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| The UK housing market: a bubble about to burst? |
Empty pay packets
by Burry
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#1000235
of 3278
 27 Aug 2002
12:20 PM |
As more and more of peoples income is dedicated to paying a mortgage there is precious little left in the pay packet for anything else. To me this seems like a lowering of the standards of living.
As soon as the Unions catch on to this, industrial relations will nose dive as Unions try and make businesses pay the mortgages of their members through bigger wage packets.
Of course Housing price rises are not inflationary, at least according to Blair & Co.. (EU)
House prices will either drop or wage inflation will go through the roof….So much for the end of Boom & Bust. |
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is it really good for our economy?
by russ
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#1000234
of 3278
27 Aug 2002
10:05 AM |
I found reply #228 very interesting as I'm sick of hearing about people who have made so much money in the property market. If I were an alien landing from outer space I would justifably conclude that the only way of making any serious money in England is to own property. Why would you bother putting your money to work investing in a business when it seems to have so much more scope for appreciation in bricks and mortar. Surely this will have a lasting damaging effect on our economy. Where will the next generation of risk-takers come from? My generation are too busy saving for a deposit and affording interest payments to do anything much else in their 20's and 30's.
Having cheap(er) housing is like having cheaper food, or more affordable goods and services, a general good for the country. Why do we laud house price inflation so? |
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Dollar Values attributed by "Faulty Experts" reply to NM
by Calculator
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#1000233
of 3278
24 Aug 2002
01:49 PM |
Your Guardian link reveals some poor calculations and logic by experts.... sic....
"Not everyone, however, believes that the housing market is teetering on the edge. Research by the investment bank Cazenove concludes that since interest rates are only a third of what they were 15 years ago, then a typical householder could afford a house worth three times what it was at the last peak."
The peak occured in 1989 which is 13 years ago by my calculations squeezed by higher rates. Patently the typical householder could not afford prices at the time since prices subsequently fell mortgage arrears and defaults rose even with subsequent declines in interest rates. By this logic
typical householders cannot afford prices now. (the story 15 years ago may be different since those are the levels to which prices reverted in 1993-4)
In addition while the basic affordability interest rate calculation holds....it ignores changes in tax relief and assumes a constant preference for proportion of income to be devoted to housing despite an obvious proliferation of consumption alternatives. It also ignores changes in the typical householder and in the typical house.
"Lombard Street Research has done a long-term study that contradicts some of the popular views that house prices are too high. It points out that over the period from January 1963 until the present day, the annual compound return on houses at 9.8% was quite close to that on shares, 8.1%."
I would think this ignores various tax and income straem differences as well as different costs in maintaining the alternative investments etc. |
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BOOM!
by john
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#1000232
of 3278
23 Aug 2002
04:49 PM |
UK economy has a problem - unsustainable house price rises, and an economy that is pushing interest rates lower still. Inflation (non - house price) is dead. Interest rates need to fall. But to drop rates now, would be like trying to put out a fire with petrol for the housing market.
ANd what comments re the lenders - should curtail lending, should look longer term, these are profit seeking public companies, if there is a demand for money at low rates, and it is commercial for them to lend then lend they will. |
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London property - a sucker's rally in the making?
by JJ
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#1000231
of 3278
23 Aug 2002
04:10 PM |
I was joking with my girlfriend the other day that the London housing market is the first never ending boom in the history of mankind - prices can only go up & up, regardless of concerns over the economy, regardless of the fact that property prices are out galloping rises in people's incomes and so on.
Jokes aside, I am surprised it has got this far, historically low interest rates have helped. This obviously reflects the fact that London is an economic success story sucking in thousands of new people every year without the corresponding number of new homes being built to accomodate them - end result: higher prices coupled with a very competitive and efficient mortgage market, high employment, the sky appears to be the limit.
But in my view, there are weakness in this market, one of them is Buy-to-Let, rents are falling in much of London as it reaches saturation point and landlords are having to work a bit harder to get tenants. Buy-to-Let is no longer the gravy train it used to be - too many people have jumped on the bandwagon, partially encouraged by poor performance of the stock market. I do feel a lot of these landlords are vulnerable to falling rents, lack of tenants, a possible economic slowdown and if those pressures mounted you could see a lot more properties on the market looking for buyers as investors need to bail out.
The other problem is younger buyers who are stretched to the limit to afford somewhere to live. Yesterday on the Newsnight programme, it featured a couple who bought a 1 bed flat in North London and paying the mortgage was taking 60% of their combined income! Such stories are quite common in London (I know of some cases personally) - many people are dangerously leveraged and very vulnerable to a slow down or higher interest rates, which might mean them having to sell their property quickly or even getting it repossessed. We all know what happens when sellers all rush for the exit at the same time.
