House prices to crash
- Thread starter Uncle C
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Stumpy Tim
Well-known member
Hey Uncle C. When was that graph in Post 1 first drawn up? If it was in the 1970's then it could be seen as very prophetic & worrying for some people. However, if it was done in the past decade it is a little less clever as it would simply be mapping real-life.
Genuinely interested
Genuinely interested
Uncle C
Well-known member
- Thread starter
- #183
As far as I know it was not a graph targeted at the property market.
I think its title is something like DNA of a bubble. It was probably compiled after the many stock market bubbles that have come and gone over the years both in single companies and across the markets like the .com crash.
I also find it amazing that it superimposes so accurately (so far) on the property market. As a scientist I love looking at graphs and trends. I've been following it since the greed phase when all and sundry were out buying houses abroad and 'buy to let' properties.
Self certs are not under the spotlight they are banned and the last one went about 6 months ago. Fast track is also going to be banned as well.
brightonbaz
Member
- Feb 22, 2009
- 179
Mortgage lending
For Uncle Spielberg - When I bought my first house the lenders had strict rules on multiples of salary. For example 3 times my salary and one times the wifes as I was the larger wage earner. It seems to me that lenders dropped this rule and therefore mortgages grew in size to keep buyers up with high house prices (I have one friend who self certified for £330,000 - scary!). Why were these rules relaxed/dropped and what would have happened to house prices if they had not? I suspect prices may have risen in line with inflation.
On a general note my kids are 20 and 18. The eldest married with a baby son. Neither will really have the opportunity to own their own home unless prices fall to affordable levels. And for me this is the crux of the problem......a house should be a home and a house should not necessarily be an investment opportunity....and for those who invest and take the risk they should remember the old maxim of "prices can go up but they can also go down"
For Uncle Spielberg - When I bought my first house the lenders had strict rules on multiples of salary. For example 3 times my salary and one times the wifes as I was the larger wage earner. It seems to me that lenders dropped this rule and therefore mortgages grew in size to keep buyers up with high house prices (I have one friend who self certified for £330,000 - scary!). Why were these rules relaxed/dropped and what would have happened to house prices if they had not? I suspect prices may have risen in line with inflation.
On a general note my kids are 20 and 18. The eldest married with a baby son. Neither will really have the opportunity to own their own home unless prices fall to affordable levels. And for me this is the crux of the problem......a house should be a home and a house should not necessarily be an investment opportunity....and for those who invest and take the risk they should remember the old maxim of "prices can go up but they can also go down"
- Aug 7, 2003
- 7,858
If the 2 graphs you posted on the other thread, The Credit Crunch (Visualised) - North Stand Chat ,supposedly, map each other, then the £300k London property will be selling for £25k in a couple of years. In that case, I and anyone else with savings will be buying properties for cash, Rachman style
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Arthritic Toe
Well-known member
Trouble is, it doesn't matter how many graphs you put in front of people as during the 'mania phase' they will always convince themselves that 'its different this time' and this time, it isn't a bubble, its a 'new paradigm'. The favourite argument during the last two housing market bubbles has been 'supply and demand', i.e. that shortage of housing stock will keep prices at a new high level. In fact there is no evidence of a shortage (except in some specific locations), although this myth seems to have persisted, due to the huge ramping it was given during the mania phase.
drew
Drew
But when have 20 year olds ever been able to buy their own property. I left school in 1981 and cannot recall many of my friends buying property until their late 20s or if they were in a relationship with dual income. My parents were in their 30s when they bought their first property in the late 60s. Why have expections gone up so much.
It is now down to affordability so the old income multiple model is going.
If interest rates are 15% , 3 x is a much higher mortgage than 5 x at rates of 4% so income multiples are an irrelevance its what the mortgage payment is in relation to their income.
