House Price Crash

I… erm… I don’t know if you are doing this deliberately.

An 8% rise where half prices half is not beneficial for affordability - I showed that already. You then showed a 5% rise where the house prices halve is beneficial. But the problem with your workings is that it’s an unrealistic scenario - you basically fiddled the inputs.

Clearly, the affect on affordability will depend on what the interest rate rise is and what the house price drop is. I don’t understand why you don’t understand that showing that one particular instance of a relationship is not the same as demonstrating that the relationship itself holds true.

All I can say is that you are basing everything on a huge misunderstanding of basic math.

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As mentioned (quite a few) times, 8% was hyperbolic.

In 1996 a house cost 1X** and the base rate was ~5%
In 2021 a house cost 2X** and the base rate was ~0%

There’s no fiddle. The numbers are the actual numbers from 1996 and 2021.

You keep saying “house prices halve”, but what I am actually saying is that house prices doubled**, and am comparing back to when they were half**. And back then they were more affordable. House prices don’t have to halve - wages could double instead - it’s the ratio that’s important.

Indeed, so how about we look at the relationship:

As you can see, there’s a large range where the purchaser is better off at higher interest rates. Further, a first time buyer purchasing at lower cost will find it easier to save for the deposit.

The Bank of England states that:

a 1% change in real interest rates that was persistent could move real house prices by just under 20%

So the risk of a serious House Price Crash is very real.

** With respect to wages, in real terms.

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I’ve basically tuned out at this point.

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You’re still around?!

We get it. You want something to happen and you can drive numbers to make answers that agree with you.

Great.

Why are you so fussed to twist people’s answers to make it look like others agree with you? All it does is aggravate them so what’s the point?

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Well, in my last post I showed the whole range of interest rates and house prices specifically in order demonstrate that it’s not about twisting numbers but instead the hard fact that healthy interest rates and lower house prices (which would inevitably follow, according to none other than the Bank of England) would be both better for overall repayment amount and more equitable in enabling people to save for deposits - which has famously become impossible for many.

It won’t work out well if you’ve bought at current prices though.

:rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl::rofl:

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I’m not a numbers person, at all, so I have just been reading this thread – to me what @duncang says makes sense in that when house prices were half of what they are but interest rates were much higher, it was quicker to pay off a house.

Beyond that I’m not too sure what to make of the whole thing – we are where we are, and it’s unlikely that either house prices will halve (I sure hope they won’t now that I own one somehow) or wages will double

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You make a valid observation. Though post covid inflation may still take off; there are plenty of labour shortages at the moment. And a lot of money was also pumped into the system. So it’s not as impossible as it may have seemed in, say, 2019.

But there’s a decidedly nonzero chance that a combination of those could happen, bringing house prices and wages back onto the trend line.

I don’t think you need to be a property owner to not hope for this. This would prevent most people from remortgaging and likely put a huge number of people in severe financial difficulty. In turn those people would be unable to spend money on other things. Additionally and more importantly bank security prices would crash and most likely several major banks would either go under or need rescuing again.

In short we’d be talking about a financial crisis bigger than 2008, leading again to a lot of people losing their jobs and falling to financial ruin. Also, credit including mortgages would be almost impossible to obtain.

You only really need to have a semblance of decency and understanding to not want that scenario really.

I think I’ll mute this thread given the circles it’s going in but I will repeat finally this idea that a house price crash leads to this amazing scenario where renters can just all get great mortgages and buy cheap houses straight away is a silly fantasy. The reality is they would be lucky not to end up homeless.

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The thing is that you have now switched the debate from “are higher interest rates better for a large segment of the population?” Which I think I showed by actual data is the case, to “It’s immoral to hope for higher interest rates because (a subset of) the other portion of the population will suffer”. And, yes, this has cycled - because you’ve looped back to morality, which we discussed above, so let me just quote my response:

Now, regarding this:

I answered this already, but you decided not to engage with it. So be it, but your statement is false to anyone so looks at the actual data, rather than your empty rhetoric.

And finally…

Now we get to the nasty core. If house prices go up then renters would end up homeless. But it doesn’t stand up to even the most trifling amount of scrutiny:

  • Only a portion of rented properties are owned by leveraged landlords
  • If a landlord gets liquidated then one of two things happens:
    • Another landlord buys the property, meaning no change in rental stock
    • A former renter buys the property, meaning there is both one fewer property to rent, but also one fewer renter, so demand in the rental market is completely unaffected.

See you on the other side.

:roll_eyes:

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I feel like you are perhaps taking a rather myopic approach to the whole thing, without consideration for the wider implications of your proposed model.

There is a scenario in which house prices drop while mortgage rates rise in such a way that a first time buyer would be “better off” on paper. But this neglects all of the additional impacts of falling house prices on the economy. I’m no expert, but this blog article feels like a good synopsis.

Whichever way you look at it though, the decoupling of house prices from the rest of the economy, in part thanks to decades of insane government splurging on a dysfunctional system, is bad news for everyone ultimately (bar the top 10% - maybe). You can’t keep on propping up house prices

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Indeed.

As I said in the original message in this thread - all the market manipulation, from minting a quarter-mil for newbuilds in London, guaranteeing 95% mortgages, keeping interest rates near zero, the stamp duty holiday, various other schemes… It doesn’t really look good, as there isn’t much more possible fuel to chuck on the fire.

The Bank of England will - of course - never willingly jack interest rates because of the mess it will make. But nobody ever said that it would be willingly.

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Quite - they have no contingency for such time that the decision is made for them by external circumstances.

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Let’s face it - no crash ever was willingly entered into.

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