OK, bear with me.

Popular theory: that those on the first rung of the ladder will be grand as the house they are looking to trade up to will lose the same % of its value (therefore more in £ i.e. your £200K goes down to £150K but so what, as the next house up goes down from £300K to £225K - only £75K difference rather than £100K).

Well I DON'T THINK SO!

Here's why:

As the boom went really mad, as affordability was squeezed really tight, the lower end of the market went up by a far higher % than the top of the market, to the point where the bigger/better houses looked like far better value. We all watched in amazement as shoeboxes in bad areas went up to ridiculous prices. Maybe pre-boom an average 2-bed terrace in X area of Belfast was worth 1/3 of the price of a 4-bed detached in the same area. At the height of the boom, the same 2-bed terrace was worth 1/2 of the price of the 4-bed. This was madness!

Anyway. The big houses will still fall quite a lot but perhaps not as much as at the bottom of the market, which will be a veritable bloodbath. So those who are stuck on the bottom rung, even if they escape negative equity, will actually see the next rung get further and further away from them. The flight to quality will decimate the value of properties at the bottom of the market - those with no or little underlying desirability. These are the ones that the specuvestors are going to be left trying to get rid of.

To sum up, the top of the market will likely fall by up to 40%, the bottom could fall by 60% or more.

Sorry for the rambling post.

Thoughts?

but I'd say the top level homes...family ones won't drop as much

Agree with you here Tara. The apartment glut will also have an effect. Those luxury flats will probably be bought by the
government for social housing - no one will want them.

Difficult to say - the lower end of the market did indeed go completely haywire at the end of the boom with really low-end properties going for up to 200k when they'd maybe be worth <100k in a non-bonkers market.

However in general, appreciating prices spread out the rungs on the ladder making it more expensive to trade up, irrespective of how much extra equity your old place got.

The people who will really be hit are the ones who bought near the end and went for the really stupid 'excellent investment' properties on the basis that they had risen the most - they will fall the most too.

Anyone who bought long enough ago that they will keep equity in their house even in the middle of a slump should find it cheaper to get up the ladder. The real problem will be can they get the money from the bank and will they want to take on a big additional financial commitment in uncertain times?

For those with a good solid financial base (decent deposit for a low LTV and a good credit history) there will be some great opportunities to be had if they hold their nerve.

The housing market has not followed in synch either by area or by housing stock. Your analysis is spot, whether your predictions come true is theoretical. To identify idiosyncrasies within Northern Ireland property market, as reported previously, see here. Prices will fall by differing amounts for (i) different area's of the province and (ii) for different housing stocks - that is tent, apartment, terrace, semi, detached, mansion etc. It would be good if someone had the time to write a natural logarithm, using a constant value to express median percentage HPC, then extrapolate any likely fallout by area and stock. I think a good starting point would be this predictive algorithm.



Any takers...In essence what I have been saying from day one is, houses essentially should be valued by

(i) type & footage of property
(ii) Footage of site
(iii) Location
(iv) Specifications of fit out
(v) Other subjective criteria etc etc.

too early for me MD to work that out

but I agree with your sentiments

Thanks for the replies, interesting reading! md23040, I am no maths whiz but your link is very telling!

You can be as logical and rational about it as you like but in the end it comes down to personal choice. Sentiment plays a large part in all markets, but in the housing market - especially if it is to be a family home - then the price is secondary to 'the feeling' you get about a house. Most people can tell after 2 mins if they would/could live in a house.
A simple test is give two people some money and ask them to view the same house. After viewing, ask how much they would pay for the house - you are likely to get two different answers.

Don't know about the maths there - i feel a bit dyslexic.

what i would say is that the greatest pressures (economic) will be on the middle classes in the event of a recession.
the most expensive areas (i.e. highest cost/square foot or the biggest houses) will suffer disproportionately.
This is due to the fact that the owners either own outright and will not sell
(unless they die) and then the kids sell.
Those who stretched to become noveau riche will lose their jobs and be forced to sell.
people will not move up the housing ladder in uncertain times.
People will prefer non-luxurious fixtures and fittings for their homes (i.e. the en-suite bathroom in a 2-bed flat will lose out to a terrace) - these are more likely to be found in high-class homes with rooms like cinemas, poolrooms etc...
The respectacracy (civil sevants, teachers, lawyers) will have low pay-rises and won't be able to afford the high prices.
Those still determined to go into BTL will have to aim at the lower market.
Developers will not have the funds or inclination to buy up a big old house and turn it into apartments

Overall - in the event of sales - there will be no buyers for million pound properties.

What i would say is that the biggest fall will be in properties that have a much cheaper substitute.
i.e. price of beef goes up, demand for spam goes up too.
2-bed flats (with the obligatory ensuite) will fall the furthest - no BTL investor to buy (he's trying to sell) and why buy or rent at £500-£700/month when you can get a place for half that (trad. 2 bed terraced.

just my thoughts -
to do this properly (maybe in retrospect as an MBA research project) you could use the rate of increase in property type over time. And it all depends on how prices changed over the last few years.
I would say that drops should be compared to 2004 values rather and 2007 values to get a better idea of the falls in "realistic" terms rather than the looney numbers seen last year.

there will be a flight to value - not quality and these houses in S. Belfast (esp. flats/townhouses) will suffer the most.


This is in % terms not £ terms by the way.

Agree with the 'flight to value' comment. I reckon that even the high end will drop in price but will still sell at the right price - the real chaff will not sell at all.

Some good points raised. We have seen the biggest trasfer of wealth from old to young since time began. Those who bought a house in Malone area for £60k twenty years ago and sold in spring 2007 for about £1m to downsize will have made out like bandits! I think the biggest pressure areas of the market will be where owners need to sell. An obvious statement. I'd put the BTL brigade who were looking for a quick buck and want to get out at the top of the list, followed by those who overstretched to get on the ladder. Even those who have some equity may feel that they can hold on for a little longer. It is very hard to pay for something that has fallen below the value you have paid for it.
If you think that the numbers of 2 bed apartments and terrace houses (ex-BTL stock) would increase this might drive down prices. Would that make the 'lower' end come under more pressure than the mid to upper end if those owners don't 'need' to sell?

I guess the drops should be compared with the rateable value of property -

also on the Helen Carson Appreciation Thread - there is a copy and link to a sermon she gave in the Belfast Telegraph.
In it Wise Carson did speak Helen Carson Appreciation Thread


90% owner occupation - i don't know if i believe that number - but thus spake Helen.

Her wiseness remarks