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| The UK housing market: a bubble about to burst? |
The price of anything is what a buyer will pay for it.
by UnFAZed
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#1000385
of 3278
 28 Oct 2002
06:08 AM |
The only way to establish what any piece of property is worth at any time is to put it up for sale and find out if there is a buyer for it at that price.
Imo, any boom in the UK has to be at an end now in view of the waves of job losses. But have prices started to fall? And how fast are they falling and where? There must be SOME honest independent advisors or banks/building societies which produce regular unbiased info about movements in the UK property market?
The problem in the UK is that hype and spin have taken over and no doubt in the property market too.
As fas as Switzerland is concerned (I live 26km from Zürich) property prices are falling in general and there are many more houses/apartments now up for sale at lower prices now. Would-be home buyers here just won't commit themselves
to buy right now as many are unsure about their jobs.
Fortunately there have always been plenty of flats to rent at reasonable prices here (big companies here have big property portfolios in their pension funds). A further point here - there are restrictions on the sale of property to foreigners, which seems to keep property affordable for the locals.
A deposit of 20% would be required on a house/apartment purchase. That's one reason why people start saving young here.
Imo, home-owning is such a fundamental basis of family life that no government should leave its property market uncontrolled, but should regulate it for the benefit of its own citizens. |
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more tests
by g
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#1000384
of 3278
28 Oct 2002
03:38 AM |
Some other tests plagiarised from Slater’s book I just adapted to the housing market…
Party talk: at the peak of a bull market house prices tend to be the main topic of conversation at cocktail and dinner parties…taxi drivers (and Sunday Express readers!) frequently volunteer details of their portfolios and give unsolicited views on the market.
Change in market leadership: Traditional good buys (semi and detached in good areas) lose out to terraced/falts in ex-council/ poor quality houses in undesirable areas in terms of % price increases.
ps I cant spell.
G |
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Cards on the Table
by Curious
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#1000383
of 3278
28 Oct 2002
03:22 AM |
| Why not this even simpler test - any sustainable rise above the official rate of inflation is a positive move : any below, then the bubble is pricked ? |
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Cards on the table
by g
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#1000382
of 3278
28 Oct 2002
03:14 AM |
I propose the following simple test:
If house prices don’t rise significantly on rate cut news and good employment levels then the bubble has been pricked. I have attempted to outline some simplistic reasoning below, if would be interesting to here your views of other tests…
Quote Jim Slater, The Zulu Principle (1992)
‘An early sign of a bull market topping out is the failure of shares to respond to good news. The Directors of a company might report excellent results only to see the price of their shares fall. The market is becoming exhausted, good news is already discounted and there is very little buying power left.’
Bodge house prices into the above…
An early sign of an asset bubble fully inflated is the failure of prices to respond to good news. The Bank of England drops interest rates only to see the prices stagnate or fall. The market is becoming exhausted, good news is already discounted and there is very little buying power left.
The BoE was split on whether to drop rates by 0.25% last time they met. They will fall to 3.75% in the coming months. If prices do not rise significantly after this news in comparison to preceding months and seasonal corrections the bubble is a pricked one…
G |
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interesting but flawed
by g
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#1000381
of 3278
28 Oct 2002
02:45 AM |
| To rev.hk and martini : your posting are often an interesting economic analysis. Using HK as a model may loosely hold as a broad model for London house prices (although I have many reservations.) However, you make a classic mistake of looking at the UK housing market and seeing only London. Less than 10% of UK population live in London. London itself is a special case as a large finance centre. You wouldn’t draw an analogy between Manhattan real estate and Mid West real estate in the US. So drawing an analogy between the UK housing market and HK by way of a London/HK comparison is similarly flawed. G |
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Housing
by Curious
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#1000380
of 3278
28 Oct 2002
02:21 AM |
To Rev - as I suspected, nothing forthcoming regarding future price trend expectations. You doing my investment work for me ? I don't think so !! For the record, as you seem to suggest that I have recently taken the plunge, you are entirely wrong !! I have 3 properties, all in the Home Counties, two of which I own outright and a third retaining a small mortgage with approx 4 years to go. Net asset worth Approx £950k. And all this achieved through what I believed was the right way to go, rather than to be talked up or down as the case may be.
I have always maintained a pragmatic approach to the property market : for example, taking advantage of the lowering interest rates over the years to maintain the same outgoings (thereby reducing my debts and term of years down far quicker). In this way, if troubled times came then the "credit" built up on my account would mean that I could pay less, and still not be in breach of the mortgage conditions. Its surprising the magnificent effect that the lowered interest rates have had on the property market in the UK and if you play your cards correctly and organise yourself properly then you can reap the rewards. By buying early on I have been able to rent out my 2 other properties and reap an income with no outgoings AND still maintain a value on the asset.
Regretably, over the years I have met many so called experts who make statements and theorise "til the cows come home" but are not prepared to stand by their convictions. In other words, put their money where their mouths are.
It is unfortunately, the nature of the economist as I said before. If you believe your arguments are true, then why not give us a more quantifiable assessment of what you believe will happen ? I tell you why - because you cannot.
