Are house prices really dropping 10%, or is it just media hype?
More Money Stuff, Mortgages Sep 29, 2008
We all know that the media are fond of doom and gloom stories.
Apparently it helps them to sell papers because we reputedly prefer bad news to good!
But one of the doom and gloom stories that has appeared repeatedly this year is how much house prices are dropping by. The latest figures from the Land Registry say that house prices are now 4.8% lower than they were this time last year. Much more attention, however, has been paid to recent figures published by Halifax that suggest they are down even more, as much as 10.9%.
But is your house really worth that much less?
Here’s an interesting opinion on the matter, by our Mortgage Matron’s friend in the property business…
There are some circumstances that have not been discussed much in relation to house prices. To read the press, you’d think that it’s all over for the housing market, and that the general uncertainty over the stability of the banking system means that the only way is down.
But like the stock market, or indeed any market, what people say-and how many people believe them-can have the effect of a self fulfilling prophecy. Let’s take a look at the situation from three different angles which, as far as I can see, not many people are currently discussing.
1. The only people selling at the moment are those who really have to.
And by the very nature of the fact that they have to sell right now, they are more willing to lower the price of their house than maybe you or I who are not forced to sell in a hurry.
There is an argument that if the various media had not gone on and on about the fact that they thought house prices were going to fall this year, that actually they may not have fallen by that much!
It seems that all of us are very influenced by what the media say. As early as September of last year there were reports that mortgages were going to be really hard to get and therefore people weren’t going to be able to sell their house and buy a new one with a new mortgage. The reports said that interest rates would ‘soar’ and that ‘house prices were going to plummet’.
2. The only people buying are those that can’t wait.
Of course if you were waiting to buy a house, the predictions of falling house prices were great to begin with-especially for first time buyers especially, many of whom were delighted by the thought of actually being able to get on the housing ladder.
But as talk of the downturn continued, buyers with no time pressure began to think: “Let’s not buy a house yet, let’s wait a bit and see if house prices really do come down”.
As people begin to cotton on to the strategy of waiting for the market to bottom out, this takes a huge number of buyers out of the market. So all of a sudden there is less demand for house purchases. Fewer people trying to buy each house means that the seller, instead of seeing people compete to meet or exceed the asking price, instead sees people wanting to pay less-so house prices start coming down.
This then becomes a self fulfilling prophecy: those who are still buying think they are on to a good thing; the media says that prices are coming down so you make the most of it and put in lower and lower offers.
3. The third angle to this is that most sellers want top dollar for their houses and because they think or see house prices are coming down, they decide not to put their house on the market yet
This brings me back to where we started-the people who don’t have to sell their houses, who would have done a year ago because they want to find a bigger property or just fancied a change, now aren’t selling. The people selling are the people who are relocating or have just got divorced or have other life circumstances that mean they have to sell now. These people are forced to take the lower offers because they cannot afford to wait until things get better.
So the picture we have of current house sale prices are nearly all from those people who have to sell. No, the figures are not lying-but they are also not representative of the population as a whole.
As things pick up-as they surely must do, be it in a year or three years-look to see a surge of houses going on the market as everyone who would ideally like to move, but is holding off doing so, puts their houses back on the market.
(And as this happens, watch the media trumpet the news and the pendulum swing back again!)
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September 30th, 2008 at 9:18 am
I think that this article raises some important points. It is also the case that the underlying demand for houses has not suddenly disappeared although in some sectors it will have e.g. buy to let. It is very difficult for first time buyers to get on the housing ladder because of the difficulty in getting a mortgage unless they have a substantial deposit but it is reasonable to assume that they are still looking to buy a home as soon as mortgages become available again.
House builders have stopped building on many developments so again demad is not being met.
It is clear to me that the media is looking for the dramatic when reporting price falls and it was noticeable that there were no headlines about the Land Registry data which was slightly less alarming than recent reports from mortgage lenders and estate agents. It is only a year ago that we were seeing headlines about house prices continuing to soar they quckly became reports of a house price crash.
It is must be obvious to everyone that there have been falls in asking prices and there are deals to be had but we do not yet face the US situation.
September 30th, 2008 at 9:45 am
the house prices are falling, they have fallen drastically in some parts of England, i know, we had to take a 22% cut in our house to sell, which took two years! and this was before the media ‘hyped it’.
Scotalnd is now entering the early stahges, people trying all sorts of permutations and combinations to seel their house, where we has to take gradual cuts in price, some of these sellers will wake up to large cuts, which will be a lot tougher to swallow!