The other issue is first time buyers. In the 1980s their average age was early 20s, now its early 30s, OK more people go to Uni, have education related debts to pay off, but also prices are so much higher than back in the 1980s. My own flat is now worth 50% more than it was at the peak of the last property boom! First time buyers are an important support for the market as they allow other buyers to move up the ladder. However, first time buyers are being steadily priced out of the market, London is full of dispairing people who think they'll never be able to own a property (I was one myself in the 1980s & it wasn't until the early 1990s after the property crash that I could afford anything).
Now despite the groggy state of the economy - not as dynamic as it used to be - property price increases are excellerating with many of the hallmarks of a sucker's rally. Those are all the people who are desperate and feel they must get on at all costs, because soon they'll be priced out. Such people are often highly leveraged and vulnerable and when they aren't around to push prices even higher, you could see the whole thing excellerating downwards - remember the last months of the dot com boom, when shares would quadrupple in a week! And then suddenly it stopped and started going the other way.
The London property has the hallmarks of a boom in its final phase, which could last another 6 months or even another year. Judging how big the correction will be is hard to tell, it all depends what event pricks the bubble and how fundamental that event is.
But for a long as London retains a successful economy with a shortage of property, the bias for property prices will always be upward, but punctuated by booms and crashes on the way. |
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Dollar Values
by NM
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#1000230
of 3278
22 Aug 2002
08:19 PM |
House price inflation in the UK was startling throughout the last century. Translated into Dollar values the rise does not look so spectacular, but is nevertheless beginning to look totally excessive as it did in the 1980s. Enough of my totally uninformed views on this subject, some experts views were published in today's Guardian.
http://www.guardian.co.uk/recession/story/0,7369,778934,00.html |
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If it walks like a duck and talks like a duck
by Moderator
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#1000229
of 3278
15 Aug 2002
01:25 PM |
I think we might discuss whether there are aspects of this market (The housing market in S.E./housing generally) which would tend to make prices move significantly at the margin.
I will propose a few:
1. Leverage. Can anyone think of a good or asset for which the vast majority of the population can get duble digit leverage on purchase?
2. Tax incentives. Can anyone think of a good or asset for which the vast majority of the population gets a tax incentive?
3. Supply idiosyncracies. Can anyone think of an asset which is similarly restricted in supply (by regulations, planning/zoning) in the locations where it most in demand.
4. Demand and consumption idiosyncracies. Can anyone think of a good which once acquired can be consumed over a lifetime and more and has similar psychological value. Lack of alternative goods (location/rental)
5. Liquidity. Can anyone think of a market in which price for total supply is "revealed" by so relatively few transactions?
6. Price supports.
Of these my guess is that again at the a margin (where price is "revealed") a combination of 1. 5. is likely to cause large price fluctuations to be "revealed" at peaks, with "bubbles" created by a combination of all of these and exacerbated by demand for indirect consumption/speculation. In addition due to policy and credit market responses to downturns in demand conditions the "bubble" will be likely sustained by a lowered cost of and increased supply of credit. |
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Housing Market
by A Mackie
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#1000228
of 3278
10 Aug 2002
12:50 PM |
The English housing market is not functioning effectively. This year has seen the highest increases in house prices ever and the lowest number of new house builds since the end of the second world war.
In the short run the the bubble will not burst as there is no great imperative to stop prices rising and there are a number of influential institutions and interest groups ranging from swinging middle class voters, the CAP,local government to the high street banks working actively or passively against a fall in prices.
In a manufacturing economy price increases are subject to ruthless resistence through supply from low cost labour in Asia or Eastern Euurope or more effective manufacturers in Europe, Japan or the US. The GATT ensures that the textile worker in Oldham who asks for a pay rise to fund higher house repayments loses his job to his competitor in the
Phillipines.
In the service economy the cost of higher house repayment is effortlessly passed on. A combination of legalised closed shops for many of the professions and governmant immigration controls means that each year we all expect to pay more for the price of a visit to the dentist, accountant,lawyer or barber.
Any government which advocated a stop to farming subsidies and turning land over to more productive use would find itself unelectable. Unelectability would also follow if a government loosened planning controls which increased new house build and stemmed the rise in house prices or indeed precipitated a fall.
For many in the UK an increase in house prices is the preferred method to increase wealth. There has been insufficiennt investment in trainining and education to bring about wealth by more productive means.
This market is broke but my guess is that it will only be fixed when the economic condition is such that Mr Brown or one of his successors is forced to remake Mr Healy's humiliating journey to the IMF.
