Northern Rock, and why this will be the start of the great House Price Crash.

[Stewart]

Things go up......and they come down again.

It is inevitable....but Rave, my dear dear chap.....you've been saying it for so long that it's BOUND to occur one day, isn't it?

Ex-zak33-ly.

Even a broken clock is right twice a day - you can't just constantly predict the same thing, and then claim to be some sort of visionary when it eventually happens. You've been prediciting this since the long, hot summer of 1976.

[monkeyville]

Bargain price shares here i come.....i love panic buys. The BoE has been saying for days that they are not in trouble and the share price is at 250ish and stopped dropping. I might wait to see if they get a little bit cheaper but their definitely going to regain ground up to 400ish, maybe not the 800 they were last week for a few months/years but still a good percentage increase.

[Purely my opinion don't do it if your a n00b]

[Funkstar]

I'm really tempted here too. I'll see what they do tomorrow.

[kalniel]

Either not much will happen, or it'll cost me a few grand, or you'll have missed out on some very quick easy (if risky) profits. We'll know over the course of the next few days/weeks.

Well fun as theoretical speculation is, I sadly can't afford to actually put any meaningful amount of money into stocks

[Russ]

heres my logical thinking for why the housing market wont crash and if anybody finds a flaw to it, let me know.

England, contains people.. lost of them
People need houses to live in
People will keep buying houses as they need them to live in regardless of NR having a bit of a bump
I am sexy and cool

the last one doesnt have much to do with housing market but thought it was worth mentioning and i appologise for not reading the whole thread

[wombar]

heres my logical thinking for why the housing market wont crash and if anybody finds a flaw to it, let me know.

England, contains people.. lost of them
People need houses to live in
People will keep buying houses as they need them to live in regardless of NR having a bit of a bump
I am sexy and cool

the last one doesnt have much to do with housing market but thought it was worth mentioning and i appologise for not reading the whole thread

Haha, I like your thinking Russ, you're certainly not boring us with statistics I personally think the money is simply going to run out which is what is going to cause prices to dip, crash or stagnate (to the point where wages catch up).

At the moment, it's generally only people with large incomes (£60k+) or people buying together with partners, family etc who can realistically afford to repay a mortgage (notice the word realistically instead of relying on equity to bail them out at the end). A single person on an average wage of say £33k doesn't really stand a chance(certainly in the South East), and this means we either start buying houses in groups of 3 or more or house prices have to reach an ultimate ceiling price. I can't see buying in groups becoming the norm because we're ultimately just locking ourselves into another unsustainable cycle. It also means that couples cannot afford to have "stay at home parents" as you NEED two incomes to support the mortgage.

Will prices crash? Maybe, maybe not. Does something have to happen to prices in the long term? Yes.

Average first time buyers are priced well and truly out of the market, and there are too many people buying houses who haven't thought about the long term implications of actually repaying £200K for a terraced house in a suspect area.

[manwithnoname]

I'm one of the suckers that bought a house this summer. If prices were to drop 45% my mortgage would be 100% the value of my house, I'd be smarting a little but even with a rise in interest rate of 2% or 3% my mortgage would be affordable (IMHO rate will drop - wrongly or rightly I basing this on the difference in fixed bond rates 1 to 5 years - and more likely to drop). I've no intention of moving for at least 5 years so I'll see where I am then.

My mortgage is with NR - if they went bump what would this mean for me? I'm not hugely clued up with these kind of things. I just went with the cheapest mortgage I could afford and pay it each month.

If your fairy godmother had her way you're mortgage liability would disappear with NR - someone will buy NR and you will be your liability will move to them...

I'm actually considering buying NR shares. Their asset base is very strong, and I doubt the government wants to see a bank collapse right now. Most likely, they'll either weather the panic and recover, or get taken over. My problem is exactly when to buy.

Of course, it's a risk, but .....

Just been looking at the share price it dipped ~40% today and recovered to be down ~35% on the day, I'm thinking they may have bottomed - but Alliance & Leicester took a beating in the last hour or so to trading done ~30% - maybe the banking share will drop further but NR are very low...

Hehe yep. Personally I wouldn't buy NR, I'd buy in the company taking over - they are the ones that will benefit from the undervalue. If you get shares in NR then all you'll do is be forced to sell them at that below value rate, in my opinion - we differ in our assesment of whether the buy out would be complete or not

Assuming NR are solvent and they have a strong mortgage portfolio (ie lots of prime and not too many sub-prime) NR problem appear to be cash flow.
Last week NR share price ~650p today ~280p drop ~57%
Last week cash deposits of £24bn today £22bn drop ~8%
It's a bit simplistic, but I believe any takeover will be at a premium of 280p, the current price does not appear to reflect number of customers/deposits lost.
A majority of shareholders need to sell before you would be subjected to compulsory purchases...

But I work in I.T. so what would I know

[charleski]

Remove the confidence about house prices and they might actually collapse, [s]imply because confidence has gone.

I have to admit that circumstances like this reawaken my student Marxist notions about the intrinsic superiority of use value over exchange value. Even discounting my naivety in these affairs, I can't help feeling that dreaming up money was at the root of 1929.

[JPreston]

Ah I like that idea; even if my house to start losing exchange value at the rate my stocks have (all bloody year) it still retains it's high use value, because it gives me somewhere to keep all my stuff and watch TV in.

[Rave]

Wow! I thought I'd get a kicking- instead plenty of you seem to have turned bearish recently. There's lots on here I'd like to reply to, but unfortunately after finishing work at 1am I had to drive my brother to Stansted airport, so I've been a bit short of time this morning, and now I have to go to bed.

However:

i thought that too.....

Rave's oldest warning that I can find...
http://forums.hexus.net/showpost.php...78&postcount=8
August 04.

