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| The UK housing market: a bubble about to burst? |
Housing Bubble
by Mr Patrick
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#1000265
of 3278
 18 Oct 2002
11:44 AM |
With reference to the last 2 postings [262 and 263]As many of us all know, affordability is a question of priority !!
I agree with the posting 262 - the amount payable of £1,275 per monmth is quite acheivable especially in the South East. Why ? I, like so many other people, see the too many people complain about the cost of housing but drink and smoke to excess in pubs and clubs all round the UK. The cost of cigs for a packet [I do not smoke] I understand is around £4.75 per pack for 20. Therefore, imagine a couple on 20 per day each for a year ie £9.50 x 365 = £3,468 [over 22 % of the £15,300 per annum for housing!!] The smokers ususlly drink to excess too. Even 2 nights out per week can cost £50 for 2 giving an extra £2,600 per annum. I bet a bottom dollar these people usually have a flutter or two as well, hence adding the cost up.
My point is that [even with these "moderate" quantities smoked and consumed - we all know people who do double or more than that]given the choices, there are some who prefer to indulge in these "pleasures" rather than consider housing costs.
Furthermore, my example shows that £6,048 is spent by a couple on costs which could otherwise be spent on housing nearly 40 % !!
The bottom line is that I hear and listen to scores of people complaining bitterly about housing costs whilst at the same time lighting up and gulping down alcohol like there is no tommorrow !!
People with housing - you have a choice - put up or shut up [or even change your ways !!] |
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The value of community
by Comrade X
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#1000264
of 3278
18 Oct 2002
11:19 AM |
Comrade Luke,
£1275 a month is a lot of money.
I think most single people will have to come to terms with living in rented accommodation. I personally believe that it is better to rent a home than to have nowhere to live. It saddens me that there is an element within our society that are attempting to stigmatise the rental sector; possibly this is an attempt at ‘ramping’ owner-occupied property.
There is often a big difference between an individual’s desires and reality. Although it is admirable to aspire to property ownership, for many it is an illusion created by allegedly cheap money and the hyperbole extolling the virtues of homeownership.
Many people think that being a homeowner gives them the right to do as they wish with the property, whereas the reality is very different. I know many homeowners with neighbours from hell who wish they were tenants without the mortgage millstone.
My advice would be to live as close to your livelihood as possible even if it does cost more to do so. Do not travel great distances at the expense of your own taxed income.
What you don’t spend on accommodation enjoy with your friends and neighbours.
If you follow this advice you’ll find yourself part of a community which has benefits no amount of money can buy.
Comrade X |
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the uk housing market: a bubble about to burst
by luke neave
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#1000263
of 3278
18 Oct 2002
12:56 AM |
| G Guest post 261 says £1,275 a month or £15,300 is easily affordable for a working couple. In which part of the country? Even if it were are all single people to live in rented accommodation? |
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Once you see a band wagon, is it always too late to jump on?
by G
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#1000262
of 3278
17 Oct 2002
10:10 PM |
This debate boils down to the affordable question. What proportion of disposable income are you willing to part with for a relatively sound long-term investment Cheshire Building Society offer the rate of 5.89% (6.1% APR), monthly payment of £1275 a month fixed for 25 years, easily affordable by a couple both working. (With unfixed mortgages there is interest rate risk.)
If you buy a £200000 house, then it drops 20% to £160000 over the next year, and then grows in value at 3.5% a year for the next 24 years, it will be worth £378000 in 25 years from now. You would have paid £383000 in capital repayments and interest after 25 years fixed. So you will have lived effectively rent free.
In a higher inflation economy the investment the investment becomes even more attractive, but we may be heading towards deflation, right? Then when sterling devalues to counter deflation (as they will have to in Japan sometime,) you will have an adjustment in your favour; if we join the Euro sterling will have to devalue, again in your favour. If Cheshire converts into a bank, you will get a windfall.
The inflation of 20% plus over the last year is a direct result of falling stock markets and the poor investment vehicles offered by the financial services (managed funds that actively under performing major indexes, miss sold pensions, tech stocks, split capital investment…lets not go there.)
Take equitable life…there are so many people getting £60k plus to look after your money (IFA’s , fund miss managers, internal audit, Ernst & Young audit, the board and the FSA; and god knows how many support staff) there isn’t much left in the end!
In summary the property market may have a correction in the short term but remains one of the better long term investments regardless. HOWEVER only if the property is freehold, of good quality and location and not on a flood plain or effected by sea level rises (eg most of London!)
PS remember not to bail out after a few years if there is a correction otherwise you will crystallise huge losses that may be avoidable in the long term.