Mrs Thatchers economic reforms followed from the economic debacle of the 1970's. She took on a number of interest groups without whose support she could prosper politically. Unfortunately today the numbers who would loose from an effective housing market are so great that no politician could envisage reform and survival. |
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Housing Boom
by F Kramer
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#1000227
of 3278
10 Aug 2002
11:37 AM |
The boom in housing prices is undoubtedly fueled by the low interest rates. However, the current prices seem unjustified given the quality of properties being offered compared to other major EU destinations. The chances of a crash are linked to economic conditions and interest rates. Should there be an increased incidence of unemployment and a rate rise people (speculators) might find themselves in a problem and we might see the market crash once again....what goes up must come down!!
franker@post.com
[Email macro corrected by FT]
[This message was edited by Monitor_CS on 10 Aug 2002 at 12:00 PM.] |
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The UK housing market: a bubble about to burst?
by Peter Wright
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#1000226
of 3278
09 Aug 2002
05:36 PM |
| We have to remember how prices reduce. When buyers conclude that prices are too high they decide to wait. Sellers still want what they have come to expect - so no sales. Then a seller cracks and sells for a lower offer and all the houses on the street are now worth less. Sellers decide that now is the time to sell and houses come on the market. But buyers now want to wait longer because their strategy has proved wise. Now we have sellers and no buyers and prices continue to fall. Look for reduced numbers of sales to see that the bubble is leaking. This is how it was in 1988 - but then we know that in bubble manias memories are short. |
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It's OK, sort of
by jeff morgan
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#1000225
of 3278
09 Aug 2002
04:10 PM |
I'm reasonably sanguine about house prices. I think the downside risk now outweighs the upside risk but only to the extent of a fall of perhaps 10 - 15% over the next year or so. The buy-to-let market is (I believe) pretty saturated just now and I can't see a quick turnround in rental returns of the current 3 - 4% (approximately). I agree with those who point to supply and demand and there is not a lot of room for more houses especially in the South-East.
Personally I am not concerned despite having two properties, mainly because we cleared the mortgage on our main property and put aside a significant portion for the second by selling equities in late 1999 and early 2000. House prices would need to fall by more than 60% to worry us. Also we live in an area near London which, by track record, is unlikely to be much affected by price declines - in the early 90's the price of our property simply stabilised because we and most of our neghbours didn't need to move and the same will be the case if there is another fall.
The point of this is partly as a rejoinder to the posters who seem to be driven by a desire to see others lose money and partly to infer that many house owners will respond to house price falls by not moving thus reducing the choice for everyone. Those who hope for a crash would be better served by looking for a controlled fall. |
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Already bursting at the seams
by The Profit Prophet
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#1000224
of 3278
09 Aug 2002
08:43 AM |
| The higher prices go, the harder they will fall. And if interest rates are lowered in the coming weeks, prices will go higher. But remember, you can talk yourself into a good investment, but you can't talk yourself out of a bad one. |
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Interesting Idea ...
by agnostic
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#1000223
of 3278
08 Aug 2002
09:43 PM |
I think Mark Bishop (#218) has a point and makes an interesting suggestion.
I agree that stamp duty is a nonsense - never more so than in the days when Mr Tebbitt was suggesting that we "get on our bikes" only to find that if we did, the Chancellor stung us for duty every time we moved base.
A mortgage tax would surely exert a damping effect on property prices and could easily be pitched at a level which compensated for the less of income from Stamp Duty.
It's less clear what effect it would have on the bguy-to-rent market or to actual rent levels. Presumably it would tend to drive up the latter? But then Stamp Duty does that anyway, since the buyer is always trying to recoup his investment ... |
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HOW ?
by Paul Giest
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#1000222
of 3278
08 Aug 2002
09:21 PM |
To Mike [220] from 219. You say "when" the bubble bursts. Please explain how in the next twelve months - first [read the story that BOE may yet REDUCE rates again] and Supply and Demand as people have got to live somewhere. Sure, if all the tenants moved out at the same time during the next 12 months and lived on the streets {unlikely, I would say would'nt you ?] then PERHAPS landlords may do something [perhaps reduce rents slightly by 10 - 15 % for sure they will attract !!]
Therefore, there will be no bubble to burst within 12 monthe thats for sure !! |
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A bubble about to burst?
by Simon
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#1000221
of 3278
08 Aug 2002
09:19 PM |
Property prices have already begun to stableise.When released the figures for August and September will show a significant slowdown in the 'house price rise' stakes.
The market has to find its own level, 3 or 4 years ago property was very 'undervalued, but unless interest rise substantially and unemployment rises there will not be a collapse. |
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