ARmy Rumour SErvice

The trouble with allowing the price of houses to fall to realistic levels is:

1. More demand because more people can afford to buy thus reducing the available housing stock.
2. Negative equity for those who bit the bullet and bought when prices were high.
3. The rich will use the chance to buy more houses thus reducing the housing stock even further.

You fail to take into acount that the majority of houses cannot have the sale price reduced to far as they are mortgaged by their current owners.
If my house (for the sake of argument) is worth the national average of £167,000 and I have a mortage of (say) £145-150,000 I am never going to be able to reduce the price by a huge margin.
It would have to sell for more than the mortgage value or it can't be sold.

Both very fair points however - if the banks do practise responsible lending then the only two things can happen 1 stagnation (adult kids never leave home!) 2 wages will need to rise (even more unlikely!). I'm no expert but the only thing that can possibly reinvigorate the market is reduced prices in line with mortgages, you are absolutely correct the negative equity trap is massive but this has stemmed from crappy little semis being valued at stupidly high prices for too many years.

Originally Posted by headgear

Both very fair points however - if the banks do practise responsible lending then the only two things can happen 1 stagnation (adult kids never leave home!) 2 wages will need to rise (even more unlikely!). I'm no expert but the only thing that can possibly reinvigorate the market is reduced prices in line with mortgages, you are absolutely correct the negative equity trap is massive but this has stemmed from crappy little semis being valued at stupidly high prices for too many years.

As true as that may be it still means the housing market will remain stagnant until houses can be sold for the mortgaged value.
I can't see many home owners being willing to sell at a loss (which is still mortgaged)
Her indoors and myself bought our house two years ago, just before the crash in values, fortunatley we bought it at a competative price and have no intention of selling in the immediate future but is worth more than its mortgage. Our other property is currently worth less than its mortgage value, neither would concievably go on the market unless the value increases. I would imagine most people with a mortgage think the same.
The housing market has crashed before and recovered, it will recover again.

Dont forget the buy to lets.... at the moment rents are higher than mortgage repayments making it a very tempting business ..... forcing the prices up....

No,

It has stemmed from people being willing to pay the stupidly high prices the semis have been valued at. The true price of any item is what someone will pay for it - as long as there are people willing to pay the prices, the prices will remain. If they drop too low there will be some repossessions as people are unable to sell when they divorce etc , but basically the market will stagnate.

Don't expect the prices to fall that far just because a mortgage is harder to achieve - unless people are forced to sell they will just extend or make do rather than lose their money.

I also wish they'd drop further... but though the average house now costs more than years ago, the average age of a first time buyer has also risen, older people generally are on higher salaries and have had longer to save and so can afford more. You've also got the phenomenon of buy-to-let who can put up other houses they have as collateral to get good rates and generally outbid you.

Wish the average price applied to where I live - the average here for a 3 bed house is more like £250K. 2 Bed cottages are £200K. I'd hoped to own a house before I turned 30, that didn't happen.

Originally Posted by Legs

The trouble with allowing the price of houses to fall to realistic levels is:

1. More demand because more people can afford to buy thus reducing the available housing stock.
2. Negative equity for those who bit the bullet and bought when prices were high.
3. The rich will use the chance to buy more houses thus reducing the housing stock even further.

That is as correct as it is sad Legs, unfortunatley! I couldn't afford to get a house now (I'm not the only one) christ know's what the future holds for someone looking at getting a house nowadays?
Even a massive house building programme like post WW2 wouldn't help all you would get is investors lapping up all the new builds for buy to let as happened recently.