Property prices will continue to fall

Property prices will continue to fall because property was over valued and the market could not be sustained

Markets are driven by supply and demand and property is no exception. However, demand is controlled by affordability and when something becomes unaffordable, it doesn't matter what it is, the demand will wane. Over the last decade, property prices had continued to grow and become over inflated and banks were helping to inflate values by lending to just about anyone who wanted to buy property. However, their lax lending criteria meant that many people could no afford the repayments and the whole thing collapsed like a house of cards.

Start of article about rising mortgage costs.

Previous page about falling property prices.

It was always going to happen, any idiot could see that except the idiots closest to the problem that is. Nothing ever continues to increase in value in this way without their being a correction. First time buyers couldn't afford to get on the first rung of the property ladder and buy to let landlords, obviously oblivious to what was happening were paying to much for properties because tenants could not afford the rents they needed to cover their mortgages.

A small landlord who is heavily mortgaged only has to have a couple of tenants miss a few monthly rental payments and a couple of properties standing empty and the debts start to rack up especially if they are working on small margins. Millionaires on paper one day and insolvent the next; the dream had become the proverbial nightmare and now they can't sell their properties for what they paid for them.

PROPERTY PRICES - CONSEQUENCES

If you don't have to sell your house and can afford the mortgage repayments there are no consequences to property prices falling. You may have paid £100,000 for it ten years ago, seen in almost treble in value and now the value is falling. Should this worry you? Not in the least unless you are one of those people who have continuously borrowed against the equity. On paper you would most likely have made £180,000 but as all you could do was live in the property or sell it and buy another, the profits you made were of little consequence. You were making paper profits, it didn't improve your standard of living, you didn't have more money in your pocket (unless you had remortgaged) and you were living in the same house. Now that property prices are falling, you are no worse off unless you sell up.

BAILING OUT THE BANKS

Gordon brown is talking about a US style bail out for the banks to try and resolve this credit crunch. There are a number of dangers here and hopefully he is going to look at the whole picture and not just have a knee jerk reaction to what is happening.

The US Federal bank has pumped billions of cash into the banking economy in an attempt to relieve their credit squeeze and to a degree, this has had an effect. However, US property was never as overpriced as UK property which has been continuously pushed up by the banks irresponsible lending, creating a false, overvalued and unsustainable market.

Even if the banks had more money to lend, surely they would not be so stupid as to continue to lend money against property that is clearly overvalued. Many experts will counter this argument by saying that something is worth what someone is prepared to pay for it on the day. This is only true if you are not looking at what it is likely to sell for tomorrow or in a year or two.

If Brown tries to bail out the banks, he may alleviate the situation for property owners who are already in trouble but it will do nothing for first time buyers who are expected to overpay for properties that are grossly overvalued. All he will do is help to prop up prices that are clearly and falsely over priced.

The wise move is to let things run their course and yes there will be some collateral damage but this is a price that has to be paid to ensure that the property market emerges stronger and more broadly available to a wider market that will be able to sustain demand in the future.

Propping the banks and property market up now will cost billions and only delay the inevitable which will have even worse consequences and cost the UK tax payer billions in more ways than one. Any businessman will tell you that you have to recognise when to pull out of a market or hold back, you don't keep pumping money into a black hole where you can't see the bottom, nor do you keep manufacturing something when you have no buyers.

In order for the property markets to recover, we have to have a clear out. This means some banks have to suffer and maybe go under, some people will lose their homes and some estate agents are going to go bust.