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| The UK housing market: a bubble about to burst? |
bubble
by Curious
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#1000370
of 3278
 27 Oct 2002
12:31 PM |
To rev from curious - no need to insult. All too often we have "experts" who make statements but never back them up with predictions [an act of foretelling] Regretably, too many people follow them and when they go wrong, there is always another explanation from the same expert as to why their original forecast went wrong. The startling example of endownment polices so misleadingly sold in the early 1990's is a typical example. Then predictions were made as to how good they were and now of course with the passage of time those same companies wriggle out of it with more updated explantions. Your comment on the banks holding the house until you fully pay up the debt is of course true. But, the courts would not just allow you be kicked out of your property immediately. In fact in most cases they are likely to remain in their properties far longer than our rental brothers as they can often re-structure their debts particularly those with a long history of paying motgages. The equity in their properties will see to that.
A piece of advice to those seriously concerned about losing their homes and coming to the end of their mortgae term. Today, as can be seen in the press there are many loan companies that offer up to £25K non secured loans. Those middle buyers talked about, often those with small mortgages remaining under £25K and the older types possibly in fear of losing their jobs should pay the banks off [debt secured on property] and substitute the amount paid to the banks with an unsecured loan. May cost slightly more with interest but at least the courts could not take your home away.
Furthermore, today, the Sunday Express has an article page 11 which from experts expresses the view that there is no end to the house boom, and FACTUALLY state that they predict an average 10.5 % rise during 2003 and that prices could jump by 30 % in 3 years. Finally, could the rev PLEASE state his predictions as to how low he envisages prices to drop for 2003. We can then compare and contrast the credibilty of these two very opposing views at the end of next year. If he truly confident of his arguement, then this should not present a problem.
Is it any wonder people get confused. |
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ROFL!
by Rob G
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#1000369
of 3278
27 Oct 2002
11:25 AM |
Rev, I really don't know why you bother. I think you're wasting your time with these guys, but keep it up - it's very amusing.
 D
As for the yawnsome rent/buy debate, I thought I'd just point out the fact that either way you'll be paying someone's wages. The landlord or the mortgage company/solicitors/government... |
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Dot.nuts
by rev.hk
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#1000368
of 3278
27 Oct 2002
10:51 AM |
Dot, your lurid attempt to explain why HK is different from the UK is perhaps the most far fetched and ludicrous I have ever heard. If you are serious, then perhaps you might post a note here to explain who the buyers might have been if everyone was selling up with the aim of leaving town. Where were they going? It certainly wasn't the UK since you lot denied them all right of abode prior to the handover. Some had US, Canadian or Ozzie passports but the majority were British BNO passports which give them right of abode in Hong Kong only.
I can't wait to read your next posting. Before you write it, please take note that the Hang Seng rose just as much as the main tech markets of Seoul, New York, Frankfurt and Tokyo in the tech bubble up to April 2000. Your so-called Commie take over doesn't seem to have stopped Hong Kong behaving just like any other market, does it. |
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Commie home owers & ostrich syndrome
by rev.hk
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#1000367
of 3278
27 Oct 2002
09:41 AM |
Dear Curious & G
For the last time, a home only becomes a fully owned asset once the debt (mortgage) is fully paid off. Up to that point, the house is an asset with a claim on it and the loan procured to buy it a liability. If the debt is paid off, the homeowner is generally better off than the renter, even if there is capital depreciation. If the debtor defaults, then the renter is often better off because the mortgagee loses the house and all the capital paid to the bank up to then. The renter goes on holiday while the debtor still has to pay the bank the full amount they have borrowed and fund their monthly rental payments.....or declare bankruptcy.
Owning a home is no more a one way bet than buying over-valued tech-stocks was in late 1999. It is a little bit safer, but it is by no means secure.
As for Hong Kong, G, I suggest you do a bit of research the next time you comment on recent history. The Hang Seng and the Hong Kong property market didn’t collapse until the autumn of 1997, some four months after the handover. In the months prior to, through and after the handover there had been a share price and housing boom because the handover was seen as a great opportunity to get rich on better access to Chinese markets. Pessimism was nowhere to be seen, except on the faces of locals employed by the British forces. The Hong Kong markets collapsed because of contagion from SE Asia, South Korea and Japan - what is now known as the Asian Financial Crisis or more accurately the beginning of the New Global Deflation.
We don’t have a communist government and the property market boomed here many times during the colonial era when no one had the vote. Check your facts next time.
As for printing money to restart inflation during a recession, yes, under normal circumstances, that is how it would be done although that is not normally the objective of central banks.