September 30th, 2008 at 9:59 am
i like the guys who are raffling off their house for £200 a ticket, 1,000 tickets sold and someone gets a bargain
September 30th, 2008 at 11:52 am
I do so agree with your comments.
And do please continue to publish your most informative graph of House prices from 1972. Yes of course ups and downs but the straight line graph shows that the underline trend is ever upwards.
For those of us who have been around long enough in House sales have we not seen it all before!
September 30th, 2008 at 12:19 pm
ive seen house prices fall in 1989 and myself go into negative equity. House prices will and are falling again because prices have grown too much in the last 7 years. i think over the next 2-3 years they will fall to affordable prices. Then they will stabilise but you wont see an increase in values for the next 5 years and then it will be slow. This is based on my own experience.
September 30th, 2008 at 1:05 pm
Yes. It’s true that only those who have to sell are selling now and they are dropping prices to get a sale. But those sales will establish a new value. So, when the other sellers come back to the market, they will find that buyers will expect the same reductions as they have already seen. They will not be able to pick up again at 2007 prices.
The whole thing is irrelevant anyway. I have has to drop my price 25% to get a sale. But I have negotiated the same discount off the house I am buying. It is just money that I never had anyway. It’s only a problem if you have negative equity and you need to sell.
I can’t believe that you think it’s only media hype about falling prices. Wasn’t there lots of hype about rising prices for years that encouraged people to get onto the property ladder at any price and therefore caused prices to rocket?
Don’t be fooled by the Land Registry figures. They are a lagging indicator. Values are only published 3 months after registration anyway and sales are not registered immediately. So the bank and estate agent figures are less accurate, but much more up to date.
Remember in the early 90s people said the same things about prices picking up soon. But it took 7 years before anything happened.
September 30th, 2008 at 3:13 pm
I have to say – the current state of the market is a little worrying for us first time buyers.
My girlfriend and I have been looking to buy since the backend of December last year.
If we had purchased the first house we decided to buy then we could have ended up in big trouble by now, but we didnt.
We have recently found somewhere else and made an offer on the house with 10% of the price off, plus a 5% contribution from the vendor that was accepted. All in all, as it stands I think we have a good deal – However my main concern is that prices will plumet once we’re moved in.
Is this a realstic concern? I suppose if we’re in it for the long term it’s not going to be an issue?
September 30th, 2008 at 3:26 pm
I am really beginning to feel that it is the media causing problems. If suddenly the media began telling us that house price were in fact beginning to rise again, I think that it would be quite possible that it could happen and prices would begin to rise. Unfortunately, people listen and believe what the media says is right, and what they say is happening is happening.
I also cannot understand why when house prices are cheaper than they have been for a long time why the mortgage lenders withdraw their mortgage offers and make it more difficult to get a mortgage. You would think that house prices are lower, more people would be able to afford to buy, so mortgages should be easier to obtain! The whole thing is very confusing.
September 30th, 2008 at 3:49 pm
The housing market and the global economy has indeed seen better days. Media hype although maybe not entirely to blame has certainly contributed to the problem. I find myself in the unenviable position of having three properties bought to modernise and sell quickly which I cannot now do without making a substantial loss!! The bottom line with property though for the investor or any homeowner is it is a long term plan. One day properties will rise again maybe not at the rates seen previously but generally above the rate of inflation (maybe not higher than fuel prices though!!) If you are fortunate enough to not to be in a position where you are forced to sell (my heart goes out to these people) there is a brighter day around the corner.
September 30th, 2008 at 5:33 pm
I sold my property at the end of August for £30k less than the original asking price. I am in the process of relocating from Cornwall to Sussex, and am staying with family whilst my purchase goes through. I have now discovered my so called portable mortgage will not be granted by the Nationwide for the new property, because I am an agency worker and dont currently have a permanent employment contract. This however was not an issue when I took the 5 year mortgage out in February this year!! It appears the goalposts have moved, after credit scoring me in Feb it seems that I wasnt even required to provide evidence of my earnings, now, despite needing a tiny £30k mortgage to buy a £180k property, they will not lend to me and I am in effect homeless, having sold one property but not able to buy the subsequent one without the mortgage!! Thanks a bunch Nationwide, and they have even charged me a redemption penalty which I was guaranteed to have refunded when my mortgage was ported, but I wont be seeing that again, as they are refusing to allow me to port it!! I appreciate this whole situation has been caused by lending to those who cant afford to repay, but it seems I am bearing the brunt, despite never having missed a mortgage payment in over 20 years of being a home owner.
What a mess!
September 30th, 2008 at 10:00 pm
The current housing market has not fallen,it has reduced back to original values nearly?,due to the market being well overpriced and has the saying goes what goes up ,must come down so all the greedy make way,for the needy,until next time people have short memorys,when clouded by greed.