Anyone who purcahsed a house that day, and still has it now, is well well up on the value and it'll need to drop MILES to come back to what they paid back then.

Hmm....well I read it, and it's hardly a strident warning, just an opinion that house prices would start to reverse soon. And in fact, they then headed that way- house prices were pretty static through most of 2005, and the trend was heading towards negative, until the BOE decided to cut interest rates by a quarter of a point in August 2005 and managed to reinflate the market.

That, IMO, was extraodinarily foolish of them. I don't believe a 'soft landing' is ever possible, but had the bank held interest rates I think the decline in house prices that looked like it was about to follow would have been relatively moderate- not on the scale of the 1989-96 crash. Instead the market has hit crazy new highs, and staggering sums have been borrowed against assets that have tripled in value in 10 years.

As you say, prices have a long way to fall before they're back at August 2004 levels- but there is absolutely no doubt in my mind that they will fall that far....and then a lot further. Whether this is in nominal or inflation adjusted terms depends on whether we manage to avoid inflation spiralling out of control.

[M0nkeyb0Y]

As you say, prices have a long way to fall before they're back at August 2004 levels- but there is absolutely no doubt in my mind that they will fall that far....and then a lot further.

No! Bad Rave! Just when your doom, gloom and bust perspective seemed sensible, attractive even, you go and blow it out of the water with a statement like that.

[Nick]

Ah Rave, I do so love these doom-sayer posts... they really do make my day.

One thing that Mr Rave is missing out on and you really should bear in mind is that unless you specifically bought your house as an investment, as a second property to lease or intend on moving anytime soon, you really don't have to worry about house prices falling.

What should be your biggest concern is whether or not you can afford the repayments on all your borrowing if interest rates go up... THAT'S the big one.

Now, I would UTTERLY advise against selling your house now based on that fact that NR have had a run. I would NEVER sell because Rave reckons I should. It's not that he's wrong in a lot of what he says, just that advising people to sell because prices may fall is a Chicken Little attitude and whether you sell or not depends ENTIRELY on your future plans...

Right, so, working on the basis that house prices DO drop... as predicted by Rave more times bears have relieved themselves in woods here' what you should consider:

Only consider how you'll pay back your repayments on borrowing should interest rates go up... and THEN consider your house as an asset you can use...

So, if you've stretched yourself with a mortgage to buy a property in the hope of making some money, either look at selling (don't forget that wonderful HIP report) or settle in for a loooong wait before seeing a return on the investment. That's IF you reckon you can afford possible higher mortgage payments.

If you bought a 2nd property to lease out. Your problems only start if you've not a got tenant and, according to Rave's model, seeing as everyone should sell there'll be a load of renters and bugger all space to rent... so you could clean up here and charge a premium!

But on a serious note, you should consider flogging this as no tenants means no income and can you afford to pay two mortgages on just your own income? Of course, the sensible thing would be to wait and see... and if you loose your tenants, then look at selling.

The last one is the big kicker: If you want to move soon or want to move around every five years or so.

Ok, so I'm hard pushed to see why ANYONE would want to move house every 5 years or so but if you do have that kind of inkling then perhaps you should look at selling and going into rented...

BUT if you're settled, happy where you are and not over-extended on your repayments, then stay where you are because Rave's doom n gloom predictions miss out on one important point:

Negative equity in house prices only matter when you want to sell your house.

If you can afford the repayments and have no intention of moving you're far better off staying where you are.

Yes, you'll be paying off on a mortgage that may be more than the current value of the house but that only comes into play if you want move.

House prices might perhaps flatten off, or even drop, but that makes not one bit of difference if you're not selling.

Sure, it may be a pain in the arse that you're paying over the going price for your house but what's the alternative? Sell the house and take out an unsecured loan to make up the difference between what you owe and what you sold for?

Absolutely the best thing you can do is stay put and ride it out.

Given the total disaster of the price crash of some 18 years ago, you can bet that the BoE will do everything they can to avoid it. And all major lenders do not want to be stuck with a load of houses to flog in auction as people hand back the keys and walk away... the lenders lost millions too so they'll work hard to keep borrowers in their properties.

So to sum it all up: If you're happy where you are and can afford to repay all your borrowing, just ride it out.

If everyone worried about the value of stuff after they'd bought it, we wouldn't ever buy anything again...

ps. My 'I told you so' predictions for the future:
A colony established on the moon
Manned mission to Mars
Life discovered elsewhere in the universe
Rain sometime in the next three months
Rave to warn about this all over again after the next general election
Pope to be confirmed as Catholic.

Right, that's my piece said, I'm off to buy a copy of the Daily Mail cos according to them, EVERYTHING affects house prices...

[kalniel]

Negative equity in house prices only matter when you want to sell your house.

Actually I'd go futher and add: "and only then if you don't want to buy immediately".

If house prices fall, the house you move too will be cheaper by the same proportion. You've not lost any more money and are just continuing to pay for the original money you borrowed which you made sure you could afford to pay back.

[schmunk]

I blame that chap who died after the three-day gaming session. It's all his fault.

[Nick]

Actually I'd go futher and add: "and only then if you don't want to buy immediately".

If house prices fall, the house you move too will be cheaper by the same proportion. You've not lost any more money and are just continuing to pay for the original money you borrowed which you made sure you could afford to pay back.

True though a lot of lenders will only give a mortgage based on the value of the house, so if it's less then you could find yourself having to find money to fill in the shortfall.

Unless you can just pick up your mortgage and drop it on another property, which you can with Abbey's flexi-mortgage.

[kalniel]

Yes, that would be a good case to hang around in your current property untill you've paid enough off to require a smaller mortgage for the new property. Though I think the banks would expect such a scenario and as long as you've shown good credit rating for your current mortgage you'd probably be ok.