http://property.timesonline.co.uk/tol/life...icle2785414.ece

Brilliant piece, have added my own (rather pointed) comment!

I love the comment after the article talking about BTL'rs having "taken equity out" of their existing stock and will use it to buy more stock at lower prices "negotiated" due to market uncertainty. Hmmmm. So let's see now. They've "taken equity out" = "borrowed more money against" an asset they own which by his admission is falling in value to buy new assets at the new lower price. HA HA HA!!! I think that scenario could be better described as: they borrowed money against an asset which no longer has that value, to buy more amazing stuff that is also falling in value.

I've always thought the notion that as the market falls BTL merchants would dive back in and buy up more stuff was just bull fantasy. Why would ANYONE buy a thing that was falling in value? If they agreed with the market that it really is falling in value, then why not wait until it's cheaper? Why would anyone buy something that they admit is decreasing in value? They might buy it because they were contrarian and thought it would actually rise, when all around thought it would fall. But buying when they themselves thought it was going to fall further? Put them in touch with me. I've got a 10 year old Ford Escort on sale for 100K - I predict it will fall in value though.....

Yep and this is why deflation can be rather a vicious circle. However smart people will buy in at the right time. If it's sensible not to buy property whilst prices are rising at the top because a fall is round the corner, why wouldnt the opposite be true?

But you are right and its ironic that people will stay right away until property is firmly on the up again and the best chance of a "quick buck" is lost. At some point yields will look favourable again. Besides, I thought HPC regs didnt like to follow the herd !

And note, houses will always be bought and sold whatever the market is doing. The number of transactions may drop, but its not going to hit zero.

Agreed, some of the ones who do best out of the next cycle will be people who managed to buy into the falling market near its bottom - I plan to try to be one of them, and to use rental yields as the best guide.

My intuition though is the the bottom will come much later and further down (2012? 40-50% real drops?) than most buyers expect, and anyone seeing a 5-10% drop as a buying opportunity is fairly likely to find further nasty surprises in store.

I can't prove this and I could be wrong. But that is my guess.

Because if you think prices are near the top (and you are proven right) you have a small chance of gain, and only then if you get back out quick. The fees and other costs would probably swallow your profit anyway. You also risk a big loss if the market turns quicker than you can escape. Therefore it is sensible not to buy.

If you think the market is at the bottom all you risk if you wait until it really does start to climb is a percentage of your gain (as long as you don't get fooled by a bounce). If you try to pre-empt the upturn you risk getting it wrong and making instant losses. Therefore it is still sensible not to buy until you are confident that things have started to improve.

Exactly - if you analyse the Nationwide figuress from the last crash then you see the big drops were in the first 3 years, where Q2 1989 was the peak:

Q2 '89 - Q2 '90 saw 5.24% Nominal and 13.59% Real falls

Q2 '90 - Q2 '91 saw 6.04% Nominal and 11.39% Real falls

Q2 '91 - Q2 '92 saw 4.97% Nominal and 8.73% Real falls


The final 3 years of the crash were much different though:

Q2 '92 - Q2 '93 saw 1.41% Nominal and 2.67% Real falls

Q2 '93 - Q2 '94 saw 1.07% Nominal and 3.54% Real falls

Q2 '94 - Q2 '95 saw 0.52% Nominal rise and 2.83% Real fall


It's certainly worth looking at the market once the big drops are out of the way which could be 2010 at the earliest - after this I think prices will still fall in real terms by smaller amounts like last time, although for a bit longer to the absolute bottom. But the point is that it's probably not worth putting your life on hold until prices reach absolute bottom as you only get one life - another 3/6 years renting or living with your parents does'nt bear thinking about for most people.

Just avoid the really big falls, buy a house and then forget about house prices!

This is brilliant research.