September 30th, 2008 at 10:37 pm
I am a property development professional and have seen the impact of the influence the funders are having on the market. Lenders will no longer take the risk of high loans to value. To ensure this proffesional valuers are lowering estimated values lower so the loan to value ratio is high, therefore the banks wont lend.
I have seen good quality schemes in areas where flats would sell have £1million taken off the value by valuers because they think the market is falling. This makes the scheme unworkable and then the demand is affected because they dont build the flats. This also means much need affordable housing does not get built.
The finacial sector has created a situation in our housing market because of their greed in making quick money in the USA.
October 1st, 2008 at 12:45 am
i am a property developer and regardless of what the estate agents and media say if you have a good property in the right location you will always sell at the right price because not everyone is a first time buyer and not everyone needs a mortgage belive it or not there is still people around who will pay a good price for a good property in the right location
October 1st, 2008 at 2:52 am
I`m a 31 year old plasterer from the northeast of england, thats ran a small limited company for the last 2 years. After been knocked back for a mortgage in marh 06 with a 5% deposit and again in may 07 with a 15% deposit, I finally got my 25% deposit together in september 07. Then I decided to hold on a while because prices just started to drop so here I am one year on with my deposit still in the bank and me still living with parents stuck in limbo. Can anybody give me some advice, am I doing the right thing waiting or shold I attempt to go for a decent reduction in price on a property now? And by the way apparently prices have dropped 12.7% since august 07
October 1st, 2008 at 5:35 am
Lee,
Personally, I think you’re doing the right thing.
I don’t see any improvement on the horizon when it comes to the current turmoil in global financial markets. Basically Mate, no-one will lend to anybody else unless stringent conditions are imposed.
This will have knock-on effects on businesses and the economy in general, because an expanding company that needs a loan in a hurry may not now be able to get one. This will reduce economic growth in the short-term, and in the worst cases will lead to some companies going to the wall. I follow the stockmarket avidly, and I’ve already seen this happen with some non-financial services related companies, such as MyHome PLC.
If I were you, I would wait for a year before considering entering the housing market, as I think we’re still in the early stages of a recession whose catalyst was the subprime crisis. This recession will lead to job-losses. I don’t know what kind of scale is likely, but I think it is safe to assume that some people will be forced into selling their homes at distressed prices in order to remain afloat.
At the end of the day, this advice is just my opinion. I am not qualified to give you advice. What you decide is ultimately up to you.
I hope this offers you some kind of perspective anyway.
Cheers.
James
October 1st, 2008 at 9:20 am
Lee we are first time buyers and in the same position as you, im also confused, i would love to buy now as I have my interest on a house that has 40 garn knocked of the original price, I am dying to jump at the chance now in case it is away however my partner would rather wait, but think its best to wait another year like James says til things settle, thanks James for that advice, it makes perfect sense!
October 1st, 2008 at 9:25 am
Lee
As i have quoted before….
Millionaires like myself dont follow trends and herds, we think for ourselfs.
My advise to anyone is BUY NOW!! The crunch is a blip! Stick in there!
Buy now 20% below Advertised value and use next years suggested falls as a bargaining tool.offer on numerous properties and if it dont fall next year as predicted you have won the lottery.If it does then ….so what??
Think about it …we have produced the lowest number of bricks this year since 1940!! no houses being built?? Next time it booms theyre will be 2 buyers to one house and to own a house will mean you are successful!!!
Image to some is everything, which means they will pay whatever.
When they start to rise again it might be too late for some holding out for a bargain, Vendors will think i will wait a year to market our property and lets see how high it will rise…TV said it will rise 25% this year (Hypathetical) and theyre are not enough properties again (True)….it will become a sellers market again!….Buy in a buyers market!!!
October 1st, 2008 at 10:28 am
I am in a real dilemma, does anyone have a crystal ball?
I lived in my 3 bed semi for 15 years and only had 10 years left on the mortgage and I would then own the house. We had no worries of negative equity as we bought so long ago and our mortgage was low. In April, we took some advice and decided to buy a larger property, rent our 3 bed semi out, with the long term plan of being able to sell our 3 bed semi in 10 years time and still pay off the mortgage on the larger property.
Then crash, all our dreams gone out of the window. We’ve rented our house for 6 months and my tenant has indicated they would like to stay, but I’m now wondering if I should sell and cut my losses! I just wish someone could tell me what to do!
October 1st, 2008 at 10:46 am
I have been reading all of the comments from hype to truth. I feel that it is a mixture of things that is causing so many problems. I recently purchased a new property and thanks to the reality kicking in of property hitting it’s highest point i was able to negotiate a great price.
