The Great House Price Crash 2005? (TV Programme)

This was an interesting show, contrasting the buy-to-let investors who held on their flat when upgrading to house, only to find the interest rate increases in the UK were resulting in crippling additional mortgage payments with the sell-to-renters who sold their house at the top of the market and were quite happy to rent for a few years until sanity returned to the market. Should be made compulsory viewing for anyone considering investing in any property market.
 
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The Great House Price Crash 2005?

After a decade of defying gravity, house prices look set to come down to earth.

But will it be a soft-landing for Britain's longest ever property boom, or are we in for a house price crash?

It seemed they would keep going up forever. For nine years house prices have surged ahead with barely a wobble, almost trebling since 1996.

Thousands of ordinary homeowners have watched their wealth increase as the value of their home has soared.

The promise of profit from bricks and mortar has created a generation desperate to buy, at any cost. Adrian Manic, 27, started looking for his first home in January 2004.

"I needed to get on the property ladder," he remembers. "It wasn't a case of spending six or eight months to find a place, because in eight months' time they'd have gone up another 10 grand."

'Dream home'

Mr Manic took out a mortgage for 4.2 times his salary and borrowed a further £15,000 from his father to raise the £165,000 he needed to buy a two-bedroom shop conversion in Ashford, Middlesex.


With no front door, a derelict house next door and a windowless living room, it wasn't exactly his dream home, but that wasn't the point.

"It would go up in price, I could sell it, buy a larger place that would go up in value, then I could sell that and on and on until I ended up with my dream home in the country or something," he explains.

The bad news for Adrian is that the house price boom of the last nine years appears to be finally over, putting an end to his hopes of trading up.

"I'd always dreamed of having a proper home with a garden and a garage, now it looks like I'm going to be stuck in this flat."

The first real signs of a slowdown came in June 2004, when Mervyn King, Governor of the Bank of England, spoke in public about his concerns for the housing market.

"Anyone entering or moving within the housing market should consider carefully the possible future paths of both house prices and interest rates," he said in a speech in Glasgow.


The comment, coming on the back of four interest rate rises in seven months, had an immediate effect.

"We saw visitor numbers to our offices decrease dramatically," remembers estate agent Simon Wilkinson, based in Leighton Buzzard, Bedfordshire.

"Hits to our website fell through the floor, the telephones simply stopped ringing."

'Sell-to-rent'

The UK's largest property website, Rightmove, also felt the impact. Visits to its site dropped 7% in the week following Mr King's comments.

By August interest rates had hit 4.75% and the Halifax's monthly price index recorded a house price fall.

Uncertainty about the direction of rates and house prices has introduced caution into the market.

And it's not just prospective buyers who are bailing out.


I think house prices will fall from peak to trough by around 20%
Roger Bootle, Capital Economics

The latest trend in the housing market sees homeowners actually jumping off the ladder; it's a trend called "sell-to-rent".

Tim Ashton is a typical sell-to-renter. He bought his home in 1999 for £125,000 and 4 years later, convinced that prices were about to fall, he sold it for £220,000.

But, instead of buying a new house, he thought it would be better to rent.

"While it was risky being out of the market it was no riskier than being in," he says.

'Struggling'

For those that are in, and have borrowed a lot to get in, the interest rate rises are starting to hit home.

"We are struggling at the moment, just keeping our heads above water," says Olivia Sayfritz, a home-owner from south London.

Mrs Sayfritz and her husband have seen their monthly mortgage payments increase by almost £400 because of rising interest rates.

"If interest rates were to go up again, it would have quite a significant impact on us," she says.


Confidence is dented, and some borrowers are feeling the squeeze, but experts are still arguing about where the market is heading.

Will the current cooling give way to steeply falling prices in a house price crash, or will there be a so-called "soft landing" where prices simply stagnate?

Roger Bootle, managing director of Capital Economics, is convinced houses are overvalued and the only way is down.

"I think house prices will fall from peak to trough by around 20%." he says.

"I suspect it will be strung out over a number of years, maybe two, maybe three years, and this year - the first year of falls - maybe it'll be 5 or 6%."

'Dull market'

But David Smith, economics editor of the Sunday Times, thinks low interest rates and a steady economy make such dramatic falls unlikely.

"What we are going to see is modest or no rises in house prices. A very dull market in some ways. A house price crash in the absence of an economic recession? It just doesn't happen in the UK."

Meanwhile, many, like Adrian Manic, are wondering if they jumped in too soon.

"Now that prices are going down I am thinking I was foolish."

However, the Sayfritz family is still holding on to its property dreams.

"I think long term it will pay off," says Andrew Sayfritz. "The trick is to be able to meet rising costs in the meantime."

And, as prices stall and confidence wavers, can any of us dare to believe the longest property boom in UK history will end not with a bang, but a whimper?
 
The Great House Price Crash 2005?

For anyone who may have missed the programme but wants to see it, you should be able to download it at these locations...


Avi Version 67MB

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For dialup users - compressed to 8mb, still watchable. WMV Version
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Re: The Great House Price Crash 2005?

i had a quick look at the program and had a few thoughts.
the place mr manic? paid 165k for , has to be one of the most awful properties i have ever seen. it would have been dear at 30k.
the landlord with 12 properties was a whinger. most of his 12 properties have doubled or tripled in value and he is now moaning that since rates have risen, he has to top up the mortgage by 2k a year.
 