PPS feel free to pick holes in this woolly argument! |
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The Pyramid game
by RG
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#1000261
of 3278
13 Oct 2002
07:42 PM |
In contrast to the former posting, I remain unconvinced about the argument offered that first time buyers have no effect on the value of properties!
In my view, the completely unsustainable increase in 'value' in the market is coming either from first time buyers of from people extending their existing mortgages taking 'advantage' of reduced (and supposedly stable) interest rates to take on yet more debt.
It's nothing short of a pyramid selling scam, with money coming in at the bottom by people terrified that the bottom rung will be permanently out of reach.
The poorest value investment is currently anything remotely affordable by a first time buyer as proportionately they have increased in price by the greatest amount.
Remember, at the present time, they are the *only* people under growing pressure to buy except from a few pensioners who may need to raise some capital to shore up a reduced value retirement fund.
I would be in favour of a boycott on purchasing by first time buyers if I didn't think that it would give assistance to the buy-to-let crowd and prolong the amount of time they could remain 'in business'.
And has everyone forgotten the growing number of holiday homes being bought up for outrageous sums? These are just as likely as buy-for-let properties to be sold for cash as quickly as possible if there is so much as a sniff of a drop in the market.
Once the balance starts to tip, there'll be a stampede to sell, and guess who'll be waiting... |
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Housing
by Clive Shorter
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#1000260
of 3278
11 Oct 2002
02:16 PM |
Unfortunately, the first time buyer is not a consideration as far as the brutal housing market is concerned. For example, we have friends who, 5 years ago sold in Finchley and moved north to a "cheaper" location. A year ago they moved back down South and for what they sold their "cheap" property up North, they could not afford anything down south. They, by their own admission and frankness [and of course experience] have realised that the market cares nothing about people like them. There are plenty of others who can afford to move because as they see their properties go up, the prices they can afford become more "realistic". In their particular case, they estimate they could have "gained" nearly £200,000 if they had remained in London and then on the strength of their increase moved elsewhere within the area and could have afforded a house considerably more expensive. They have lost all this. Regretably, the first time buyer cannot do this and therefore feel left out as they do not have the advantage of "paper money" to contend with.
Incidentally, this "movement" about first time buyers boycotting higher prices and thereby preventing price escalation [mentioned by a previous respondent] is, of course, absolute nonsense and will never happen. Remember, the first time buyer has no real effect on the market -its either a buy at the price or not buy situation for them as they are excluded from the market -there are plenty of people who eventually downsize and "cash in" as they get older to take care of that scenario !! We know of quite a few !! Sorry !! |
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The lot of the first time buyer
by Horsefly
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#1000259
of 3278
11 Oct 2002
01:44 PM |
Anyone want to form a movement\pressure group for first time buyers?
The group would lobby policy makers for new housing where it is needed.
Members would refuse to buy property at current prices. If the movement spread, the market would decline to a sensible level.
There are many people who are very concerned about unaffordable property, and I am convinced they would be sufficiently motivated to join. |
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Buy now and forever live in a 2-bed semi
by RG
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#1000258
of 3278
10 Oct 2002
01:38 PM |
What never ceases to amaze me is when people blithely point to the current 'affordability' of housing as being a fundamental reason behind sustained price increases.
Well, in a monthly income/expenditure context they may at first appear reasonably affordable, but now look at the price of that house over the duration of your earning lifetime.
With interest rates so low, you'll find yourself still paying for the same 2-bed semi you stretched to as a 'starter home' in 20 years time, as the monthly payments will not have been eroded appreciably in relation to your income.
When people finally realise that the tactic employed by their parents of starting small and continually up-sizing houses over their lifetime is no longer realistic in today's low inflation environment, I think there will be a serious readjustment in the housing market and assessment of the real value of property.
To quote a personal example; when a first time buyer in the top 10% salary bracket has little hope of stretching to a detached 3 bed house, this makes me think that something is clearly very wrong... |
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housing bubble
by luke neave
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#1000257
of 3278
08 Oct 2002
12:29 AM |
| 8 years after the last house price crash in 1988 average house prices still had not recovered to the level of 1988. It was painful but it didn`t result in deflation in the economy in general so why should it happen now |
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Extra Dry sounds exactly right.
by il sardo
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#1000256
of 3278
02 Oct 2002
04:11 PM |
Japan is the perfect example. Zero rates but no lenders. The lenders have lost their ability to lend.
The would be borrowers have no
collateral because what happened to the lenders happened to them as well.
Bubbles of the type we have just witnessed and are still witnessing are all inclusive.
