How Low will House Prices Go ?

[MyFavco]

There are many forces coming together to bring downward pressure on House Prices. As some have said, many people on this forum are not yet on the property ladder, so all this negative news is a positive to many.

But how low will they go and when do you buy?

Australian economics typically follows the same fate as Amercia and the UK. This gives us about 12 months early warning on what is about to happen.

The US house prices have collapsed, and some areas decimated due to their links with the failed US manufacturing industry.

The UK has started their more general downward trend, and is now looking for the bottom. They expect that prices will have dropped by a massive 30% by late 2009.

UK house prices 'to fall by 30%'
BBC News | 16-12-08

The head of Barclays bank has predicted that economic gloom will deepen, with house prices to fall in total by 30%.

John Varley's warning comes ahead of the latest UK unemployment figures on Wednesday, where the number of jobless is expected to rise sharply.
A new survey suggests household debt is on the increase, and the value of sterling has fallen against the euro.

House prices have already fallen by 15% this year, and his remarks suggest they may fall at the same rate next year.

John Varley, group chief executive of Barclays, painted a bleak outlook in an interview on Sky News, during which he criticised mortgage borrowing levels over the last decade.

He warned the UK was only "halfway" through the slump with house prices set for even greater falls.

He said: "Our view was that from the top to the bottom, you would see a fall of something like 25 to 30%.

"I suspect we're about halfway through that at the moment. I mean that slowdown, the negative house price inflation started in 2007, it's accelerated in 2008.

"We're probably about halfway through that period, so in other words we've got another 10 to 15% to fall between now and the end of next year. That would be our assessment."

His bleak prediction extended into the jobs market.
He said: "Our view is that unemployment will rise. Unemployment is likely to go north of 7% over the course of the next 12 months or so, it might be as high as 7.5%.

"I think an additional 700,000 people unemployed over the course of the next 12 months is certainly possible to contemplate."

Mr Varley was speaking ahead of the release, on Wednesday, of the latest UK unemployment figures.

The number of jobless could rise sharply, with some forecasters warning the total of those out of work might hit two million or more.

Debt increase
Meanwhile, a survey commissioned by the Bank of England has suggested an increase in the number of households struggling with debt.

Many said they had less to spend after paying household bills and had saved less than they expected.

Nearly 2,500 households were interviewed for the survey in late September and early October.

More respondents were finding their debts to be a burden than in any similar survey since the mid 1990s.

The bank says after a period of growth and low inflation, it has seen an abrupt change in the circumstances facing British households.

Sterling's lows
International investors' lack of confidence in the UK economy has seen the the pound hitting new lows against the euro: last week one pound bought as little as 1.11 euros, the lowest ever.

But the government appears to have ruled out action to shore up sterling.
On Sunday the chief secretary to the Treasury, Yvette Cooper, told the BBC the government was not planning to step in to support the pound.
She said attempts by previous administrations to target exchange rates had been unsuccessful.

Instead the government would continue to try to keep inflation under control and support the economy, she said.
"We have never had a policy of targeting the pound. Our policy has been to target inflation and that, I think, has been the right way. It has paid off over the last 10 or 11 years."

Huge deficits
But the government has been warned that any action it takes to support the UK economy must not break EU rules.

European Central Bank President Jean-Claude Trichet told the Financial Times that the EU's "stability and growth" pact must not be allowed to fall apart.
The pact has rules designed to stop EU member states from racking up huge budget deficits and national debt in order to boost their economies.
"We would destroy confidence if we blew up the pact," he said.

Mr Trichet is said to be worried that fiscal indiscipline - such as governments printing large amounts of currency in order to boost spending - could threaten "already fragile" economic confidence.

[Dean]

Originally Posted by MyFavco

The US house prices have collapsed

The situations/events that caused the meltdown of US property prices are the exact opposite as to what's happening in Australia.

The US has a massive over supply of unsold houses with no buyers while in Australia we can't build them fast enough to keep up with demand.

