| Letting Rip |
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| Dr Who and the house price theory of time and money |
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| If only Dr Who and his Tardis were available for hire – we could nip forward in time and see when and who the property crunch Daleks are going to exterminate first. |
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| Unfortunately, the Doctor considers the Daleks more of a threat to Earth than negative equity, so we have to build our own time machine. |
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| We’re not pundits forecasting doom and gloom to get some press, because we can’t see in to the future – but we can look back and see how each percentage point drop in prices takes us back in time. |
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| The figures come from the latest Halifax and Nationwide property index that paint a drab picture of the current residential property sector. |
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| Property investors may have legal redress to compensation for deals that have soured, as property clubs have a responsibility to their clients under the law of agency although they are not party to the purchase contract. |
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| Then comes the big but…house prices are 4% higher than two years ago, and 10% higher than three years ago. |
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| So, what does this mean? Well, as prices fall they reverse the market and wipe out any gains homeowners made as they do so. |
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| Currently, investing through property clubs is a business investment sector that is not regulated. |
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| If we calculate the gains in reverse – that’s going back in time from June 2008, we can see how each percentage fall in house prices affects the market. |
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| The table shows historical data from the Nationwide and Halifax house price indexes for June each year back to 1995. |
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| The Property Tax Plus column is calculated by averaging the Nationwide and Halifax average house price for June. |
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| The figures show that homeowners who bought in 2007 already have a 7% loss to make up. |
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| Those who bought in 2006 can suffer another 3% fall to break even. |
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| Then there’s a big jump to people who bought in 2003, who can afford to sit tight for a 28% market adjustment – and for 2002 it’s a massive 40%. |
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TABLE: HOUSE PRICES - Turning back the profit clock |
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Nationwide |
Halifax |
Property Tax Plus |
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Ave house price |
% change |
Ave house price |
% change |
Ave house price |
% change |
2008 |
£174,215 |
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£180,344 |
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£172,280 |
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2007 |
£184,070 |
6 |
£197,068 |
9 |
£190,569 |
7 |
2006 |
£165,730 |
-5 |
£177,643 |
-1 |
£171,687 |
-3 |
2005 |
£157,791 |
-9 |
£162,783 |
-10 |
£160,287 |
-10 |
2004 |
£151,524 |
-13 |
£157,091 |
-13 |
£154,308 |
-13 |
2003 |
£127,214 |
-27 |
£129,450 |
-28 |
£128,322 |
-28 |
2002 |
£106,693 |
-39 |
£106,195 |
-41 |
£106,444 |
-40 |
2001 |
£89,068 |
-49 |
£90,590 |
-50 |
£89,829 |
-49 |
2000 |
£81,452 |
-53 |
£84,293 |
-53 |
£82,873 |
-53 |
1999 |
£70,789 |
-59 |
£75,844 |
-58 |
£73,317 |
-59 |
1998 |
£65,871 |
-62 |
£71,704 |
-60 |
£68,788 |
-61 |
1997 |
£59,189 |
-66 |
£68,042 |
-62 |
£63,616 |
-64 |
1996 |
£53,325 |
-69 |
£63,380 |
-65 |
£58,603 |
-67 |
1995 |
£51,347 |
-71 |
£61,504 |
-66 |
£56,426 |
-68 |
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Data source: Nationwide and Halifax June 2008 |
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| The conclusions we can draw for homeowners are: |
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- The most vulnerable in the current hostile market are those who bought in 2004 or later because prices only need to fall 13% to turn their property value clocks back to the purchase date.
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- Homeowners who bought property in 2003 or earlier are probably safe to ride out the storm because the market will have to adjust by 27% to turn their property clocks back to the purchase date.
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- Anyone who bought property in 2002 or earlier will have a reduction in the value of their property, but the market will have to fall a massive 40% or more to turn their property clocks back to the purchase date.
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| The burning question is what can homeowners do? |
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| The answer's really nothing - they are trapped like a small boat on a storm-tossed ocean at the vagaries of the winds, tides and waves whipped up by market forces. Weathering out the storm is the only hope. |
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| The only certainty is things will get worse before they improve. |
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| Published:10 July 2008 |
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