40% crash

[empip]

...BANKS in the UK have been ordered by financial regulators to assess how they would cope in the event of house prices crashing by 40 per cent.
The instruction to include a housing slump scenario in their stress-testing models comes after the Financial Services Authority found that some banks were failing to include gloomy enough assumptions in their modelling.
The FSA said yesterday that an 'appropriate' benchmark was to assume property prices fell by 40 per cent and that 35 per cent of mortgages in default ended with homes being re-possessed...

Hmm .. An ill wind or minor draught blowing through that ever open door..
No probs, the Bank rate at 5% remains 1%'ish below the all time mean.

[code:1]
Since Oct ... 1694 !!
Max 17.00% Ouch! felt some of that
Min 2.0000%
Mean 6.0224%
[/code:1]

 

[masona]

The trouble is, the bubble got to burst sometime.

 

[WoodYouLike]

The trouble is, the bubble got to burst sometime.

Not with a bang is my feeling, it will 'deflate' gradually

 

[Nige F]

Bring it On last mort. payment in Feb.

 

[WoodYouLike]

Re-reading the quote in empip's post makes me wonder why the 40% drop doom scenario? Isn't that just a percentage plucked from the air? and so, by whom - the financial regulator? - and why?
Other reports of the last months show a very different trend and predictions

 

[Maxxy]

They better not drop 40%! Bought my first house 3 months ago!

 

[WoodYouLike]

They better not drop 40%! Bought my first house 3 months ago!

If the house prices dropped 40% in the coming - your guess is as best as mine - how many years, don't you think the whole of the economy would be down in the boomrats a lot longer already?
so still IMHO total nonsense doom scenario

 

[rightsaidfred]

The trouble with the housing market is that there is nothing supporting it at the bottom. The first time buyer is all but priced out of the market such that some lenders are offering 5 x salary mortgages and the Buy to Let market is saturated. I met someone recently who had a flat in Hammersmith that has been vacant for nearly 2 years - no tenants and no buyers at the market price. The house price rise cannot carry on. On a macro-economic front, the rise of China and India will, inevitably, require a drop in living standards in the West. One American think tank concluded, last year, that in 50 years time we could expect a living standard closer to that of the early 60's than today. A 3rd world at our standard of living would be so unsustainable a redistribution of that living standard is the only option. That will, again inevitably, lead to a large relative drop in house prices. It's "when" not "if" that is in question.

 

[JohnD]

The one thing we DO know for certain is that house prices can't continue going up at e.g. 25% a year indefinitely. Houses are worth what people think they are worth, so if confidence is lost in in high and rising prices, they are quite capable of going down quite hard.

House prices must have a relationship to the ability of people to pay for them; so they must have a ratio to earnings of house buyers. Whether this means that the cost to buy your first house should be 5 times or 10 times your earnings I don't know. It probably shouldn't be 20 times or 50 times because (unless we have high inflation as in Thatcher's day) you would never be able to pay it off.

Looking on the bright side, if you are a resident homeowner (not a property speculator) then it doesn't really matter what a house is worth. You need one house; you have one house. If you sell it to buy another, you will get the price of one house. A bigger house will cost whatever you can afford above the price of a small house.

We had a price crash about 15 years ago which meant that some people had a house that was worth less than their mortgage, which made them sad, but still meant that they had a house to live in, which is what they bought it for.

 

[WoodYouLike]

One American think tank concluded, last year, that in 50 years time we could expect a living standard closer to that of the early 60's than today. A 3rd world at our standard of living would be so unsustainable a redistribution of that living standard is the only option. That will, again inevitably, lead to a large relative drop in house prices. It's "when" not "if" that is in question.

Wrongsaidme Joking apart:
A) American 'think'tank thinks/knows America is loosing out at the moment = doom scenarios, scare mongering
B) long before those 50 years are gone other economics will have found their way into our lives (for better or for remaining the same).

We. the people, can think, deside and know for ourselves, can't we? Or are you just going to wait, sit still, do nothing when economics as we know them now are starting to change?

 

[JohnD]

Perhaps the "US Think Tank" whatever it was recognised that Americans cannot continue consuming 80% of the worlds resources and hosing oil and energy supplies around as though they were worthless.

 

[WoodYouLike]

Perhaps the "US Think Tank" whatever it was recognised that Americans cannot continue consuming 80% of the worlds resources and hosing oil and energy supplies around as though they were worthless.

(honestly stolen from another topic)

 

[Nige F]

Early 60`s standard will do me fine ...pleny of work for those who want to graft and a reasonably priced Council House to live in and raise a family..free dentists, school milk , eye tests .........bike to ride to work and a holiday @ the seaside .............NO debts.............I wonder who ****ed it all up begins with a T.........and I`ll be the first to dance in Trafalgar square when it dies

 

[JohnD]

I've got the tombstone ready...

It says "Licenced for Music and Dancing"

 

[empip]

How about ... An average mortgage / rent must be affordable at the average pay level.
The average is being ratcheted up slowly for pay, quicker for outgoings.

These markets can be fickle once a slide begins and more people feel they should bail out then do so then a landslide is in the offing.
Never forget HMG has repeated time on time, 'do not rely on a house as pension'... They may very well have future plans too onerous for current times.

I reckon the FSA will have done their homework, it was not a prediction of doom but just a scenario they would have pondered overpriced land due to lack of availability .. That may change.

...Land for house building is very restricted by planning laws.

That for shops and offices much less so, and there is, in reality, almost no hindrance to the supply of land for industrial purposes, as this creates jobs.

So, since 1980, UK house prices have risen by an astonishing 676%.

But the value of shops, offices and industrial estates has gone up by just 261%.

What that suggests is that a house that cost £30,000 in 1980, and which is now valued at £203,000, would cost just £78,000 - roughly 60% less - if all the demand since then for house building land had been satisfied.

Not predictive.. But makes you think ... I have seen good times come and go... Not many predicated the coming or going beyond generalisation and a finger in the wind...Look at the company pensions since new appraisal accounting principles employed ... Here today gone tomorrow for some unfortunate folk - a scandal especially under a Labour Govn.