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| The UK housing market: a bubble about to burst? |
First time buyers - it was ever thus
by Martin H
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#1000100
of 3278
 25 Jun 2002
07:06 PM |
First time buyers have always found the initial step to buying property the hardest, whether now or 40 years ago.
House prices are not governed solely by whether first time buyers can afford them. They are also affected by the availability of property in an area.
Given that last year saw the lowest number of houses built since the 1920s, then there are bound to be problems in areas where people want to live. If an existing owner cannot move on because of lack of availability, that impacts on other potential buyers.
If house prices fall 50% in one year, then get ready to receive a P45, as the rise in house prices has fuelled a consumer boom and a matching debt. Such a contraction would force everyone to reassess their spending, leading to less jobs whether they be in shops, offices or factories. |
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RE --------Bearish consensus points to higher prices
by Burry
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#1000099
of 3278
25 Jun 2002
03:26 PM |
matt d
Yr coment
UK housing may be a richly or even overvalued bull market, and there are pockets of speculation (regional city centre flats, waterfront developments - mainly driven by buy-to-let) but it is currently not yet at a bubble top. A bubble does not end with an asset 30% overvalued - it ends with it 70-100% or even more overvalued, followed by a huge collapse of 35-50%+ over several years.
Why do you think that housing is not overvalued by more that 30% now.. I Know of apartments bought for 60,000 4 years ago and being offered for 130,000 now, that seem like an above inflation rise of about 100% to me.
It's real value is still in the 60,000 range, in my view. + - what it would cost to buy the land & build. Though if local governments manipulate prices by restricting planning permission, prices will not fall to that level..
Like most other scr*w up's, blame it on the politicians. |
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bubble will burst
by Coralie Harrison
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#1000098
of 3278
25 Jun 2002
03:03 PM |
When first time buyers can't get a foot on the ladder.
Houses will drop 50% in one year |
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A suggestions forum
by Monitor_CS
FT Administrator  |
#1000097
of 3278
22 Jun 2002
11:08 PM |
Comrade X,
We have an area for posting ideas for new topics - if you could post your suggestion there, it would be welcomed (I've removed it from here as it was otherwise off-topic.)
Thanks |
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Individual Mortgage Bargaining
by Comrade X
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#1000096
of 3278
22 Jun 2002
10:00 PM |
Comrades.
The EU would fix rates across Europe as a way of enforcing a dogma that was founded over fifty years ago. A dogma based on the needs and desires of a generation whose expectations were very different from our own and a conglomerate of people with whom the British had very little in common.
While there is a case for fixing interest rates it is probably silly to try to apply this concept in and across a free market.
The EU is not a free market. It is in fact a synthetic economic bloc. Trade and industry have been manipulated by intervention in the biggest attempt at social engineering since Lenin installed himself in the Kremlin. But enough, that is a subject for another venue.
Mortgage lenders should fix the rate and size of loan based on the property and its location. The rate should apply for the duration of residence. Postcodes could probably play a useful role in this. The property market could be manipulated by the money lenders in the following manner.
If a loan was advanced on a desirable London residence, then the loan could be fixed at, say, 11%. If the property is bound to increase in value then a double digit loan rate is not unreasonable. If the prospective borrower doesn’t like such terms – tough!
If a loan was advanced on an inner-city ‘slum’ at 1%, then if the property decreased in value the loss to the mortgagee would be reduced as would the risk of loss to the lender. Also there would be less likelihood of repayment default because the interest payable would be significantly less and presumably the outstanding debt would be small in comparison to that on more expensive properties. It is worth remembering that the chance of repayment default is greater at the bottom end of the property ladder.
This would undoubtedly cause house-hunters to look further a field and would probably create an interest in previously undesirable residences. It can not be a coincidence that some blocks of flats once owned and deemed uninhabitable by inner city councils quite often become desirable residences once they fall into the private sector.
Our comrades the Mutual societies are likely to be best placed to help us with this task because they do not have to answer to greedy shareholders and they often have a historical links with communities
Comrades – I call upon you all to stand up and fight for the right to ‘Individual Mortgage Bargaining’
Good Luck. |
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Give it another year or two
by Marco
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#1000095
of 3278
20 Jun 2002
12:06 AM |
The bubble will burst, as long as we will have:
- 6% interest rate
- increasing borrowing at 5 times salary and 100% LTV
- lower payrise and higher unemployment (more than 6%-7%)
This time the crash will be harder than the one in 89-90: The "unprofessional" buy to let market will desperately throw properties on the market, and the higher selling pressure will bring price very much down, perhaps a retracement of 20%-25%.
By all means, do not think of a remortgage now to buy a new car or go on holiday with all the family. Remember, your house, if with a mortgage, is not an asset or an investment, is the biggest liability of your life, no matter the market condition. Moreover, all your "equities" are just an opinion, they are on paper until you sell.