[Skyline Art]

Only problem is people must be looking for cheaper or new homes.

The problem is perhaps Australia must have the wrong kind of housing stock for different people's needs, as there appears to be thousands of homes for sale around the country; just look up a place on www.realestate.com.au or in the local news papers. There's always plenty of pages of ads for most Qld places, even Darwin seems to have heaps, not sure about other cities though...

[AndyGM]

Prices will come down, but not to the same extent as the US.
There just isn't the same level of oversupply in the market.

[LanceDriver]

^ prices are far higher in australia against inflation compared to the long term average than in the us or uk. when people lose their jobs, or a fearful of losing them, they will happily share a rental property with other people to spread the load. rents are dropping across sydney even though there is a so called "under-supply" and supply of housing stock isn't as thin as it may seem compared to the long term average household size.

[AtD]

It really depends how long the financial crisis lasts, because it's the unavailability of credit that's the limiting factor at the moment. We still have population growth rising and construction rates falling.

[Dean]

Originally Posted by AtD

It really depends how long the financial crisis lasts, because it's the unavailability of credit that's the limiting factor at the moment. We still have population growth rising and construction rates falling.

The dust will settle eventually, maybe 6-12 months, and the credit squeeze will ease. All those people who are waiting for the bottom to drop out so they can buy will miss the boat once again.

[zach24]

15% - 20% from peak - conservative figures.

Add in inflation to give a real negative return.

[Locke]

40-50%, in some cases more.

Just wait and see, it's already started.

[LanceDriver]

people will be abandoning their houses due to the new plague, and the phage...

[Locke]

SEQ and Perth will feel it the most:

Homebuyers stand on the sidelines as sales hit eight-year lows
18th December 2008, 8:00 WST
http://www.thewest.com.au/default.as...ntentID=113833

WA property sales slumped 16 per cent last month to an eight-year low despite steep interest rate cuts, with industry experts warning that prospective buyers are procrastinating.

[TOCC]

i have conflicting feelings on this, its a shame for people like my parents who have several investment properties around the place, but its brilliant for someone like me who has built a substantial savings to move into the housing market..

Ive being looking at houses but im going to hold out until at least February before i seriously start putting offers down

[ryan79]

People are waiting to see how low interest rates will. Theres so much speculation they will go even lower people will wait, then buy and lock it in.

Its not rocket science.

Of course job losses will have an effect too but thats only temporary.

[ryan79]

Originally Posted by TOCC

i have conflicting feelings on this, its a shame for people like my parents who have several investment properties around the place, but its brilliant for someone like me who has built a substantial savings to move into the housing market..

Ive being looking at houses but im going to hold out until at least February before i seriously start putting offers down

Nah, its never good to have falling house prices.

[Daffy]

Originally Posted by TOCC

i have conflicting feelings on this, its a shame for people like my parents who have several investment properties around the place, but its brilliant for someone like me who has built a substantial savings to move into the housing market..

Ive being looking at houses but im going to hold out until at least February before i seriously start putting offers down

You should probably wait longer; it took a good 6 months for most people to realise that the housing prices peaked in November 2007. I remember the early 1990s property slump in Melbourne when most people took over 12 months to realise that that bubble had burst.

[KJBrissy]

Originally Posted by ryan79

Nah, its never good to have falling house prices.

I strongly disagree!

[LanceDriver]

^ me too!

[ryan79]

Originally Posted by KJBrissy

I strongly disagree!

Better to have rising wages then falling house prices.

Its not good for the economy when people owe more than their assets are worth.

[Citystyle]

Originally Posted by KJBrissy

I strongly disagree!

Looking to sell. Or intrested in you're net wealth.

[zach24]

Deflation is never good. That's just economically irresponsible.

However, rapid price appreciation (without underlying earnings growth) is also a problem. Housing should only ever grow by inflation (which it generally does over the very long term). Housing is shelter, there is no reason why the overall mean property price should rise over inflation.