Property crash

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Re: Property crash

Hi Rose,

Whatever the relative merits of the Economists arguments re potential bust, the CEO of financialsense.com is an offensive moron who obviously knows nothing about this country. All he is doing is re-hashing the reasonably merited arguments of the Economist and adding a lot of ignorant, patronising twaddle. To ascribe any weight to somebody who claims that intelligence has been bred out of the Irish people by breeding priests would be a little foolhardy. I would think you might better find your comment in a recognised publication, and not from a half-wit such as John Tyler, whoever he may be.

Is there a likelyhoood of a dip in the market? Probably in the next few years.

Does the improvement in the property market here represent fundamental changes in the Irish economy? - definitely.

The question is how much of this is a potential bubble and how much due to fundamentals. High percentage is due to fundamentals but is it 70% or 95%? Who knows?

No problems with people arguing a crash hypothesis but I'd check the rest of anyone's argument to demonstrate their bona fides. Mr Tyler's Irish historianship doesn't exactly merit any scrutiny of his economic or property knowledge.

Regards, Gearoid.
 
Re: Property crash

"I would think you might better find your comment in a recognized publication" ...such as the Economist perhaps..or could you name a independent publication which still recommends property investment in Ireland.
Honest I am interested in an independent view which supports..the "Ireland is different" crede.

I live in Galway (Oranmore area) and whilst the published house prices still show an increase, conversations with friends who have purchased indicate deal prices of 10-15% less than the asking price....with a lot of property staying in the marketplace.
 
Re: Re: Property crash

Well if you want to read an excellent article on the irish property bubble by an irish TCD economist its at

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Re: Re: Property crash

If Irish property prices start to decline, I believe they will go into freefall, because every Joe Soap will be exposed.

I'm sick listening to the wonderful house completion statistics for 2004. 77,000 homes - in your dreams. Does anybody know the actual breakdown. I image 50%+ are apartments or hotel rooms as I like to call them! Great for investors (no maintenance) but useless for families who want a quality of life (a few rooms, driveway, back garden, etc)

Also what about quality control? We might be building record numbers of shoe boxes but the quality is absolutely terrible. These so called homes won't last!

I was watching Questions & Answers on RTE last night from Navan. All the audience were complaining about was roads beacuse they live so far outside Dublin, and want to get to work faster. A new M3 will only wipe out another historical site and further increase the traffic jams on the M50!

There is absolutely no planning strategy in the country. Look out the window of any plane in Dublin airport and there is no shortage of green fields. Yet the majority of houses built today are in the commuter towns, up to 100 Kms away.

Where will it all end?
 
Re: Re: Property crash

Folks, I do actually believe there may well be a property crash ... I just don't think anyone should read anything into the arguments of someone who knows nothing about Ireland whatsoever.

My main triggers for a crash would be:
1. ftb's priced out of market.
2. investors facing very low yields
3. increase in interest rates. Major triggers would be
(a) recovery in France/Germany/Italy
Gerhard Schroder beginning to show some mettle.
(b) global inflation recurrence due to demand for oil and
raw materials
4. US deficit causing massive global instability in
exchange rates affecting European economy
5. Any other unexpected shock e.g. 9/11, LTCM
collapse, tsunami
6. Excessive lending by the banks.
7. Psychological effects of a British or more general property decline. We might be left like Wily Coyote wondering why we fallen yet...
8. Everyone suddenly deciding that houses are terrible value for money, and I agree they are.
9. Everyone suddenly realising how cheap renting is in comparison.
10. End of the psychic impulse in our Irish genes that drives the property buying urge

I am staying out of the market until at least some of the potential negative effects come to pass e.g. upswing in interest rates. BUT I've been doing this for 7-8 years and saving like a madman ever since. It has definitely hurt me by not jumping earlier.

I have a stake in seeing a reduction in prices and I am upset that much of the benefits of a low interest rate environment have gone to lining the pockets of our building oligarchs. However, as has been said, the effects on recent ftbs could be catastrophic and they wont get the same handout that some taxi drivers got for over-paying for scarce resources. The effect on the broader economy could be major.

On a final point the buy in Bulgaria/North Korea fraternity seem to have lost the run of themselves.

So yes I agree with most of you.
 
Re: Re: Property crash

unless interest rates go sky high and repayments become totally unafforable, there will not be a crash. unlike england, there is not an oversupply of property and apart from the professionals, practically every family in the country has a vested interest in at least sustaining the current prices.
 
Re: Re: Property crash

there is not an oversupply of property

This is contradicted, imho, by the statistic that a quarter of all house purchases are unrented second homes bought by individuals. Most of these properties appear to be left empty for up to 95% of the time. This market is not infinite. There may be a certain logic in large number of people investing their life savings (or borrowing) to purchase 1 or maybe 2 holiday homes. There is little basis for assuming that anyone would want 3 or 4 such holiday homes, in Ireland at least.

The biggest factor pushing property prices at the moment is the willingness of banks to freely lend colossal sums to borrowers, even to those on modest earnings. If the banks ever tire of this, or lose their nerve because of some external or unexpected factor, there could be drastic consequences. Owners or developers who need to sell within a finite a timespan could find themselves facing a market where interested buyers are either unable to bid a decent price because the banks won't lend or are reluctant to commit themselves because they would expect prices to drop further.

I'm not saying that this will happen but it is possible, at least in theory.
 
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