If you can, sell in one year and relocate to Antigua. |
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One last point
by matt d
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#1000094
of 3278
19 Jun 2002
11:22 PM |
| As far as I know, virtually no extended bull market has ever ended with a steady and gradual levelling off of prices. The just isn't how asset markets work. At the peak of a boom, prices rally sharply, level off, and then collapse with equal if not greater rapidity. They don't just sit there. Remember Irving Fischer and his "stocks have reached a permanently high plateau" remark in 1929? Predicting that the end of a bull market will just be a "levelling off" is a simple case of denial and/or ignorance about the history of asset price booms and busts. |
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Bearish consensus points to higher prices
by matt d
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#1000093
of 3278
19 Jun 2002
11:05 PM |
The majority of people on here seem to be almost certain that housing is in the final stages of a bubble. The press, including the FT, and the authorities including the BoE have also been sounding warnings for the last year or two. And yet in the face of all this negativity, and an economic slowdown and bear market in stocks, prices have continued to climb.
Widespread scepticism in the face of rising prices is often the precursor to even higher prices. It was true of the internet and tech bubble, where people (including so-called experts) were bearish in 1998 and 1999; ditto with Japanese stocks and real estate from the mid-80s onwards. Typically this situation is not resolved until you have a final crazy rally in prices to unsustainable levels, with bears finally throwing in the towel. We may be seeing the start of that period now, with the recent 4% monthly price rise, but it still has a way to go IMO.
UK housing may be a richly or even overvalued bull market, and there are pockets of speculation (regional city centre flats, waterfront developments - mainly driven by buy-to-let) but it is currently not yet at a bubble top. A bubble does not end with an asset 30% overvalued - it ends with it 70-100% or even more overvalued, followed by a huge collapse of 35-50%+ over several years.
With so many sceptics sitting on the sidelines, my prediction is that there is still one more stage of bubble inflation before you can consider selling up your property and renting. The final stage will be when prices just keep on rising at a painful rate for non-owners, and all the bears on the sidelines start thinking "damn, I've got this one wrong - it's overvalued but certain to go even more irrationally higher. I better buy now rather than pay 35% more next year!". These last bears will finally capitulate and get long, and their buying will result in a huge up year for house prices, maybe a 30-40% rise in a year, and that will then be the top. It could be this year, it could be next. All I know is that it hasn't ended yet, and at some point it will end in tears.
The situation is tricky for first-time buyers - they are net short property (unless they intend to rent all their lives) and every £1 rise in house prices is £1 out of their pockets. Yes there is a risk of prices falling 20% - but equally there is a (very real) risk of prices rising 20% or more if you stay out. As long as you can make your mortgage payments, then price falls are not a problem since every other property will also fall by a similar amount - so if you intend to trade up in future then price falls are actually beneficial to you. Equally, the owner of one house that has trebled in value is actually poorer if his trade-up dream house has also tripled. Think about it, would you rather pay £1 million for a 3 bed semi or £1000?
The main risk is not falling prices, it is rising interest rates (and they are unlikely to go up more than 1-1.5%, and could well be unchanged or lower in 2 years), and for buy-to-let investors it is also falling rents and void periods. The latter sector could be hit hard, so I would be careful about investing in say city centre regional flats & townhouses (you can tell this because in places like Newcastle they cost almost as much as London prices). These areas often rent to finance professionals, who have been hit hard by the stockmarket rout - so I predict bad times ahead for this sector. Regional suburban and country property however is not affected by this, and is benefiting from low rates and a booming service/retail sector. If you must have exposure, this is a better area to look in.
The key point is to remember that property is illiquid - you may well buy now and make 20% (minus 7-8% costs), but when the end comes it will be very hard to sell up at a reasonable price. If you intend to live somewhere for 5+ years, by all means buy now. Otherwise take care, make sure you can survive a 20% drop in rents, and avoid the areas blighted by stockmarket & technology woes. |
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Against Parochialism
by Comrade X
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#1000092
of 3278
18 Jun 2002
05:28 PM |
Comrades, try to have a wider view and don't seek financial advice from bulletin boards.
House price growth is unsustainably strong. But then, it quite often is. Eventually the ceiling will be reached and house prices will level off. There will also continue to be regional variations in prices, just as there are in any other country. Unsustainably strong doesn’t mean that Mr George is compelled to meddle with interest rates to influence the property market on a national level. Regional variations in interest rates? Now there’s a thought comrade. Perhaps low interest rates could regenerate those areas that have had their image tarnished. Perhaps the EU would like to subsidise specific UK blackspots. Of course not. Because even the worst UK inner-city slum is streets ahead of the EU equivalent.