Ray Bolger
As we enter the fourth year of the credit crunch the chickens look like increasing coming home to roost for many consumers, courtesy of the FSA, which now plans to deprive a significant number of people of the ability to buy their own home. If its proposals on affordability in last month’s Consultation Document: “C.P.10/16: Mortgage Market Review: Responsible Lending” are adopted without significant changes the lack of funding for mortgages will cease to be a problem.
This is because as currently proposed the FSA’s new affordability rules are so draconian that they will prevent lenders from offering any mortgage at all to a large number of perfectly credit-worthy people they would be happy to lend to, even with their current very restrictive lending criteria.
Furthermore, it will significantly reduce the maximum mortgage amount lenders are allowed to offer many other borrowers, especially those with volatile incomes. This will undoubtedly result in a sizable reduction in activity in the housing market as lenders are forced by the FSA to either decline many more mortgage applications than they do now or tell a sizable number of borrowers who have comfortably met their mortgage and other commitments for many years that they are not even allowed under the new FSA rules to offer the same size mortgage they are currently servicing, let alone more to facilitate a move to a larger home as their family grows.
Because the housing market is such an important driver to the economy the resulting reduced activity will have an adverse impact on the economy generally, resulting in a toxic mixture of reduced tax receipts for the Government and increased benefits payments. It will therefore be much more difficult for George Osborne to meet his target date for re-balancing the structural deficit. It is a brave Government which allows its financial services regular to threaten the economic recovery in this way!
As we enter the fourth year of the credit crunch the chickens look like increasing coming home to roost for many consumers, courtesy of the FSA, which now plans to deprive a significant number of people of the ability to buy their own home. If its proposals on affordability in last month’s Consultation Document: “C.P.10/16: Mortgage Market Review: Responsible Lending” are adopted without significant changes the lack of funding for mortgages will cease to be a problem.
This is because as currently proposed the FSA’s new affordability rules are so draconian that they will prevent lenders from offering any mortgage at all to a large number of perfectly credit-worthy people they would be happy to lend to, even with their current very restrictive lending criteria.
Furthermore, it will significantly reduce the maximum mortgage amount lenders are allowed to offer many other borrowers, especially those with volatile incomes. This will undoubtedly result in a sizable reduction in activity in the housing market as lenders are forced by the FSA to either decline many more mortgage applications than they do now or tell a sizable number of borrowers who have comfortably met their mortgage and other commitments for many years that they are not even allowed under the new FSA rules to offer the same size mortgage they are currently servicing, let alone more to facilitate a move to a larger home as their family grows.
Because the housing market is such an important driver to the economy the resulting reduced activity will have an adverse impact on the economy generally, resulting in a toxic mixture of reduced tax receipts for the Government and increased benefits payments. It will therefore be much more difficult for George Osborne to meet his target date for re-balancing the structural deficit. It is a brave Government which allows its financial services regular to threaten the economic recovery in this way!
Arthritic Toe
Well-known member
And that right there is the source of the boom and bust cycle. As interest rates steadily fall from high to low, people are able to borrow more and more for the same monthly repayment. Once interest rates start to turn up again, or stabilize, it all goes bang.
To eliminate the boom and bust, instead of chopping the repayments up into equal monthly amounts over 25 years, the payments need to be somehow weighted to include some sort of frig factor to remove the variability as interest rates change. It would be different to a fixed rate mortgage, I think.
Without parental help on schemes such as Lloyds TSB’s Lend a Hand mortgage, or going down the shared equity route, first time buyers (FTB) need a minimum deposit of 10% to have a chance of getting a mortgage. Even then even those with a perfect credit history will often be rejected because the lender considers their credit score to be too low, possibly simply because as they have been saving for a deposit and consequently haven’t had any borrowing they can’t prove they can handle credit!
Proving you can save regularly doesn’t impress most of the big computer driven lenders, whereas proving you can make the minimum payment on time each month on a few credit cards does! Fortunately some of the smaller lenders use a human underwriter with common sense instead of relying solely on a credit score and this is just one example of where a good independent mortgage broker can help FTBs by choosing a lender which will actually lend to them rather than an apparent “best buy” for which they will probably be rejected.