However, this global recession is different. It is the direct result of companies in the US and Europe taking on far too much debt in the late 1990s and then using it to expand capacity way beyond levels that will be required over the next 10 to 20 years. Companies are now desperately trying to lower their debt levels by selling assets and investment spending has naturally collapsed. (ps. Your salary is linked to investment growth and therefore so is the rate of capital appreciation in the property market. Bet you didn’t know that).
Normally, when interest rates fall, heavily indebted companies start to see a sharp appreciation of their share prices since lower interest payments should lead to an improvement in their earnings outlook. When their shares are worth more, they often start to invest again and the inflationary cycle generally restarts.
But in the US and Europe, as was the case with Japan in the early 1990s, the stock market has continued to slide with every interest rate cut. Why? Two reasons. One, selling your assets to pay off your debt leads to lower asset prices when those debts are huge, which means you have less money available to pay off your debts etc. etc. ad infinitum. The real cost of servicing your debts is forced upwards by your attempts to pay them and the ending is often an unhappy one for the shareholders.
Two, central banks are too scared to admit what is going on so they are sitting on their hands and only lowering interest rates by small amounts since the public is unlikely to panic if they can be bribed to stay happy. Small, but methodical interest rate cuts, the central banks believe, will lower mortgage costs and help to keep the music going while debts are paid off in the corporate sector.
Sadly, for the inflationists and their supporters in the US & UK property markets, it is primarily the ‘wait and see’ approach of central banks in the US and the EU that is bringing your date with deflation ever closer. Aggressively printing money and restarting growth would make the necessary debt-reduction that much easier. Ostrich syndrome will do precisely the opposite as Japan is graphically displayed to the world over the last ten years.
Curious, rather than demanding things from people, I suggest you get a dictionary and look up the meaning of the words ‘factual’ and ‘predictions’. You will find that they are normally written in small case and using them together makes even less sense than your belief in perpetual inflation. |
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Housing Bubble
by Dot from Yorks
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#1000366
of 3278
27 Oct 2002
09:37 AM |
Following on from shaken but not sturred and Martini. I agree with s but s - just add up your annual take home pay over the years and your asset. Take the differenece - for long standing owners you have lived rent free. Also the rev hk and martini. HK is different. Property prices will have gone down as a result of the communists taking back the island. The thought at the back of the minds of property owners must have been to get out asap, accept what they can for fear of communist confiscation. The UK situation is entirely different.
Incidentally, yes, lets have some predictions by our so called experts so that we can all judge for ourselves the validity and integrity of those arguements. Perhaps we can then ask them why and where they went wrong afterwards. |
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shaken not sturred...
by g
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#1000365
of 3278
27 Oct 2002
03:56 AM |
Extradry Martini says ‘The property market crash in HK had almost nothing to do with the handover’ err…could Martini suggest a time when implimentation of one party (and communist) rule has had anything but a negative effect on real estate prices. (Perhaps people said that in Nov 1917 about Moscow real estate prices.) Anyone fancy a few thousand-acre farmstead in Zimbabwe…going cheap.
Secondly, I don’t understand the threat of deflation in the UK. Can someone explain why you cant just print more money to bring back inflation? I can understand the German situation of near deflation as they entered a fixed exchange rate with the euro at too high a DM/euro ratio. But why would deflation happen in the UK, unless we too joined the Euro with a relatively strong pound?
Thirdly, Curious you cant expect Martini to ‘BACK IT UP BY FACTUAL PRECICTIONS.’ That is asking too much of any economist. Scientists understand the fallacy in that by studying something, you (unwittingly) interact with it and (often) change its behaviour…this particularly applies to economics. My point is that every survey, article and maybe posting (yeh right!) has the ability to affect the market especially as it relies on confidence. This may go some way to explain the cyclic nature of boom and bust that fundamentally track an income ratio.
Lastly I maintain the opinion that if you buy now and stay for 25 years you will have at least lived rent free if not be sitting on a capital gain... as long as we are not put under direct rule from Beijing!
Feel free to denounce these views and report me to the nearest party representative for re-education, alternatively post a reply.
G |
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Housing
by Curious
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#1000364
of 3278
26 Oct 2002
01:49 PM |
To Extra Dry Martini
Thank you for - BUT can we have some predictions ie timing, percentages etc in hard fact to support your theoery. That way we can compare in the future. Its all very well people saying prices wil drop etc etc etc but if the analsisi you portray PLEASE BACK IT UP BY FACTUAL PRECICTIONS. |
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Hmm strange
by Extradry Martini
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#1000363
of 3278
26 Oct 2002
11:39 AM |
Curious,
You say that my and the Rev's arguments are theoretical - they are not - they are fundamental economics. People in the UK somehow believe that macro economics do not apply to the real estate market, or that economic analysis becomes useless - that somehow it is immune. Either that or they just talk vaguely about "supply and demand" without understanding (or bothering to learn) what forces cause supply or demand, or what changes them.
