andyofborg Posted June 8, 2011 Share Posted June 8, 2011 As prices fall, then both the number of people with negative equity and the depth of it will rise. When someone in this situation sells their house they have to fill the gap between the price they get for the house and the outstanding mortgage from some other source of funds. If they are unable to make up the shortfall, then they have a definite incentive not to move which reduces the supply of housing for sale which, in turn, will tend to hold up prices Link to comment Share on other sites More sharing options...
Tomataheeed Posted June 9, 2011 Share Posted June 9, 2011 As prices fall, then both the number of people with negative equity and the depth of it will rise. When someone in this situation sells their house they have to fill the gap between the price they get for the house and the outstanding mortgage from some other source of funds. If they are unable to make up the shortfall, then they have a definite incentive not to move which reduces the supply of housing for sale which, in turn, will tend to hold up prices Won't the government just let general inflation eliminate our mortgage debts, and the government debts...thats the strategy they are pursuing..surely? And in answer to the OP, its salarys that ultimately have the link with house prices...things get stretched at times, but it has to come back to salarys. There could be a complete paradigm shift where all of a sudden, something else becomes the norm...e.g. 100 year mortgages as they have in Japan. that could change the calculation between earnings and house prices, but the link would remain. I believe that prices won't go down in absolute terms over the next 2 -5 years, but probably will in "real" terms thanks to inflation. then sadly...we'll have another period of silly rises. Link to comment Share on other sites More sharing options...
Cyclone Posted June 9, 2011 Share Posted June 9, 2011 This is a genuine question. Surely house prices are very closely linked to bank's mortgage rates and availability of mortgages? I have always thought this but nobody ever seems to agree. The type of house you can afford will be based on what the monthly repayments are. So if for example an average couple in Sheffield can afford £600 a month on their mortgage then an average house in Sheffield is going to cost whatever mortgage will be available for £600. If interest rates are lower this obviously means a much bigger mortgage. This can't then mean they can suddenly afford a massive house in a really nice area as who is then going to live in the smaller houses in average areas? The type of homes in a region are always the same, so rich people live in the nice ones, average people live in the ok ones and poorer people live in the cheaper ones. So surely the house prices are always determined by the size of mortgage people can afford the repayments for. Our household income is about average for the area and we live in an okay house. It is about what I would expect for people on our income. If house prices dropped through the floor (ie 50% reduction or more) which people are still predicting and interest rates remained the same then we could afford a house in a really nice area and lots of people like us would look at moving. Surely that would cause an imbalance? Mortgage lending isn't just based on affordability, that's what got us into the mess with the house price bubble in the first place. It should be based on affordability if interest rates change and (thus) have a direct link to income. So, that considerably weakens the link between interest rates and house prices, because the amount you can borrow doesn't shoot up massively just because todays interest rates are low. Nobody is predicting a 50% drop in prices BTW - another 15% would be a high prediction now, most predictions are for flat prices until the end of the year and then slow gains (depends on what happens with the interest rate though). Link to comment Share on other sites More sharing options...
Cyclone Posted June 9, 2011 Share Posted June 9, 2011 Interest rates for new mortgages haven't fallen at the same rate as the BOE base rate. Many people are claiming prices need to fall a further 30-50% yet. Who's saying this??? The availability of mortgages is also causing a fall in prices as it becomes harder for people to get a mortgage even if they could afford it. That's a 2nd factor you've just identified yourself... House prices are surely going to be mostly affected by how big a mortgage people can get and afford? That will set the price of houses in each sector of the market. To a large extent, but that isn't determined by the interest rate. A lot of people use the argument that house prices should be about 3x the average salary but because of low interest rates it doesn't work any more. 4x is the long term average I think, and that does still work, that's why prices are falling in real terms now, because they went up too high due to the banks being too lax in their lending criteria, something they've now tightened up on (hence the difficulty of getting a mortgage at the moment). Link to comment Share on other sites More sharing options...
Cyclone Posted June 9, 2011 Share Posted June 9, 2011 If housing benefit for a single person above 25 years of age in Sheffield is £88.15 a week. (£382/month) A 1 bed flat can yield £4583.80 per year in rent.. £85000 mortgage at 2.4% (currently available from HSBC), monthly repayment = £380 Interest only the repayment would be £170. There are a hell of a lot of interest only mortgages. Tax breaks for landlords etc. You have to compete with financially feckless fookwits who the government are happy to protect at the expense of the prudent. The rentiers are being protected. The working man is fecked. When interest rates rise, the bubble goes pop! Many people are struggling already with record low interest rates. You make a terrible business case... What's the deposit to qualify for that low interest rate mortgage? 20% (at least). So that's a 16k investment, in order to make £2500 (the income minus the interest payment) minus all the costs a landlord has. Which include maintenance, decorating, furnishing, some of the rates, time stood empty, agency fees, etc... You'll be lucky to make £1000/year on your 16k investment. Link to comment Share on other sites More sharing options...
Cyclone Posted June 9, 2011 Share Posted June 9, 2011 As prices fall, then both the number of people with negative equity and the depth of it will rise. When someone in this situation sells their house they have to fill the gap between the price they get for the house and the outstanding mortgage from some other source of funds. If they are unable to make up the shortfall, then they have a definite incentive not to move which reduces the supply of housing for sale which, in turn, will tend to hold up prices As time passes from the price peak though people are paying off more of their mortgage and the number in negative equity falls... Which is happening faster, people paying down or house prices falling? Link to comment Share on other sites More sharing options...
marco88 Posted June 11, 2011 Share Posted June 11, 2011 Hi Houses prices are fixed between sellers and buyers. Hence the prices vary with availability and demands. Many factors affect availability and demands: - actual interest rate, - job market condition, - mortgage availability, It is very variable and complex. Even if interest rate are low if the job market is bad few people may be able to buy and house price may artificially stay high until people start to panic and sell off their house quickly leading to an offer supply and collapse of the prices. Kind regards Marc Link to comment Share on other sites More sharing options...
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