Just before the credit crunch In June 2007 the best value 5 year fix for at 95% LTV was 5.79% with a £199 fee and no higher lending charge, offered by Portman Building Society, and the best value lifetime tracker at 90% LTV was Bank Rate + 0.09% with a £749 arrangement fee from Chesham B S. At that time Bank Rate was 5.5%.
Today, with Bank Rate at 0.5%, 95% mortgages are not generally available but the cheapest 5 year fix at 90% LTV is 0.1% more expensive at 5.89% with a £499 fee from Co-op / Britannia and the cheapest lifetime tracker at 90% LTV is Bank Rate + 3.99% with a £599 fee from HSBC.
Thus, even when a FTB has managed to save a 10% deposit and get approved for a 90% LTV mortgage they will pay more for a 5 year fix today than pre credit crunch. Furthermore they will not have the option of an interest only mortgage, with or without a robust repayment plan, as no lender is now offering this option at 90% LTV.
One benefit FTBs do have as a result of the credit crunch, provided they can save the deposit and get a mortgage, will be that property prices are lower, but this is of no value if they can’t get a mortgage!
For the foreseeable future we will have a FTB market of the haves and the have nots. The minority who have inherited some money or are able to save the large deposit required while also paying rent will be able to buy their own home. The rest will have little option but to either live with their parents far longer or rent without any realistic likelihood of being able to buy their own home for a very long time, unless they can get help from parents, or perhaps grandparents.
It is much more likely that parents who own their own home will be in a position to help out in this way and so a lasting legacy of the credit crunch will be to perpetuate the divide between families who are homeowners and those who are not.
Proving you can save regularly doesn’t impress most of the big computer driven lenders, whereas proving you can make the minimum payment on time each month on a few credit cards does! Fortunately some of the smaller lenders use a human underwriter with common sense instead of relying solely on a credit score and this is just one example of where a good independent mortgage broker can help FTBs by choosing a lender which will actually lend to them rather than an apparent “best buy” for which they will probably be rejected.
Just before the credit crunch In June 2007 the best value 5 year fix for at 95% LTV was 5.79% with a £199 fee and no higher lending charge, offered by Portman Building Society, and the best value lifetime tracker at 90% LTV was Bank Rate + 0.09% with a £749 arrangement fee from Chesham B S. At that time Bank Rate was 5.5%.
Today, with Bank Rate at 0.5%, 95% mortgages are not generally available but the cheapest 5 year fix at 90% LTV is 0.1% more expensive at 5.89% with a £499 fee from Co-op / Britannia and the cheapest lifetime tracker at 90% LTV is Bank Rate + 3.99% with a £599 fee from HSBC.
Thus, even when a FTB has managed to save a 10% deposit and get approved for a 90% LTV mortgage they will pay more for a 5 year fix today than pre credit crunch. Furthermore they will not have the option of an interest only mortgage, with or without a robust repayment plan, as no lender is now offering this option at 90% LTV.
One benefit FTBs do have as a result of the credit crunch, provided they can save the deposit and get a mortgage, will be that property prices are lower, but this is of no value if they can’t get a mortgage!
For the foreseeable future we will have a FTB market of the haves and the have nots. The minority who have inherited some money or are able to save the large deposit required while also paying rent will be able to buy their own home. The rest will have little option but to either live with their parents far longer or rent without any realistic likelihood of being able to buy their own home for a very long time, unless they can get help from parents, or perhaps grandparents.
It is much more likely that parents who own their own home will be in a position to help out in this way and so a lasting legacy of the credit crunch will be to perpetuate the divide between families who are homeowners and those who are not.
