 2010, 04:12PM) Complain about this comment
House prices don't 'crash' because the 'market' is neither liquid, nor homogenous ( there is no such thing as a standard house ), also the vast majority of property owners are also occupiers of that asset, and so they can't switch into cash or an alternative asset without finding themselves homeless, so even if the market does look set for a fall you don't get mass selling than is required to create/exarcerbate that fall. Also I think that claiming that an asset which has failed to keep pace with inflation ( driven largely by energy prices ) over the last 3 years is 'crashing' is going well beyong the bounds of normal journalistic exaggeration. As for suggesting that the BoE will raise rates to quosh inflation if that in anyway threatened the housing market, naive.
(10 December 2010, 05:12PM) Complain about this comment
Spot on Merryn. House prices are crashing right now. This will be reflected in the Nationwide and Halifax indices in the New Year and onwards. People have been lulled into a false sense that the crash will be slow because of the support of loose monetary policy. Many mortgagees on Standard Variable rates are even experiencing negative real interest rates. Unfortunately there is nothing left now to support the market. Bond yields are rising, interest rate expectations are rising, inflation expectations are rising and most importantly market psychology is changing as annualised house price indices turn negative. Expect falls of 10% + over the next 6 months.
(11 December 2010, 08:50AM) Complain about this comment
I've never known such a brisk demand from tenants; rents are very firm indeed, there is no sign of that changing. And an astute investor can add value by appropriate alterations.Prices might well dip further; but to a genuine investor that is seen as a welcomed opportunity. Interest rates have only one way to go, and when they do squirt upwards I suspect there will be some worthwhile buys to be had.
(11 December 2010, 09:39AM) Complain about this comment
The house prices are falling because the population in the developed world are suffering due to the hangover from excessive borrowings from lenders who lent to anyone on the street to maximise their own bonuses. http://www.marketoracle.co.uk/Article24581.htmThe problems have been compounded by Outsourcing http://www.marketoracle.co.uk/Article21932.html and Rampant Speculation allowed in all the exchanges. http://www.marketoracle.co.uk/Article23662.html The problems are hereto stay as till date no one in the political arena has even acknowledged them let alone find solution to them.
(11 December 2010, 09:41AM) Complain about this comment
3.Bob I am strangely relieved to hear your comment. Perhaps you live in a similar part of the world to me (Mid Sussex)? Current asking prices are well above 2007 and I have cut several data sets to validate this. I don't think things will really change until some more EAs go bust and with transaction levels well down on 2007 they may be under pressure. Its because EAs are competing on asking prices just to put Houses on their books that is the real problem here and some have privately said to me that is in fact the case.
(11 December 2010, 11:00AM) Complain about this comment
@2 Andy - In my view you have it right - affordability is the only meaningful measure. Claiming real house prices are crashing when taking inflation into account doesn't wash because it depends which measure of inflation you believe, and whether or not you believe there is more inflation around at the moment than there has been over the last decade. Personally I think we are seeing yesterday's already-happened inflation today, and central banks are desperately trying to keep the party going with their QE tampering shenanigans. House price crash still to come... sit back for a few more years and enjoy the spectacle...
(11 December 2010, 11:50AM) Complain about this comment
I am still renting, was very tempted to step on the property ladder. Do you people think I should wait? For many years there has been a 'golden rule' that rent is money throwing away...Any opinion? I am not under pressure to buy,but it would be nice 'feeling' to live in my own house.
(11 December 2010, 01:00PM) Complain about this comment
Martin,"Rent is throwing money away" gets quoted at me all the time by people who are clueless on Finance. It depends what house prices are doing and what mortgage rates are and is a simple calculation. I am renting myself and it is very tough to hang in there when you can't transform a house into what you want it to be. My view is that house prices won't really fall significantly until interest rates start to rise and put those who are over-mortgaged into a "must sell" situation. A lot does depend on future inflation and interest rates of course but my view is that at some point interest rates will have to go quite high - i just don't know whether i will be able to hold out that long!
(11 December 2010, 01:59PM) Complain about this comment
So presumably 0.7 % correction down in FTSE 100 is a stock market crash. A crash is when either a cataclysmic event causes the whole market to freeze in shock - Lehmans, 9/11 , LTCM etc and this tends to lead to rapid drops of 20%+; or a sharp up movement in interest rates catches over geared borrowers and the market moves into a repossession and fire sale phase. Anything else is a correction based on the ebb and flow of fundamentals. The latter will happen when interest rates are hiked to counter inflation, but probably not for another year or so.I do not know how long you have been forecasting the property crash, but it sounds like its been a few years now. Either carry on forecasting the property crash ad infinitum until eventually it occurs and you can say 'we told you so' ( not credible in my view ) or you get back to the drawing board and maybe concede that the fundamentals of the property market are more complex and diverse than you have hitherto assumed.
(11 December 2010, 04:47PM) Complain about this comment
Hey, Merryn, I'm here in WalesOutpost of the Empire maybe, but we've got stories to tell too!A Dutch friend of mine from Amsterdam, has recently rebuilt a largely derelict victorian property here in the Cardigan Bay Spa town of Barmouth into four superb flats with views out over the superb Mawdach Estuary and has now almost sold the lot with virtually no help from his EA. He did it all himself, even without kitchens installed, the dutch way, chose them yourself.But he knows that every buyer, wealthy folk from England, know that property is the best investment when inflation threatens....so they buy value and don't lose.not in the long term. Property values over the last 50 years tell us that.Any comments?be good, bill.
(12 December 2010, 09:12AM) Complain about this comment
RobH,thank you for your view. I feel very similar.To Bill the BadgerI think you are talking about very specific situation here. Nice property,views over estuary...Those are the things wich sell and always will be. In my opinion the prime location properties will hold their values well or in worst scenario will not loose that much. Maybe if you find a nice property where you would like to live many years,possibly for the rest of your life, it may be worth to buy,no matter what happens on the property market. But to buy for an investment only reason, I don't think is a good time...