As a previous property owner of buy-to-let and residential i have witnessed that the problem is not being able to actual get a mortgage.
With so many people coming out of fixed rates ( including one of my buy-to-let) properties i have had a remortgage refused. My credit score is perfect, never a missed payment. So, i feel this adds to the downturn and that there are a large number of people wanting to purchase but are unable to.
Also, i think it should be more advertised for first time buyers that the government can and do contribute over 40,000 pounds to new buyers. With only 1.5% interest rate per yr of the loan. A friend of mine has just managed to get this deal, very easy and very available! It contributes towards your deposit and nationwide offer a great mortgage deal.
October 1st, 2008 at 11:20 am
House prices are falling.
Even if you dont need to sell, your bricks and mortar are worth less because purchasers are holding off,or nervous and offering lowball amounts to test the water. Selling times are lengthening so an empty house becomes a liability for longer, thus vendors will be more negotiable. Nowadays with sites like ourproperty people know how much him next door paid and nowbody wants to pay more than the neighbours.
Now market sentiment has a lot to do with it but I think the crucial factor is the ability of a 1st time buyer to get a mortgage.
Gone are the 110% loans. looky here for 80% loans.
AND the biggest driver of a boom is the ability to pay.
Whats the average wage in the burbs 15,20,30k with a multiple of 2.5 that gives us the ability to buy a property worth 37.5,50,75k.
Banks are not going in the short term to offer purchasers multiples of 3,4,5 x their income.
Thats why were going to see house prices driven down for up to 4 years.
Then the banks will have forgotten about this saga and start giving bigger multiples to get the business back.
So coming soon to a suburb near you.
Further drops of between 10-30% in the next 1-2 years.
cheerio
October 1st, 2008 at 12:07 pm
I have read all the comments with interest, and surely feel as most do very confused as to what is going on in the housing market? back in 2005 we had our house on the market for 189 thousand and we eventually sold for 150 thousand, the market then was falling,there was no media hype about the situation yet where I come from in the midlands it wasnt just myself who was affected but the whole housing market, so this situation has been going on for at least 2yrs, yet now it seems that the media is as normal hyping the whole situation out of control and scaremongering the people.
I would say if you have the hard cash now is the time to buy property as just as in the 80s, there are many many bargains to be had within this market.
October 1st, 2008 at 4:22 pm
Good debate… I’d love to hear a comment by a professional property valuer by the way – any of those out there?
Just to clear up, we’re not trying to dispute that prices are (& have been) falling; the main points of the article were,
1) the effect on today’s prices of [i]what people think will happen in future[/i] – as predicted by media
2) the current state of the market being represented only by people who have to sell – giving the media facts & figures to reinforce and repeat gloomy predictions.
Of course, if Money Hospital had been around back in 2002, we would probably have run a similar piece pointing out that the widespread belief in property going up has attracted lots of speculative purchases and, again, is a self-fulfilling cycle… (until, like anything fuelled by lending, it reaches the point where somebody or something cannot repay!)
But probably the comment I agree with most is by John L. above:
[quote]The whole thing is irrelevant anyway. I have has to drop my price 25% to get a sale. But I have negotiated the same discount off the house I am buying. It is just money that I never had anyway. It’s only a problem if you have negative equity and you need to sell.[/quote]
And, with exceptions of course, people who buy a home to settle and live in are far less likely to be caught up in trouble than those buying to accumulate wealth. I do feel for Julie and others who have to relocate at a time like this. It does go to show the element of risk in buying something as expensive as a home… not as failsafe as some would have you believe.
October 1st, 2008 at 4:26 pm
sharon, what happened to the 10-year plan – you said you were going to sell your semi after a decade; why do you say ‘all our dreams gone out the window’?
October 1st, 2008 at 4:36 pm
Andye
Credit crunch is not a blip! The UK is the only major Western Economy on the brink of a recession (according to the OECD).
I agree with Billy- its best to wait on buying a house; now is not the time, especially with further house price falls on the way.
Obviously, if you are a millionaire, then you can afford to waste a bit of cash…
October 1st, 2008 at 4:37 pm
Even though I put 30% and 20% deposits down, I am still in danger of my properties going into negative equity, or very little equity, which means I will be unable to remortgage in 2 years time and will have to revert to standard variable rate, something I won’t be able to afford to do.
October 1st, 2008 at 5:00 pm
ah
so it was a 2-year plan
re: crystal ball… things unlikely to be better in 2 years so maybe your cut-the-losses option is wisest. à mon avis
October 2nd, 2008 at 2:36 pm
Does anyone know if you put carrots in a greek salad?
