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| The UK housing market: a bubble about to burst? |
Cheap?
by Neil
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#1000085
of 3278
 18 Jun 2002
12:19 PM |
| Whilst ownership is as cheap if not cheaper than renting, people will still want to buy. Why would I want to pay more for a house that is not mine to play with? In addition, affordability is the key. Can't remember the exact figures but as a nation, the UK is now spending something like 25% of it's income on accomodation, wheras in the 1970's and 80's it was more like 35-40%. With the more flexible housing loan market containing a wide variety of mortgages to suit everyones circumstances, is it any surprise that people are avoiding paying 'dead money' to landlords when they have a relatively nad hostorically cheap opportunity to borrow? |
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The same only different
by Geoff Sears
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#1000084
of 3278
18 Jun 2002
12:14 PM |
The consensus of this forum seems to be that we shall soon experience a bursting of the house price bubble.
I think the consensus may well be correct but not for the reasons given.
The comparison with house price deflation experienced ten years ago is made too strongly. Then, the catalyst for the dramatic fall in house prices was a significant increase in the base rate needed to cool an overheating economy. Today, the reason we have a low interest rate regime here and in the US is to prevent a collapse in business investment after the TMT bubble burst. Unfortunately, it has not been possible to engineer that objective without stimulation of consumer spending, supported by high borrowing. High consumption has so far prevented a major recession, but that may soon be about to change. Particularly in the US, robust consumption has meant a serious current account deficit and the gap has until now been filled by foreign investors convinced that the US would lead any resurgence in equity prices. In recent weeks, doubts have surfaced about that assumption and the effects have been seen on the value of the dollar and the US (and hence world) stock markets. What this means is that we can expect further retrenchment in business investment, cost cutting and the associated rise in unemployment, and a decline in consumer spending as savings are rebuilt. In these circumstances, interest rates will remain low and will not be the cause of a collapse of house prices. It will be the fear of unemployment and flight from debt which will be the factors this time. Any collapse will be amplified by significant numbers of buy-to-let investors selling up as soon as the trend becomes established. Whether we witness house price stagnation or serious deflation will depend on the rapidity and severity of the forthcoming recession. Either way, buy-to-let as an investment strategy is not to be recommended.
As most people are not current participants in the housing market, any talk of the bursting of the house price bubble may seem irrelevant. But there is one issue which will affect us all. Because wage inflation is so low, any mortgage repayment hardships will persist for far longer than previous booms. This will mainly affect first-time buyers who will delay starting a family. The consequent deterioration in the ratio of workers to retirees may eventually have very serious repercussions. |
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Houses Up 20%, GDP Up 1%?...
by Harry Ouse
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#1000083
of 3278
18 Jun 2002
11:37 AM |
With UK house prices rising at 15 - 20% per annum and GDP growing at just 1% pa (0% in the last 2 quarters), house price inflation (note the word, inflation) is clearly having nowhere near the effect on real growth many believe.
With 800k properties lying dormant in the UK there's more than enough scope for the government to ease this country's dearth of housing supply and to ease this absurd inflationary pressure which harms our productivity through higher property costs, higher inflation, greater immobility of labour etc. etc... |
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We're doomed!
by spindrift
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#1000082
of 3278
18 Jun 2002
11:22 AM |
Personal debt averages £4500.
A fifth of property purchases are for buy-to-let.
Consider the impact of even a small interest rate increase.
Ant buy-to-let investor may find increased mortgage payments coincide with a void period. Personal debt payments combined with the extra expense or servicing at least two mortgages results in widespread selling, thousands of properties are dumped on the market, prices collapse, horses eat each other and estate agents are hunted down and shot for sport.
The correction is coming.
(spindrift, in a concrete bunker lit by candlelight, eating cold beans with woolly gloves on) |
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The UK housing market: a bubble about to burst?
by stuart white
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#1000081
of 3278
17 Jun 2002
04:57 PM |
There are already reports of the rental market getting softer as too many buy to let properties have been chasing the prospect of easy money.
As every shrewd investor knows, its those who go against the vast majortiy of opinion, who tend to get the best returns - the higher the risk, the greater the reward.
In the buy to let market, everybody has been diving head first into the market - driving up prices , and squeezing out first time buyers.
I remeber how hard it was for me in '86 trying to buy in London. Three times salary for a repayment mortgage and four times for the flat I really wanted on an endowment mortgage.