A mortgage is likely to be a the biggest debt anyone is going to have in their lives, but they prefer to keep their heads in the sand - the fact that the majority are also just as unwilling to do their homework only strengthens the feeling of security. I have not seen a single refutation of our economic arguments for a bust in this forum.
If I may reply on the Rev's behalf re whether what happened in Hong Kong was a special situation (it's sort of my home town too Rev - I was born there and my wife is a permanent resident). The property market crash in HK had almost nothing to do with the handover, but came after the bursting of a stockmarket bubble in SE Asia as a whole. The HKD being pegged to the USD (rather than to it's devaluing neighbours) under a currency board system meant that HK was unable to devalue and made the SAR less competitive in regional markets, hence exacerbating the situation. The bust in the property bubble fed into the supply-side recession. It might be that in some way the fact that it was impossible to ease monetary conditions meant that the property bubble did not get as out of control as it could have done. So, HK was no special case and nor is the UK - economics will prevail. |
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What of deflation?
by John McFarlane
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#1000362
of 3278
26 Oct 2002
10:53 AM |
| I do not think the market is about to burst, BUT what concerns me is that when prices do start to fall then they will fall rapidly. Much has been written about the strength of the consumer, both here and in the US, which is saving us from recession. If house prices fall, consumer spending will fall with it, and deflation becomes a stark reality. With deflation comes the threat of a collapse in asset values. Does it matter if this happens now or in 2 years time? Is now not a good time to sell, because prices will be cheaper at some point over the next 4 to 5 years (or even 10)? |
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changes
by sparkey
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#1000361
of 3278
26 Oct 2002
09:09 AM |
Hmm - the fact that this discussion is still active months after starting shows how much housing dominates british people lives!!
OK, firstly, I'm in agreement with the 'busters'.
Here's some more negative points that need to be considered - just to keep the discussion going ;-)
In no particular order:
1) Morgage repayments protection
How many people remember the 90's when some lost their job after takig on a huge morgage?
Remember the news programmes showing stories of people who's morgage interest were being paid by the social?
Well, that's not going to happen this time. You have, what, 9 months to pay the full interest. Then the payments are capped at £100,000ish.
I doubt most morgage interest protection schemes sold by the banks will be worth the paper they are written.
Imagine - £200,000+ morgage, no job (+ no chance of getting another job that pays as much as the last one). How much does loan does £35 dole pay off?
2) Building society demutalisation.
Does anyone remember the studies from the previous crash where it was discovered that a (mutual) BS was much less likely to re-possess a house than a (commercial) bank?
Well, most of the big BSs are more commercial - they answer to their shareholders, not their morgage holders. This time most shareholders are NOT morgage holders. I personally would not like to owning stock in a big (or small!) bank/BS when the crash comes!
3) Endowments
The details on this belong in another discussion board but by how much do people realise their endowment shortfall is going to be?
The life companies are still a cutting annual + terminal bonuses.
How much do you think the average ****-poor 'low-cost' endowment taken out between the late 80s - late 90s is going to be worth? My guess is that most will miss by about 50% or more. Moneywise, this could be quite a few £10,000s!
So what will most people do to make up the shortfall?
More credit card debt?
Another morgage?
Along a similar line, there is the big dirty secret of the interest-only morgage companies - how many people with interest-only morgages are aware they have NOT got a capital repayment method?
I believe there are a lot of people out there who have been sold just the interest bit of a morgage.
4) Non-morgage debt.
Are you aware of how much un-secured debt people are carrying? Anecdotal evidence, that is chatting to people in the pub, indicates a lot of people up their neck with 1 or 2 times their salary of un-secured debt - all at 10% APR.
The great majority of these are younger, pre-house buying age. These people are not going to have the credit rating to get a morgage - assuming they do not go bankrupt - in which case you forget a morgage.
5) International competiveness, labour mobility and all that.
Housing is a cost to people. People need to pay that cost thru work. That cost utimately will be paid by business (forget the public services - they spend money, not make it). Business passes on that cost to the customer.
See the nasty circle?
See how the UK is becoming a low-skilled, high-cost country?
Do you think the UK is efficient enough to maintain high housing cost?
How many of you work for companies that are short of skilled staff? (yes - companies are still trying to recruit!). How many times has a suitable candidate turned up only to turn the the job down because the housing costs exceed the extra money.
Speaking personally, I have had a few companies chasing me to for work in London. They cannot pay what I ask for but I guess (or I hope they know) why I wask for that much.
Who loses? Not me - I just work for someone else - a competitor - while the company struggles to meet its commitments.
