Horsham Forum - The Horsham and Southwater Commmunity Forum

Selling prices reached a peak in 2004 and they are now on the way down.  I see many houses that have been up for sale over 6 months and some for over a year.

Is this the start of the much talked about house price crash?

Things are different to 1989 though - they are far worse!  Despite historically low interest rates consumer and manufacturing organisations are now calling for cuts to stimulate money supply. However, in recent years this tactic has produced record levels of debt. The debt burden has more then doubled over the past 8 years (now above 1.1 trillion pounds!).

 In the past few years investors have taken the place of First Time Buyers which has supported the foundations of the housing pyramid. Investors are now returning to the stock market for better returns. Hence, houses further up the price scale are failing to sell as money is not pumped into the lower levels.

The housing market is like a super tanker changing direction: it takes a long time to happen.  We may well look back at 2005 and say that was the year the crash started.

Nationwide today released their regional house price data. Prices in southern West Sussex have fallen by 6% in real terms over the year. Given that only the best houses are selling I think we will see the Super Tanker pick up speed ... backwards!

http://news.bbc.co.uk/1/hi/business/4594200.stm

http://today.reuters.com/business/newsarticle.aspx?type=realEstateRestaurantsHotels&storyID=nL09772924&imageid=&cap=

The 1989 crash actually happened quite quickly. It was largely due to Nigel Lawson scrapping the dual income mortgage tax relief. This lead to a lot of people rushing to buy properties together to meet the deadline. When the deadline came the number of first time buyers was vastly reduced and the market was sent quickly into reverse. 

MIRAS withdrawal was one of the factors that led to the last crash which, in fact, saw prices fall over a prolonged period between 1990 and 1996. The slowing housing market resulted in a recession in 1991. Note that the housing market slowed first, then recession came, not the other way round!

A property obesssion, distrust of the stockmarket and Buy to Let Investors coupled with historically low interest rates have resulted in a the average property trippling in price since 1996. The party finished last year.  Prices are considered to be 20 to 30% overvalued. Paying top of the bubble prices now may well mean negative equity.

But the mortgage companies and banks are saying prices may be on the up again you say. Well, guess what! They said that in 1989 too; they need you to be in debt so they can make money! See below:

The Times
THU 09 NOV 1989
House prices 'to rise'
Property prices in London, the south-east and East Anglia will recover next year and begin to increase by about 10 per cent a year, according to Morgan Grenfell, the merchant bankers, in a report on the housing market published yesterday. The recover...

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Speculation and debt!

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Speculation has seen many jump on the property bandwagon. That means the consequences of a property slowdown are felt by many more. Investing in property at the right time has seen outstanding returns. The right time as long since passed. Easy finance with interest only loans coupled with low rental yields has seen many buy property "as a pension" or "long term investment". Losses in the short term are seen as acceptable by these amateurs. Monthly rental may not cover the Landlords mortgage payments - even when interest rates are historically low. Interests rates may trickle down in the short term but long term the trend is up.

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Debt: never has so much been owed by so many!  Let the statistics speak for themselves:

http://www.creditaction.org.uk/debtstats.htm 

I also believe high house prices are bad for the following reasons:

• First Time Buyers are priced out the market which means my children cannot afford a house of their own - something I took for granted.
• Parents may be forced to finance the housing of their children so they can "get on the ladder".
• The rungs of the ladder get further apart. ie. if my house increases by 10% so does the one I'd like to buy next so how have I won by higher prices?
• People have less disposable income as mortgage payments become a greater proportion of their earnings. Therefore, the economy suffers as the consumer spends less.
• The cost of moving increases ie. higher prices mean more stamp duty and higher estate agent fees.
• Inheritance tax becomes a factor for average houses. When is more tax a good thing?
• The work force becomes less mobile as moving house becomes more and more expensive.

So when are high house prices good? Well it makes people "feel" wealthy so they spend more - the debt/wealth illusion.

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The mortgage companies love high house prices - it's great for their profits.