Interest Rates and House Prices in 2009

[d000hg]

I was thinking back over the recent interest rate changes, motivated by the fact we're thinking of moving soon. It seems the last few changes have been fairly accurately predicted by news, CUK, etc. I was wondering if the future of interest rates for the next year or so is equally obvious... as far as I can tell they are set to stay the same or even drop further, is this taken as read for at least the next 12 months or is there any reason to think they might bounce back?

I was also considering house prices. A few reports are suggesting a statistically significant upturn in sales, and it seems prices aren't dropping so fast suddenly. I can see the low interest rates and recent price drops might encourage the wealthy to transfer their investments to property, but unemployment is still rising. To me, that means more people will be forced to sell or face repossession. But even that isn't clear... on the one hand it means people desperate to sell, but on the other hand these people might be looking to buy a smaller house. So in any given area, you might see houses in one price band go up for sale while those in a lower price band get more popular, driving prices up.
Is this kind of micro-analysis valuable at all or is everything too volatile to make any short term predictions? My sole reason for asking is that we need to decide whether to buy, or rent for a bit and then buy - we certainly prefer to own our own home eventually. It's a tough call right now... especially considering that for many rental properties, the rent is FAR less than even the interest we'd pay if we bought such a property with an 80% mortgage.

[BrilloPad]

Housing market is really several markets. Big regional and house/flat type variations.

My view is that repossesions are still rising and until that stops (and the unsold houses are sold) then there will be no price rises.

Most of the recent "gains"(less falls?) seem to be the London : some seem to think that London will soon bounce back as I financial centre. I think it will bounce back but no imminently.

[BlasterBates]

not worth buying, it won't suddenly shoot back upwards, rather as is usually the case when the market finally bottoms out (and it hasn't yet), everyone will be so dismayed with property no-one will touch it for a while, so it'll be more of a slow recovery. There may be more interest, but at the same time the banks still can't lend so this "rally" aint going anywhere.

Whatever you do, don't buy a house because ot is an investment, or your scared you'll lose out. If you buy, then because it is a house you need and will stay in for 20 years.

The best investment at the moment is the stock market. This will recover first. I would invest internationally in a broad range of stocks.

[MPwannadecentincome]

Well its all a bit of speculation really, but if you have to move then you have to - and if you are moving for the long term to a better place then do not be put off from buying now even if the market has not reached the bottom, another 10% to 20% off (IMHO) may happen but is immaterial in the long term really.

Its a buyers market and you might get some of that 10% to 20% off now if you can show you have someone who can do a quick exchange and completion with mortgage offer in hand!

Also beware of getting a fix for only 2 years, it is possible that the recovery may have kicked in by then and BOE will raise rates as quickly as they dropped, you should aim for a 5 year or 10 year fix if you can (IMHO).

Good Luck!

[sasguru]

Prices need to fall 40% to reach their long term average. And we've only had 20% so far.
And as no one knows the depth or severity of this recession/depression they might fall even more that.
Most commentators expect a huge rise in white -collar unemployment, so I don't see house prices rising any time in the next 2 years.
Save like crazy while you can and build up a big deposit for the bargains that are sure to emerge.

[DimPrawn]

Save like crazy while you can and build up a big deposit for the bargains that are sure to emerge.

As long as you can save faster than the BoE can print money.

[sasguru]

As long as you can save faster than the BoE can print money.

saving does not necessarily mean keeping sterling in a bank

[DimPrawn]

saving does not necessarily mean keeping sterling in a bank

You've still got to buy something (like gold) and that's priced in $. So you might save £10K, but when £10K won't buy a bar of chocolate let alone a bar of gold, there's not much point really?

[Cyberman]

not worth buying, it won't suddenly shoot back upwards, rather as is usually the case when the market finally bottoms out (and it hasn't yet), everyone will be so dismayed with property no-one will touch it for a while, so it'll be more of a slow recovery. There may be more interest, but at the same time the banks still can't lend so this "rally" aint going anywhere.

Whatever you do, don't buy a house because ot is an investment, or your scared you'll lose out. If you buy, then because it is a house you need and will stay in for 20 years.

The best investment at the moment is the stock market. This will recover first. I would invest internationally in a broad range of stocks.

I totally disagree. The stock market is predicted to reach previous peaks by 2014 at the earliest and at the latest by 2019, according to a leading analyst, and I am tempted to believe it. Companies are going bust and that would mean a total loss of investment, whereas a fall in house prices will always recover and a house will never be worth nothing.
This depression may last many more years, and thus job losses and company liquidations will continue, so putting money into the stock market is a very dangerous policy at the moment. Housing is a pretty safe haven because as long as due diligence is observed, there are always rental possibilities and thus guaranteed returns, which are obviously not available on the stock market.

[Trev16v]

We are also looking to move and we've spent six months looking very hard at many, many houses; in fact, there's a particular house that we're going to put a serious offer on this weekend I think. We don't *have* to move yet, and to be honest I would rather wait until I know the bottom really has been and gone; however, we are very picky about the type of property we want, and a property that ticks all of our boxes in this area doesn't come available very often, so I'm starting to think that the benefit of getting exactly the house we want outweighs the benefit of possibly saving 5% or something. If I manage to negotiate £20K off a £300K house, am I already making the saving I'm going to make anyway? It's so hard to tell.

In this kind of discussion, there will always be a few people who say "if you want to buy a house now, you might as well set fire to your cash". But I start to question this now. I agree that house buying activity seems to have a bit of a surge at the beginning of this year and we have been really questioning whether it really is worth waiting any longer.

On the other hand, I spoke with my IFA last night and he told me not to get into too much of a panic regarding the increase in activity in January. He pointed out that these figures don't yet actually mean an increase in fully completed sales. He told me that the mortgage lending situation is still extremely, extremely poor. He told me that the other week he had a client with a 25% deposit for a house he wanted, and the client had a reasonable salary and credit history; however, my IFA could NOT get him a mortgage from anywhere. And he told me that this was the first time in his twenty-something years as an IFA that he has NOT been able to get a mortgage for a client that has a good deposit, income and credit rating / no CCJs. He says in the past, the only people he's not been able to get a mortgage for are for those who have CCJs or similar. So from his point of view, the mortgage lending situation really is extremely terrible. And that is one reason why things can't just suddenly pick up overnight.