October 2nd, 2008 at 2:55 pm
Optional, I’d say. But cucumbers, feta, parsley, lemon juice, pretty crucial
October 2nd, 2008 at 11:18 pm
as 4 the greek salad no dont put carrots in that will spoil the taste of the feta. lol. Sorry food is one of my stronger points.
Id just like to say im worried about not getting another mortage deal, I got my house at a bargain price nearly 2yrs ago and got a 2yr fixed rate but i still dont own 25% of the property so when it comes to the end of my fixed rate in jan i’m stuffed.
Can anyone give me any advice on SVR and how much can it jump by each month. I could afford to pay maybe 100 pounds more a month than I do now but my social life would go dow the pan. lol. Just unsure of how much it can change each month, but hopefully ill manage !!!
October 6th, 2008 at 10:17 am
claire, don’t know your particular example, but how about this: interest on an (admittedly large) £200,000 mortgage at a typical fixed rate from two years ago, e.g. 4.5%, works out at £9,000 a year or £750 a month. SVR varies from lender to lender but let’s take Halifax for example, 7.25%: interest payments rise to £14,500 or £1,208 a month. It could be a steep rise. Get talking to an adviser sooner rather than later; if your ‘fix’ is is due to expire within 3 months, you could do with reserving some kind of deal right away.
October 6th, 2008 at 4:54 pm
I think that your article is very one sided. The fact is that house prices were caught in a speculative bubble fuelled by cheap credit and a collective memory of British inflation in the 1970′s. Prices will fall to levels where landlords make normal (the economics definition) profits on housing and average earners can actually afford to buy somewhere.
Lets not let estate agents or finance providers fool us into believing the prices will stick at historically high levels forever.
October 7th, 2008 at 2:55 pm
Also if house prices have fallen by approx 5% since last year, it is only a problem and a short term one at that, if you bought in the last year. If you bought 3 yrs ago, your house would have risen in value by 5% each year, so you would still be up by 10%!! (Apart from anything else it depends how you measure house prices, which is why you might get a diffence of 55 or 12% dropping – don’t always trust statistics)
There is always a self fulling prophesy in resessions as housing and shares are all about consumer confidence – if we keep getting battered by bad stories, we are not going to be confident. We have not hit the bottom of the market yet. If you can, I suggest waiting until after Christmas.
October 7th, 2008 at 7:14 pm
I agree with Andye if you can afford to buy now go ahead! I’m a first time buyer who is the prossess of buying with a 25% deposit, the way I see it, it’s bad enough having to need that much deposit to find a mortgage lender with still a substantial interest rates, keep waiting for a futher fall in housing prises and you’ll only going to get higher and higher interest rates and fewer mortgage products available.
October 8th, 2008 at 9:32 am
Bob
my previous comment….I was right!!
What you say is what the media says or would like to see?
It is a blip…if the goverment dont free up the market then all the banks will be out of business and thus less income for the goverment.
So lets face it.. they will free it up eventually in the next 6 months or face bankruptsy??
Iceland…bankrupt…and as for major western economy in recession…the uk is not offically…..but Spain,germany,France are going,Aussies not far behind!!Japan is also gone
I predict a 0.5% interest cut on thursday which will be passed on to customers and thats why (Flash) Gordon Brown has met in private with the banks…….just wait and see.
October 8th, 2008 at 10:35 am
Andye
I don’t say what the media says -i work in the markets so i have an insider’s understanding.
I still disagree that it is a blip for the UK, irrespective of the Government bail out or any cut in interets rates. The market is heading downhill fast so i wouldn’t stake your hopes on either of those two actions having the desired effect; not immediately anyway
Cash value is down so i would use any spare funds to invest in gold; it had a strong day yesterday and is up to $876.75 oz.
Best regards
Bob
October 9th, 2008 at 11:18 am
by the way how do I invest in Gold? buy a house now buy later up to the individual, with the volatile financial market who knows what will happen! I’m buying now and sticking with it, I’ve waited long enough for house prices to fall and I know it hasn’t been this good for a very long time, I take my chances. thanks for the advice everyone but have to make my own decisions on this one. glad I didn’t have any money in Iceland though wow.
October 9th, 2008 at 1:01 pm
Bob
I hear they have found a massive gold mine in brazil.
Im sure you will know yourself that golds value comes from its unavailability.
If the worlds gold doubles, how would this affect the price of gold?
But a house shortage?? surely this will mean more demand!!
Gold does not protect you from rain and snow and cold?? Thus is not neccessary…just another bankers assett to play with in a false economy
January 22nd, 2009 at 10:26 am
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