Im not bitter or ranting about on this point. I just calculate which job will earn the most AFTER costs - that's tax, travelling, and living costs. The best after-costs jobs are just not in the south anymore. In fact, they are not in the UK any more! Oh dear.
Incidently, speaking as a Northerner, has anyone noticed that the north-south wage differential for professional level jobs does not exist any more?
12 years ago, when I started working, you could earn 50+% more in the south. Now, it's about the same.
Hope this post raises some issues.
I've tried to keep it factual - so you will have to excuse the last point ;-) |
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Housing
by Curious
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#1000360
of 3278
25 Oct 2002
08:49 PM |
To rsi who I think is the real doughnut. The average person has no concept of the real debt they are taking on. Example - 10 years ago a payment of £1000 pm would have seen a far greater % in that figure related to interest. Today that % would be far less. The difference is then the capital repayment or debt reduction element of the monthly repayment. Equity of course is notional until you cash out as a previous respondent has said. People 5 years ago for example have now a mortgage payment they can afford more easily then at that time. They can afford the prices to drop down to the levels they purchased at, and more, as often those same people have put down deposits either as cash [first time buyers] or from selling their previous properties. All this has helped to make their housing more affordable. Should they care if the notional value of their houses go down - they have a home and so why should they sell. The essentials come into play only at the time people need to sell for cash.
Incidently, both Martini and the rev place theoretical arguements about the state of the market - could they both now [if they dare] place their predictions as to when, and by how much property will cahnge % wise in the near future ? We can then have a measure of comparison to see how these wishy washy arguemnts stand up at some future date. |
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why do you bother?
by rsl
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#1000359
of 3278
25 Oct 2002
06:37 PM |
rev hk/extradry martini and others...
Why do you bother trying to exlpain this stuff to these doughnuts?
Fact is few people alive today in the UK have ever seen debt deflation or can come close to comprehend it's implications. Even if deflation does not come to pass, and it is far from assured that it will, owner's of large debts (i.e. homes) can no longer rely on inflation to provide negative real interest rates that crucify savers and bail out borrowers. I don't have time to explain this any further here but if you are emabrking on a very major purchase like this you should have some idea why these very large historical price rises might have come about.
The sad thing is the average person has only a very small perception of the interest rate risk they are taking on when they commit to such a long large term debt plan.
As for the rent vs buy brigade, you should be comparing an interest only mortgage with the rental payments. An equivalent way of making th comparison is to consider the rental yield on property. This yield should be more than the long term interest rate for approximately similarly risky assets. This is to compensate you for maintenance costs, risk of void periods etc.... In London the yields are now slightly below in most areas, which means people are buying in the hope of capital gain. It could go a lot further before there is a correction but that does not mean that levels are anywhere near good value.
Buying a home is a significant risk to take on for most people. The fact that the education comes in the form of the accumulated wisdom of 2-GCSE estate agents and similarly inept high street bank mortgage advisors doesn't help. Remember it is VERY important the exact timing of making the purchase. Which is why many of you can point to massive nominal gains in the values of your property, remember until 3 years ago people where saying exactly the same thing about equities.... |
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Pyramid schemes
by Clare
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#1000358
of 3278
25 Oct 2002
06:36 PM |
| I am deeply envious of those who bought five years ago and have paid off their mortgages, but this does not help potential first time buyers like me. If I could pay the same in a repayment mortgage for the same property as I do in rent, then the decision would be simple and I would buy. If however, to buy, I have to liquidate all my savings, pay thousands in stamp duty and then spend more per month in interest for the same property then I do in rent then buying just seems like a bad financial decision. It is an even worse financial decision if I buy something that will be too small in a few years time so I have to again pay stamp duty and transaction costs. In a low-inflation environment the mortgage payments also aren’t eroded so the ability to move up will be questionable. If the people who buy 1 and 2 bed flats now cannot afford to trade-up in 5-10 years time then prices will fall and the pyramid will collapse. |
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Housing
by Mr Naive
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#1000357
of 3278
25 Oct 2002
06:13 PM |
Message to rev and his followers. Correct me please on what I am about to say. HK is very different to the UK. Was it not around the time that HK was to be handed back to the Chinese that meant capital started to flee and property was affected that has still not to date recovered ? I would have done the same. So my view is that unless the UK was to be in a similar position, then with capital still remaining the forces of demand and supply will see to prices.
Last point - my praise to the post's opinion with just 8 % left on her property. In a few short years she she is to have no housing cost. Does she then really care if her property was even Zero pounds as she will still be better off than the rental person with an outgoing to find ? I think not !! She's built her nest and owns it. |
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apologies
by john k
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#1000356
of 3278
25 Oct 2002
06:04 PM |
| sorry for the last post (got a bit flustered). |
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