Sunday 19 October 2008

"Negative equity to reach 2 million"

According to The Times:

Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash. At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.

Let's check that against the MW Negative-equity-o-meter. Assuming that house price are in the range of 10% to 20% below the peak, for each 1% fall, there would be an extra 44,459 in Nequity, prices are falling a bit faster than 1% a month, so 60,000 actually looks about right.

If The Times assumes that overall 2 million will be in Nequity, you can read backwards from my chart to see that this means a one-third drop in prices from peak.

3 comments:

CROWN said...

Mark

I don't know if the Times figures include Buy to Let or not, but I would estimate another half a million properties (not households) in -ve equity with a buy to let mortgage in the next 2 years.

Nick von Mises said...

Also, 35% peak to trough is rather optimistic for homeowners.

Mark Wadsworth said...

Crown, the MW nequity-o-meter is based on BoE figures for number of mortgages in each different LTV band, I am sure that it includes BTL.

NVM, do you think bugger or smaller drop?