Sunday, March 22, 2009

Ready for a 65 percent fall in UK house prices?

Michael Saunders, chief UK economist of Citigroup on the UK housing market....

At the moment the average loan to value for first time buyers is 76pc, compared with the more recent norm of 90pc. If LTVs stay where they are, or are regulated by the Government, you're talking about an even more severe fall. If you want to get the deposit and mortgage burden for a first-time buyer back to the average of the last 35 years with the current level of LTVs, then house prices need to fall another 65pc from their current level.

Where did these housing bears come from? Two years ago, no one was talking about a 65 percent decline in house prices. Now there is a bubble in apocalyptic forecasts.

I thought I was being outrageous predicting a 25 percent decline.


  1. I've just been camping with a businessman friend. We were talking about this over brandy and a roaring camp fire. His loans advisor was telling him two years ago "This is all backed on housing and there is no way house values are going to fall."
    And so he remortgaged in order to finance his troubled business.

    Oh dear. What a bloody mess. It wasn't just greedy bastards who were borrowing - I've a feeling that, in the main, it was greedy bastards lending though.

  2. Michael Saunders has been the most bearish of bears for a year or two.

  3. The economy doesn't make sense when: I have over £35,000 in a deposit for a flat in London yet can't afford anything anywhere. Both I and my wife earn well over the average salary. If we can't buy then the market isn't working.

  4. House prices are not going to fall65% in nominal terms. maybe in real terms as the currency depreciates (already 55% down if paying in euros). Inflation next year will put a bottom under house price falls. More stability in the banks will mean they offer more to the market too.
    House prices are still heading down a way from here, but not another 40% - maybe 20- 25%.
    To the anon above, why on earth are you thinking of buying before next year?

  5. So what we learn is that if LTV values are capped, housing prices fall.

    This fits Brazil's experience where house prices have been low until they recently introduced mortgages.

    Now there's a long line of people who benefit form high mortgages and house prices, but none of them are the consumers of shelter and homes.

    What this shows is a fundamental conflict of interest. The people are not served well by mortgages and loans, but estate agents, bank managers and foreigners with savings needing a return are.

    This should be the real scandal.

  6. When prices bottom, it might be wise to make owner-occupied housing subject to Capital Gains Tax like anything else. Mark you, it would also be wise to revert to a CGT that allows first for inflation-linking.

  7. 2 years ago abn-amro were forecasting a 50% drop in UK house prices.

  8. anon 13:08

    I stand corrected!



  9. About 2 years ago I was telling people that house prices would start to turn in the last quarter 2007 which would lead to a recession by then of 2008, which would get progressively worse throughout 2009 and 2010. I was a laughing stock as no one thought there was the least chance of this happening. The problem is that even I didn't expect things to get so bad so quickly, the first sign of trouble and almost our entire banking has collapsed.

    I now inflationary pressure to explode by then end of the year and national bankruptcy by 2012. Given that I appear to have been correct with timings, but hopelessly optimistic, I wonder how bad things are really going to be!

  10. There is the real economy and there is Gordon Brown's economy. I live in London, and I can say that this giant turd of failure has been going since 2005, not 2007. I knew things had gone tits up when a friend couldn't go higher with his mortgage just like he had been doing every few years since 1997. I then noticed stuff had ground to a halt in the neighbourhood and more beggers, unemployed foreignors and garbage on the streets. And it was obvious money was being plundered to fund the various wars overseas, and the enormous Big Brother security state at home.