Thankfully I took out a repayment mortgage and purchased my humble abode. I lowered my expectations.
I played the market reasonably well getting out of property in '88 with a generous profit and getting back into property , too early, but in late 90.
I should have got back in '92.
I've been very lucky. I understand numbers and economic trends and consider my moves. Others are not so lucky or careful and can get burnt.
Historically interest rates average around 8 percent. Those days will be back within a 25 year term.
My advice would be to wait for the right property to come along.
Don't chase the prices, they will correct.
Historically, 3 times a salary is affordable to pay the monthly outgoings, and live and this is what must be used as a 25 year benchmark, whether you live in London or not and whether you have brilliant potential or not.
Over 25 years even the best graduates can get derailed. |
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House Market
by Graham Taylor
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#1000080
of 3278
17 Jun 2002
02:14 PM |
It surprises me how few players in the house building/house selling industry truly understand how the industry works. I covered the house building boom/bust of 1980s for my MBA dissertation in 1995, and found that very little research had been published by others. My study looked at both the market dynamics and buyer behaviour.
One of the key factors that came out of the study was the very circular nature of house prices. Prices are simply a function of demand and money supply, in which mortgage lenders play a large part. House price has very little to do with the cost of building a house, or its quality.
House prices are effectively controlled by a relationship that says: -
House Price (Loan) is a function of a ‘multiple’ of the income of the responding market.
The ‘multiple’ is usually around three.
Whilst the demand is driven by demographics it is also influenced by peoples confidence in the ability to repay. The availability of money from lenders raises the stakes. If lenders release more money, e.g., by allowing people to borrow four times their income the price will float up accordingly. If we become allowed to borrow more money by spreading the mortgage over 50 years instead of 25 years, it will enable the price of houses to float up further, until we are all in the same boat again.
To obtain a free copy of the dissertation “Relationship Marketing in the House Building Industry” email me at home.taylor@virgin.net |
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Funds for the herds
by Barbara Edwards
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#1000079
of 3278
17 Jun 2002
11:52 AM |
It strikes me that there is a large amount of loose capital which herders can jump upon presumably through loan instruments. First it was the dot coms - then when that collapsed it went into buy to let. Today the FT hints that it may be returning to the conventional stock market. Can anyone recommend a good text on this aspect of finance?
The knock on effects though are real. For those who have departed from the core worker market as I did when I had my first child 24 years ago, it is hard to find work that pays more than peanuts. For all ourscrabbling efforts the house we sit in does much better. And yes, then we can cash in to the re-mortgage game and tap into those funds too.
If we are rich, we can buy properties for our children but if we aren't their prospects seem poor indeed unless they have the sense to become lawyers or accountants. Luxury Fever would not see these as being good contributers to economic growth.
So it becomes a matter of the sins of the fathers... |
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Indemnity Bonds!
by Chaz
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#1000078
of 3278
17 Jun 2002
10:34 AM |
hi
in the early 90's crash , many lenders had borrowed 100% at the top of the market and then suffered negative equity and repo man.
the lenders were left holding the losses.
the lenders now lay off the risk by using indemnity bonds for mortgages over 70-80% of the then value of the property (some of you may have 'borrowed' to buy these).
The insurance industry will therefore carry the can for much of the next crash if it happens....and we all know how liquid they are since 911
C |
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Housing Market Bubble
by AlH
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#1000077
of 3278
14 Jun 2002
11:15 PM |
| What’s all this about the recent growth in the housing market being unsustainably strong? My house in Weybridge Surrey has been for sale for more than six months, in supposedly a sellers market, during a period of record low interest rates, yet so far not even an insulting offer even though I took the advice of six local estate agents who said independently that it should be marketed at £525,000. My experience is that the local market is nowhere near as strong as the wider market is reported, and while there may be hot spots elsewhere, they are exceptional and exaggerated, in which case the perceived boom will peter out gradually, as the Bank expects. |
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Boot on other foot
by Richard
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#1000076
of 3278
14 Jun 2002
07:46 PM |
An estate agent in the Surrey commuter belt has recently started phoning me to enquire about my interest in purchasing properties on their books.
Previously, they didn't even bother to reply to my e-mails, let alone pick up the phone to make a cold call.
It would appear that they are now having to work a little harder to make those sales.