(12 December 2010, 12:00PM) Complain about this comment
Don't forget this is a very distorted market.The base rate should be ten times what it is and many people would have their debt positions exposed if they were to sell their houses and would not be able to obtain another similar mortgage,so just sit tight. The market will just stagnate until the banks have to balance their insolvent positions,which they don't want to do.
(12 December 2010, 10:24PM) Complain about this comment
Seems everyone forgets about 3 basic rules on property : 1. location , 2. location , 3.location . Indeed location defines on how prices will go,not overall inflation or something else. It is certain interest rate on mortgages will defines prices (which are not YET rising),but as soon as they'll rise not well -CURRENTLY- located property prices will tumble. Keyword is -and you guessed it - location. For now with low interest rates most property property prices are high -in some cases still overevaluated- . High gaines for purchases will come ones interest rates start rising again. The ones looking at their history books will profit. Some people now are indeed better off renting. All depends on -you guessed it again- LOCATION.Hope this'll contribute.K.
(13 December 2010, 10:10AM) Complain about this comment
The property market here is headed for a long term shift. Mortgages have returned to the norm, and by that I mean 25% deposit and 3.5x salary, not the lunacy of 2000 - 08. Many of today's young are going to have to consider long term renting as a lifestyle choice as they are not going to be able to get finance. Already this is starting to take effect as rental demand and prices are shooting up. Long-term property investment (20 years plus) again becomes very attractive, as low capital growth and CGT rule out the short term - but where is the finance? The average first time buyer is 43 and in parts of London, more than 70% of sales are to cash buyers. Prime properties will continue to attract cash buyers, but everything else will struggle and forced sellers will have to chase the market down to find the right level. The dream of home ownership for the next generation is on hold at the moment - it's not a disaster though - look at Europe where long term renting is the norm.
(13 December 2010, 10:20AM) Complain about this comment
Martin,Yes you can say that rent is throwing money away but so is the interest on a mortgage. You do not get any return on your money in either case so it depends on what interest rates are doing at a given time and your personal circumstance. The right house in the right location will always sell well so with a large deposit this wouldn't be too bad. For most of us this is unrealistic and this is a terrible time to buy in the lower end of the market. When interest rates go up there is a good chance prices will drop dramatically, why take the risk? If you buy and values drop 20% you will be in negative equity and unable to move for perhaps a decade. If you have some form of deposit why not buy some dull blue chips through an ISA and receive a tax free dividend of 6%? Much better return than property and perhaps safer.This is how out of touch people/agents till are I saw a 5 bed on the market in Kent. It was bought new build in August 2007 for £600k. Asking price now? £625k.
(13 December 2010, 03:15PM) Complain about this comment
One of the other elements to this is the level of unsecured personal debt that people are currently servicing. If interest rates do rise then the squeeze on personal debt and the affordability of home loans can only serve to further depress the property market. My 'optimistic' neighbour is seeking to sell her 5bed semi for circa £190K - she paid £174 18 months ago! Courageous I think!
(13 December 2010, 04:25PM) Complain about this comment
Note the numbers out from Rightmove today showing that sellers might be beginning to show willing to cut prices. They cut by 3.2% in November and another 3% this month. Asking prices are now just over 6% below June levels.
(13 December 2010, 05:44PM) Complain about this comment
I think a buyer's strike until at least 2012 would help!
(14 December 2010, 11:44AM) Complain about this comment
I have been looking at houses in Essex for six months. Prices are collapsing. Some houses have been on the market for the entire time with new prices every couple of months. Some are off 25%. Still, it may just be that estate agents havent got the faintest idea where the market is...
(14 December 2010, 08:31PM) Complain about this comment
Low interest rates might be an impediment to a thriving housing market. They may well keep house prices high because the vendors are not under pressure to sell but it puts property out of reach of potential buyers. Or buyers who are not prepared to take a future loss when interest rates go up. Maybe its time to put up interest rates to put a bit of pressure on trade and curtail these bubbles in asset classes
(14 December 2010, 11:08PM) Complain about this comment
If interest rates had gone up suitably at least seven years ago the housing market wouldn't be in today's predicament; does anyone consider the situation has been reached whereby whatever is done to interest rates in the near future, the outcome will not contradict the theme of this article?
(15 December 2010, 03:53PM) Complain about this comment
Had my eye on a 3-bed house in my area now for over two years having moved to Leicestershire to rent.The ones I have been watching in the local school catchment area have sat reasonably well for the last 18 months, but the air seems to have changed a bit.Most of my saved properties on the website I use have all sat there for at least six months now, and all have had to move down £5k or so here and there.One property we liked was on the market in June at £165k, September at £160k, finally selling this week for £140k. £25k drop in asking price to price paid was a big signal to me, the real discounted properties are on the way.
(18 December 2010, 02:06PM) Complain about this comment
This seems rather like your extremely misleading article on Prime Central London property (Prime houses may crash harder than the rest, Sept 7 2010) where you attempted to hoodwink readers by using a stats from John D Wood in areas where they sell very few houses.Houses in Kensington or Holland Park certainly did not fall by around 18%, on the quarter as you claimed. The respected Knight Frank index suggested a negligible fall of 0.7% on the quarter. (The November KF PCL Index suggests a 0.9 % increase.)You then claimed a 0.2% fall on the KF PCL Index in October "showed the trend continuing"!! I'm not sure how you equate a 72% annual fall to a 2.4% annual fall. You then closed the article for comments so you couldn't be corrected.Perhaps you will update your article on Prime Central London with the latest KF PCL Index and correct your previous statements?
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