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tinecu

Hotairmail's diary update

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Too positive for me.

 

 

 

 

 

 

 

 

 

 

 

Just kidding :lol:

I thought it was good when I looked last week.

 

(I've changed dairy to diary in the title. I hope that's OK)

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"there are now over 1 million homes for sale for the first time ever and that there are 15 sellers for every buyer."

 

The UK slide should be picking up pace - right on schedule, about 1 year after the high

 

Meantime, what's happneing in the US, which was a year-or-so ahead??:

 

"The Case Shiller House Price Index fell a record 15.3% on the year and that consumer confidence

for the future was at its lowest ever in its 42 year history."

 

Good summary, HotAirmail

Keep them coming

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This is lovely stuff.

 

http://diaryofapropertybear.blogspot.com/

 

Great summary of an historic week.

 

Like the 'Armageddon awards' :lol:

 

Thanks guys. Much appreciated.

 

I'm going to launch a "Homeowner Wealth Index" this week in the wake of the issue of and using the Nationwide stats - the effect of leverage on different categories of borrowers won't surprise you lot but they are pretty stark. I did a dry run in May and based on the first 5 months of 2008, it looked like 19% of all homeowners equity will evaporate in real terms this year or £0.5 trillion. I expect that figure to worsen with June's release.

 

The thing is, house prices are one thing but the effect on most people's wealth is another entirely.

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Thanks guys. Much appreciated.

 

I'm going to launch a "Homeowner Wealth Index" this week in the wake of the issue of and using the Nationwide stats - the effect of leverage on different categories of borrowers won't surprise you lot but they are pretty stark. I did a dry run in May and based on the first 5 months of 2008, it looked like 19% of all homeowners equity will evaporate in real terms this year or £0.5 trillion. I expect that figure to worsen with June's release.

 

The thing is, house prices are one thing but the effect on most people's wealth is another entirely.

 

Please drop us a link/post when you publish online.

 

Cheers

 

Tinecu

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The thing is, house prices are one thing but the effect on most people's wealth is another entirely.

 

??

Do you mean the knock on effect of the fall in wealth will spread the pain?

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??

Do you mean the knock on effect of the fall in wealth will spread the pain?

 

 

No it's more straightforward even than that. Simply for a certain % fall in house prices represents an even greater % fall in terms of your equity if you have any leverage at all.

 

The average ltv across the market in total is about 30% so the % drop in wealth on average is about 1.4 times the % drop in house prices. It's even worse for home movers (70% ltv average) and ftb's (c90%).

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No it's more straightforward even than that. Simply for a certain % fall in house prices represents an even greater % fall in terms of your equity if you have any leverage at all.

 

The average ltv across the market in total is about 30% so the % drop in wealth on average is about 1.4 times the % drop in house prices. It's even worse for home movers (70% ltv average) and ftb's (c90%).

 

Okay.

That's a good point, for example:

+ If Housing is 2/3rds of the average household's wealth, and

+ The average home is geared at 50%, and house prices decline by 30%,

Then:

The average household will see their net worth decline by:

:: 2/3 x 30%/50% = 0.6667 x 0.6000 = -40%

 

That's a big whack. And some highly geared households will see their wealth wiped out altogether

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...

That's a big whack. And some highly geared households will see their wealth wiped out altogether

Let's hope the other third in assets is not UK financials. :lol:

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Okay.

That's a good point, for example:

+ If Housing is 2/3rds of the average household's wealth, and

+ The average home is geared at 50%, and house prices decline by 30%,

Then:

The average household will see their net worth decline by:

:: 2/3 x 30%/50% = 0.6667 x 0.6000 = -40%

 

That's a big whack. And some highly geared households will see their wealth wiped out altogether

 

I've put it up now. Just click on the link at the bottom of the post.

 

It's not as all encompassing as you might imagine. Hope you're not too disappointed. (could be adapted as you suggested though).

 

It basically focuses on the effect of hpi on homeowners' house equity wealth by LTV and thereby the different categories of borrower.

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Hotairmail,

That's very very good :D

 

As a non-home owner I haven't really thought much about the effects of having a mortgage when house prices go down, other than the obvious "if you have a 90% mortgage and prices drop 10% you end up with nothing".

 

But, may I suggest a small addition.

I think for people who have already thought about this your article is fine, but there will be many people who won't understand it.

They will think "what's leverage", and "how did he work out those percentages".

And I think you want to reach as big an audience as possible. I can think of 3x places I'd like to post a link to your article.

 

So, how about a few simple examples, explaining how you get to the results.

 

eg £150k house with £130k mortgage. House price drops to £140k (an x% fall in price), but your slice of equity drops from £20k to £10k, which is a 50% fall.

 

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Of course I'm assuming you haven't already described this !

 

Here's an example I've just written:

 

You buy a house for £150k, with a £100k mortgage.

 

On the way up:

If the house price goes up to £175k, then the house price has gone up £175k/£150k = 17%.

 

But what has happened to your wealth ?

You started with £50k, and now if you sold, you'd get £75k. That's an increase of £75k/£50k = 50% !!!

Well done :D

 

 

But, on the way down:

If the house price goes down to £125k, then the house price has gone down £125k/$150k = -17%

 

But what has happened to your wealth ?

You started with £50k, and now if you sold, you'd get £25k. That's an decrease of £25k/£50k = -50% !!!

Yikes !!!

You've just LOST half your money !!!!

 

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I've made a couple of changes to explain 'leverage' and 'real'.

 

I've also added this following your suggestion. Any use?

 

"In £ terms what does this mean? Well, for every £100,000 you think your house is worth right now, the fall of -14% above means that your house would fall in value by £14,000 in 12 months. So, if you think your house is worth £250,00, that's a whopping fall of £35,000 - even before reducing the value of your house by the wealth destroying effects of inflation.

 

Whilst serious for somebody who owns their home outright, a decline of £35,000 would wipe out nearly half the equity of the typical Home Mover and plunge the typical First Time Buyer with initial equity of 10% of the property, or £25,000, into negative equity by £10,000 in the space of 12 months. "

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