Mortgages now are more affordable than ever in their 200 year history. About 11% of net income on average compared to 40% when rates were over 10%.
beorhthelm
A. Virgo, Football Genius
- Jul 21, 2003
- 35,432
only because you've chosen a time period that fits. there's been alot of that recently in science
. i would wonder how well it fits if the data is from say 1850 or 1995. its only an illustration of the idea, exagerated to highlight the trend and features. last one went due to banned already or due to lenders withdrawing the products? and what does "fast track" mean, surely thats just a company to company process.
well depending on the implementation of course, thats a good thing. i never could understand why the lenders took a multiple of salary to arrive at a number half what i was paying in rent (this was in the 5-6% rate days). i dont see the FSA has much authority to be strict and will issue "guidelines", it doesnt have the credibility or teeth to start issuing dictates on lenders. we'll see.
and when was it any different? only when 100-125% and self certs where around.
an interesting point that underlines why the crash isnt likly. i personally dont believe we'll ever see 10%+ interest rates again, the markets are too open and fluid internationally, you'll get someone offering lower somewhere. for the foreseeable i dont see much inflationary pressure either, VAT and oil price aside, so i dont see the interest rates going up more than 1-2% in the next few years.
Uncle C
Well-known member
- Thread starter
- #196
only because you've chosen a time period that fits. there's been alot of that recently in science
The period selected (not by me) is the period since the bubble started. Why would anybody select anything else. Nobody would have expected a bubble to last 160 years!
Uncle C
Well-known member
- Thread starter
- #197
If the 2 graphs you posted on the other thread, The Credit Crunch (Visualised) - North Stand Chat ,supposedly, map each other, then the £300k London property will be selling for £25k in a couple of years. In that case, I and anyone else with savings will be buying properties for cash, Rachman style
I only said they match so far.
What you have to remember is that the DNA of a bubble is derived from the bubble profiles of readily traded commodities such as shares, gold, tulips etc.
With houses we might expect something only similar in nature, as houses are not traded at the push of a button and are influenced by other factors such as birth, death, job changes etc.
Because of this its even more suprising that the house price profile fits so nicely.
As you rightly point out its inconceivable that house prices will drop off a cliff (some shares go to zero value). But there will be a significant drop until prices reach the long term ratio to wages. Dont forget in the short term there will probably be a significant overshoot to the downside.
Uncle C
Well-known member
- Thread starter
- #198
Some people still being caught in the bull trap generated by Estate Agents. This is where the first time buyers homes are going.
"The latest second homes statistics from estate agent Knight Frank said numbers rose to 245,384 in 2009, up 2.6 per cent on the previous year"
http://www.telegraph.co.uk/finance/personalfinance/7948047/Number-of-second-homes-reaches-record-high.html
"The latest second homes statistics from estate agent Knight Frank said numbers rose to 245,384 in 2009, up 2.6 per cent on the previous year"
http://www.telegraph.co.uk/finance/personalfinance/7948047/Number-of-second-homes-reaches-record-high.html
- Aug 7, 2003
- 7,858
The problem is that the "Main Stages of a Bubble" graph does not have calibrated x & y axis, whereas the property price graph does. Manipulation allows a fit "so far". As I said, and demonstrated, in an earlier post, I believe the long term ratio to wages for FTB to be comparable over the last 30 years, so I really can't see the "crash" that you're forecasting, happening.
Fair play to Dr Jean-Paul Rodrigue, though, his model does seem to have some merit, and he was certainly ahead of the field when it came to predicting the "crunch".
Fair play to Dr Jean-Paul Rodrigue, though, his model does seem to have some merit, and he was certainly ahead of the field when it came to predicting the "crunch".
Uncle C
Well-known member
- Thread starter
- #200
Well thats where you and I differ. Do you have a graph to prove this?
Here is a look at my evidence. Long term ratio 3.5. Current ratio about 4.5
http://www.housepricecrash.co.uk/graphs-ftb-average-house-price-to-earnings-ratio.php
Assuming average wages stay the same, then we need a 22% drop in house prices to restore the long term ratio. With overshoot this equates to a drop in house prices of about 25%
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