And, we have to remember that Japan is in its nineteenth year of recession!
A super work force, super management, but caught in capital flight.
What will the social welfare states of Euroland do if their tax base erodes away? |
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Credit crunches
by Extradry Martini
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#1000255
of 3278
02 Oct 2002
03:00 PM |
I think the real problem is that none of us have lived through a true supply-side recssion, the last one (in the West at least) being the Great Depression.
How does a credit crunch happen in these circumstances?
It's actually quite simple: The asset bubble, by falsely valuing assets, has created false capital and therefore false collateral for loans in the economy. If the amount of collateral falls dramatically, as it has just done, then much of the security of lenders has been destroyed. As a result, lenders require more risk premium regardless of offical central bank rates.
This is why deflation is THE worst thing for the housing market - the real rate of a mortgage increases and lending decreases, at the same time collective loan rates go up. Very, very nasty indeed, and I'm very glad I do not have a mortgage on a UK property right now. |
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House Prices
by Richard
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#1000254
of 3278
01 Oct 2002
07:44 PM |
The lenders, estate agents and surveyors all like to compare the market now with 1989 and confidently predict that prices will continue to rise and everything will be fine at least until we reach the valuation measures that triggered the property crash of the early 90s.
When we reach that point they predict that the market will conveniently ease-off and resume a more sustainable growth rate of 4 - 6% per annum. How nice. Who wouldn't buy a house if they believed that? No wonder there are more buyers than sellers. Even the Bank of England is happy to go along with this because it keeps the financial system going while we go through a bad patch.
However, there WILL be a shift in market sentiment, that situation WILL be reversed and prices WILL fall.
It doesnt't need interest rates or unemployment to rise to trigger this. It will just happen. One day we'll wake up and the front page of the FT will have a nice graphic showing where the biggest falls have been.
I expect to see at least the last year's growth wiped out, possibly more, with prices stagnating for 2 - 3 years thereafter.
Looking back from this time next year, this will all have seemed so predictable. |
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On last thing
by the reverend, hong kong
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#1000253
of 3278
24 Sep 2002
03:46 AM |
I forgot to mention that in Singapore property prices have fallen by a half since 1997 even though the Monetary Authority of Singapore has kept interest rates at historical lows for five years. Even government attempts to push up property prices by restricting supply haven't worked to kick-start a property boom.
So much for the low interest rates-tight supply story.
Bring on the bankrupts |
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pass the toilet paper please..
by the reverend, hong kong
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#1000252
of 3278
24 Sep 2002
03:35 AM |
Supercurrency, you have it almost right. But it won’t be a rise in interest rates that will get the sad suckers in the UK. It will be deflation and its effect on credit risk. Like they did in Asia in 1997 and Latam in 1998-02, the banks will soon stop lending to retail punters because it isn’t worth it when the economy slumps and they’re all faced with the sack.
Singapore D summed up the state of ignorance amongst the small time population by claiming that prices will continue to go up because incomes are still rising and supply is limited - exactly the same nonsense used to talk up property prices in my lovely Hong Kong in 1996/97. What went unmentioned in Singapore D’s sumptuous analysis was the rather alarming fact that UK incomes growth is barely growing and house prices are still romping along with gay abandon.
Sadly, it’s only in the very short term that you can spend money you don’t have. In the medium term this shows up as spending beyond your means - or household debt - which is exactly what has happened recently in the UK. Anyone who thinks they know better should visit the Bank of England website right now.
When the US spanks Saddam and oil prices hit the roof, heating costs will rise at exactly the time when it’s cold. Are we really to believe that house prices are immune to rising job insecurity, higher fuel costs, stagnant income growth and an increasingly globalised banking system that is acutely aware of credit risk.
I can’t wait to see what happens... |
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Panic now....rather than later.
by Supercurrency.
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#1000251
of 3278
23 Sep 2002
10:07 PM |
Too much paper Chris. There's a flight from paper financial assets to real assets. Currency and credit has been too easy to get which means interest rates are too low but the damage has been done and any rise in interest rates will break the banks and the borrowers.
Savers can no longer get returns of upwards of 5% so the funds are directed at real estate to realise expected returns of such.
Real estate and stock values are diminishing globally and the UK will suddenly catch up before the end of the year, most likely as a result of a crash in the US Dollar which has in fact through the US policy of a strong dollar , been the engine of growth globally and produced the income for the UK which has made this boom in real estate possible.
It will very quickly fall apart, so it is alright to panic now....that way one will avoid the rush later.
Best wishes,
Supercurrency. |
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