Whatever the economic arguments are, once market sentiment changes the herd mentality will shift from panic buying to panic selling. Surely that is about to happen in the buy-to-let sector for starters. |
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House price situation manufactured?
by Jim
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#1000075
of 3278
14 Jun 2002
06:41 PM |
The losers are the young people trying to get a foothold on the market. The winners as usual are the second home buyers hoping to charge rents to people unable to get on the ladder. I hope some of the greed is followed by a finger burning experience. I would advise people to hold back and resist paying over the odds for property until this madness is over. Take away the over demmand and the prices will fall back to a realistic and fairer level.
When interest rates increase the government will receive more taxation from profits made by the lenders paid by the mortgage holders - so was it by design that the british home market is in it's present state? |
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A special explanation for Heidi
by c
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#1000074
of 3278
14 Jun 2002
06:02 PM |
The growth of the British economy is dependent upon a buoyant UK housing market, Heidi.
Have you ever come across Ed Balls's "Endogenous Growth Model". For an economist, it is interesting, because it underpins British macroeconomic policy (Ed Balls is a special adviser to Gordon Brown).
The UK housing market is dependent upon a robust job market, which London still has. I should appreciate some sensible economic feedback on the link between income and house prices. My own view is that the Buy-to-Let market (4% of total) is in trouble, and rents will have to fall. But is that a bad thing for tenants? The whole market is linked to wages, which remain strong.
D'Ypres, santé!
c. |
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# 71. Nick, you're thinking along the right lines.
by Heidi
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#1000073
of 3278
14 Jun 2002
05:44 PM |
Pure free-market-economy thinking gets an economy into all sorts of trouble. And relying only on monetary policy is acceptable for regulating the exchange rate of the currency. But the special characteristics of the housing market are far more subtle and emotional
(a house is a home, whether for singles or for families).
Why should British citizens have to compete with foreigners who have ample cash (where does it all come from?) in order to buy a home? A foreigner does not even have to be resident in the UK in order to buy a property, as far as I remember, or to live in it.
All I can tell Nick is that foreigners are not allowed to buy property in Switzerland until they have a "C" permit
(been here for 5 years, with a valid work permit, during which they have to rent).
There are some exceptions, mainly in remoter holiday, Alpen regions - which are too far away to commute to a daily job in Zürich, for example. But it certainly helps round-the-year tourism in these more remote regions and brings some prosperity/jobs to the locals.
If this current UK property bubble IS a bubble and bursts, it's not rich foreigners who will suffer, but less-well-off Brits who will face negative equity.
The BOE is unable to deal with this problem, imo, simply via interest rate movements. Does it have a complete dossier on who (esp. foreigners) has been buying UK property year by year? Why not? Bank accounts can be subject to scrutiny, so should the purchase of property. It's well-known that investing in property is the number one, easiest way to launder proceeds from crime and mafia activities.
A property bubble burst before in London at the end of the 1980s. Has the present UK government learned NOTHING from that recent debacle?
To make a mistake is often a matter of inexperience or bad judgement; but if New Labour
Blair turns out to have made the SAME mistake as Old Conservative Major, then there is no excuse. |
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Not Worried
by Jim
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#1000072
of 3278
14 Jun 2002
05:29 PM |
All these people talking about a "housing bubble" are just feeling sore because they missed the boat. They whinge about the mortgage lenders talking the market up whilst desperately trying to talk the market down themselves!
I recently bought a nice one bedroom flat in Bournemouth for 150k. I have do doubt that it will be worth 180k by the end of the year. The mortgage lenders have predicted that prices will go up by 20% this year. They wouldn't be so irresponsible as to lend me 95% if they thought there was any risk that prices were going to crash, would they?
These guys know the business. Listen to what they are saying. Buy now and get in there before its too late! |
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Time for housing market regulation
by Nick
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#1000071
of 3278
14 Jun 2002
04:47 PM |
I think this whole episode demonstrates the weakness of 'economic policy' that relies on mere tinkering with interest rates to regulate something as complex as a nation's economy.
At the very least, there is a clear case here for interest rates to be set separately for business and consumer borrowing.
The BoE's current dilemma could be solved very simply by direct regulation of the housing market through mortgage rationing (no individual or couple to hold more than one mortgage at any time) and restrictions (or even an outright ban) on multiple property ownership. Mr S is quite right, there is too much of a supply constraint in the housing market for it to be allowed to run unregulated.
And before anyone starts bleating about this being an infringement of 'human rights', remember this --- nobody has a right to own a property, but equally nobody has a right to own three or four. And just occasionally, remember your responsibilities to society! |
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