If a property is bought as a home and the buyer intends to live in it then there is no problem with the loan being based upon four or five times current earnings over a thirty to forty year period. Many pension funds are based on stocks that have P/E ratios many times that. Everything is OK unless there is a break in the earnings stream. But then that’s always a risk even on a small loan.
I wouldn’t invest in property because I don’t have sufficient knowledge about the business.
Government should keep out of the market place. There could of course be another reason to fiddle with rates.
Finally comrades, try telling the people of the Langworthy estate in Salford or other inner-city ruins that the bubble is about to burst. The only bubble some of them have to worry about is the embolism caused by IV drug abuse.
Good Luck. |
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Indeed Martin
by Chaz
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#1000091
of 3278
18 Jun 2002
04:21 PM |
...not being chained while being liquid is the best way to be when bargain hunting.
I see central London dropping 25% ...twitching twitching.
C |
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Chaz - they did not buy at the top
by Martin H
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#1000090
of 3278
18 Jun 2002
04:06 PM |
Chaz,
In your post #89 you are forgetting one very important point. As professionals they have been at this game longer than the rest.
Just because they lose a margin on selling (which also happens to private individuals own properties) is but a small factor in the equation. The profit on the sale is that much larger to start with.
Currently void (unlet) periods are increasing, which is reducing the yield on the invested sum. There are in some areas just too many properties for let compared to demand from individuals and companies.
Realising cash from properties that are not in as much demand as before puts the investors concerned in a strong position to take advantage of a sharp downturn in the market.
Being cash buyers they may be able to secure a further discount when repurchasing at the lower price, thus offsetting the costs of re-entry, assuming they want to re-enter of course! |
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If the pros are liquidating it means a 10%+ crash then!
by Chaz
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#1000089
of 3278
18 Jun 2002
03:28 PM |
Yo
seeing as the costs involved in liquidating are circa
Solicitor 1.5%
Estate Agent 2-2.5%
That means one is down 4% of the sale price
Then the cost of re-entering again is
Solicitor 1.5%
Stamp Duty 3-5%
Of the lower price,
Making the cost of selling out and buying back out to be near enough 10% of sale price of teh asset one now has.
One normally gets stung for higher service charges coming into a shared apartment block as well.........
Then view the lost rental income and that one must remain liquid(ish) to buy back in.
A professional would forsee a drop of 15% from current levels to make liquidating worthwhile methinks. That is nearing crash levels.
C |
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Chaz - professionals are getting out already.
by Martin H
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#1000088
of 3278
18 Jun 2002
01:50 PM |
Chaz,
>>Buy to Let is dead in the water for a while save for a couple of local niches here and there<<
The professionals are already liquidating their assets, so that when values drop once more they can take advantage of the fire sale of others.
It is the buy-to-let market that will be the main sufferer this time around, compounding the hopes of a better retirement for their owners.
Another poster mentioned that the market has risen 20% and the GDP only 1%. The vacant lots are not necessarily where demand is greatest, although the situation in London would be eased. Keynes had a word or two for it - (in)elasticity of markets. Think how long it takes from inception to completion of any building work where it is needed and you will understand the reason for such rises.
Whether the time has come for the government to contemplate the reintroduction of Schedule A income tax (one of the main sources of revenue before PAYE) is an option. We should not encourage that debate too much otherwise Gordon will jump at it and we will all lose in the long run! |
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Geoffs point 3 posts back
by Chaz
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#1000087
of 3278
18 Jun 2002
01:15 PM |
If I may quote from Geoffs excellent post......
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.
That is more of less exactly the scenario I would envisage. It will not be caused by a panic increase in Interest rates as per the Major era (he was the chancellor who started to put the rates up followed by Lamont)
The general level of individual debt in the target demographic for housebuying (25-35 yr old) is extremely high, historically , and unsustainable if the jobs market tanks.
Other contributors have pointed out that some of this housing demand is self provisioning of pensions for the future but I am sceptical as to whether the housing market is appropriate as a vehicle for this actibity on a large scale.
Buy to Let is dead in the water for a while save for a couple of local niches here and there.
C |
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Neil
by john
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#1000086
of 3278
18 Jun 2002
12:45 PM |
you hit the crux of this debate - there are different ways of viewing the same market, and coming to very different and very logical conclusions. The housing market is extremely complex, and unfortunately cannot be adequately controlled with one mechanism: interest rates.
Reasons for demand vary, from necessity to wish to live on an easy commute, to proximity to good schools. These drivers have little consideration for a small hike in rates, and we will see pockets where prices will continue to rise strongly.
The cycle is very slow, and as such, should be considered higher risk. Unfortunately, analysts view risk as similar to price volatility, so tell us property is low risk!!
The bubble won't be seen to burst, as certain areas will prop up the overall figures, but there will be big losers in depressed areas. |
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