I totally agree Charles, prices will fall - in real terms (not the governments dodgy figures) by at least 25% (minimum).

The Debt explosion is the cause of the housing bubble and the credit crunch is the effect by which property returns and then falls below the rate of inflation ....... and around we go again. All part of the property cycle.

Buy at the bottom, then sell at the top - then find a property market where the property cycle is out of phase with ours (or wherever you are currently invested).

This is why I purchased where I did - when I did. UK was at top of cycle (sold) whilst Hungary was at the bottom of their cycle (purchased).

Simon , From 1989 to 1993 property values in the South dropped about 30% AND we also had rampant inflation at around the 10% level. If you add that in the drop in real terms was around 50%! Admittedly the very high interest rates (10 - 12%) at the time killed the market which we do not have this time round, so this landing should in theory be softer.

You are making the classic mistake of looking at the past to predict the future. I have mentioned before that the property market in Tokyo is still only about 40% of what it was 20 years ago in nominal terms! People who think property is a dead cert are living in a dream world.

Richards comment's that property only rises by by inflation is also questionable. It is quite clear that the average Joe in the street is happy to spend around 30 - 40% of his after tax income on funding/renting property so property increases are based on wages not inflation.

I am pleased to have brought some interest to this topic!

Whilst I fully accept the point about inflation and high interest rates in 1989-93 the actual fall in the South East was 9.1% between 1989 and 1993 followed by an 8% increase in 1994.

Definitely not a good return and very poor in real terms but I stress again if you didn't have to sell and you could service your mortgage then not the end of the world.
The key as ever is invest for the long term and guard your cash flow jealously.

Personally I would be very relaxed about a 5-10% fall in prices as I don't need to sell and I quite simply don't believe the gloom mongers on 40% falls.

I look forward keenly to Richard advising us how much profit he has made by selling his house and then re-buying at 40% below the price he sold at, unless he just happened to sell to someone who took out a 125% mortgage who subsequently loses his job and it was a city centre off plan apartment I just can't see it happening.

It would be good if PS could do some research on auctions in London for repossessed property in Leeds, Manchester etc. i.e prices that they are being sold for and more importantly genuine rental yields.

These falls of 5 - 10% are very generalised, Simon, I sold a flat in Liverpool city in early 2005 for £152k - a similar one just sold for £110, I kid you not. The city agency I use has 110 properties on their books and they are selling 4/month - 2 year turnround!! So prices off 25- 30% plus highly illiquid market means that today you can probably achieve 45 - 50% off the peak 2005 values from a desparate seller (eg a bank) whilst rents have dropped maybe 10% and are now rising.

One needs to think counter cyclical and invest in city center properties where it is now possible to achieve healthy yields and therefore be self financing.

Bulbasourus you can always find pockets where prices have gone down much more than the average and the problems of city centre off plan flats in these locations is well known. Similarly I'm sure there are examples of areas where the prices have increased by much more as well. An average can only be just that, an average.

Surely one has to look at the fundamentals and apply one's own beliefs to them. For example one could take the view that all the E Europeans will go home due to the weak £ and the performance of their home economies. They may or they may not. What view you take will determine your view of how house prices will perform if indeed you feel this has a significant impact on prices. It's all conjecture, nobody really knows. What I do know is that Richard has been talking about a crash for 2 years or so and it hasn't happened yet. He made a judgement in selling his property and buying in Hungary. He certainly hasn't been proved right yet in either case. Let's see where we are in a year's time.
Huw

I agree with bulbasourus on the City centre apartments issue but those are distressed sellers in a particular pocket of oversupply and the auction surveys would show exactly the same thing as only a desperate seller will be trying to sell a property at auction at present.

As PS do not believe that the UK is a sound place to invest at present as per Neils post I am not sure there is any mileage in doing the research just to prove the point that distressed sellers are in trouble!

Huw, Your are missing my point.

I am not operating on conjecture it is all about finance cost versus EBITDA/cashflow. How do you think private equity firms operate?. They gear something up to the eyeballs and put in a sliver of equity so their downside is the equity but have plenty of upside ( not quite the same for landlords , I admit as they buy in their own name generally and thereby give unlimited downside due the implicit personal guarantee on the performance of the asset).

Accordingly if I can buy distressed city centre property at close to 10% yields I am acting akin to the private equity firms ( 6% financing, 2% admin/void, 2% profit) - let the capital appreciation sort itself out over time. There is too much on this forum along the line of "property in XYZ city has gone up by 20% so go out and buy some more because it will keep going up because wages are rising at X%". I never buy property that is not self financing no matter where it is and always sell when the ungeared return on the fair market value of the asset falls below the long term financing rate.

Haven't slipped up yet ..

In this situation, you would not be investing in CEE as a number of these PS investments need financing. However, I believe that these markets still have some way to rise and that the rental shortfall is worth the potential capital appreciation.

Hi Bulbasaurus. Sorry you feel I missed the point. I fully understand your investment approach and won't argue with you over it. My own view, like John's is a bit more flexible as if capital growth in the short term is good while financing a property and then rents catch up and make it self financing it works for me. Perhaps a bit more risky but also a better return.
Huw

Richard, you are right when you say the people just have no sense of time

you said ...

“As it happens ....... yes I do live with my parents, Sold my place several years ago ..... saw the property crash coming and acted accordingly (it sold for 15% above the maximum valuation in a sealed bid situation).

Why on earth would I continue to own when its cheaper to rent?

I plan to buy again in several years once the property crash has bottomed out in the UK and started to rise once more in 2-3 yrs time. Since the crash in the US will bottom out first, I might buy there first - then here.”

And then you said ….

“I practice what I preach ...... I sold my house in the UK at the peak of the property bubble for 20% more than the average evaluation, I just feel sorry for the mug who purchased it - and for ANYONE who purchase in 2007.”


Jo