Please do not take this personally - but I still do not have a clear explanation from you as to why we are going to have a property crash. My own belief ? I believe property will continue to rise for a further 2 years at approx 8 - 10 % average and then peter out to a more inflation related level. I also refute the deflationary argument on the basis of a previous posting who clearly suggests "why not just print more money" After all, does the current govt want a deflationary enviroment with which to enter an election with when it has the easy print money option ?
As for the falling values - I really could'nt care too much as I am not at all debt laden.
Rev - I hope this sets the record straight - but I really would like to see a lifetime exception from an economist and see a guestimate. Go on - make my day !! |
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the nature of economists as I understand it
by Not an economist but....
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#1000379
of 3278
28 Oct 2002
02:11 AM |
To Curious,
'What is the worth of an economist if all they do is play with words and not commit to a sensible guestimate of what they see in the near future ? '
The worth - in this forum - is that they may be preparing me and other possible first time buyers for the medium-term, by offering me reasoned argument. I welcome clear argument with justifications (not 'playing with words'), it allows me to form an opinion without being told what to do or simply to think something for the sake of it. I wouldn't think much of anyone's opinion without thought-out argument, and it's hard to take references to the Sunday Express seriously (not the Economist, is it?), so I repeatedly find myself convinced by the 'busters'. I don't doubt that the market can continue to rise in the short term of maybe a year or so, but I suspect that that isn't the point. A lot can happen to the economy in a year.
The broad brush-strokes thus far paint a picture - the housing market fundamentally requires a correction in relation to the rest of the economy irrespective of the short-term push-factors (low interest rates, a hysterical popular belief that the market will only go higher and the economy can support it). Historical precedent suggests a flattening-out to be unlikely. The given arguments to the contrary strike me as simplistic. The busters' painting may be a wishy washy watercolour, but the image is recognisable and coherent.
I have a medium-term life decision ahead of me regarding buying somewhere to live - some of my friends are succumbing to the hysteria surrounding the issue, which is emotively understandable. However I rate intellect over hysteria, difficult that this is at the moment. The 'busters' amongst this forum are being scientific in not being specific; they know they can't be precise, but they present their arguments anyway. I also value prose from those that justify the opposite beyond the short-term, but I just haven't found any yet. Perhaps I should have bought the Sunday Express today, time will tell. |
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Hong Kong Phooey
by rev.hk
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#1000378
of 3278
28 Oct 2002
12:09 AM |
Dear Curious,
Your rather Hong Kong-sounding 'wishie-washie' line seems to be getting ever more desperate.
I doubt anyone serious about making the biggest investment decision of their lives would base that decision on the words of some scribblers at the low-brow Sunday Express. Buying a house is a huge financial undertaking and your frivolous comments do little more than cloud the issue.
There are tried and tested economic pronciples that work regularly and frequently around the world. That is why I have used my home town of Hong Kong as an example of what can happen to a market that is heavily over-valued and displays many of the characterisitcs as London.
One of the tried and tested principles is fair value - if prices rise too quickly and to levels which are above that fair value, then prices must surely fall. The greater the imbalance in the market, the greater the violence of the correction. When the correction finaly comes is impossible to say since it is driven by the psychology of the masses. It's a lot more difficult than taking a ruler and extrapolating the next three years from the previous three as your so-called experts appear to have done. It takes a lot more guts to go against the crowd and say that a change in direction is imminent.
You asked for predictons. I am not here to do your investment research for you. But Sho-ryoken's latest post has an linked article that you should read. In it, a book is quoted by a guy called Edward Chancellor - who , ironically, is an ex-FT writer. Buy it and read it. I've read it a couple of times and reckon it is the best book on financial manias in the market. It might help you avoid the biggest financial mistake of your life - although, gauging by the froth in your wordage, I suspect you have recently taken the plunge and your legwear is taking on a rather choclatie sheen.
Lastly, I've copied and pasted a book review from Amazon. The book in question was released in late 1999 at the height of the internet bubble It warned of an impending crash and used very traditional measuremennt techniques to come to that conclusion. The reviewer seems to have been using Wired and all the stockjockey chit-chat columns as his base for reality. It makes pitiful reading when you consider the market collapsed only three months later. It also shows how difficult it is to predict with certainty when and by how much the market will correct.
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from Amazon.com
Alarmist drivel that misses the point, January 2, 2000
Reviewer: Mike from Toronto
I love reading books like this, especially a few years after the fact. The authors, in a condescending fashion, talk about how the bull market cannot possibly extend itself and that technology (again!) investment is for fools.
They base their thoughts on antiquated P/E analysis and don't ever answer where the boomers are going to put their money in the case of a correction.
The main concern with people like this (and Rifkin, et al) is that they don't recognize that technology represents a new paradigm and that traditional stocks need new metrics.
The Dow was over 8000 at the time and the authors were calling for an immediate correction to 3000. As of this review it was almost 11,500 and the Nasdaq has more than doubled. I wonder if this guy is ever called upon as an expert anymore. |
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If you really insist...
by Rob G
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#1000377
of 3278
27 Oct 2002
10:28 PM |
| Try 333 |
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Housing
by Curious
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#1000376
of 3278
27 Oct 2002
09:19 PM |
| To "All Together Now" Rob G. Name the post number. If 365 g is the same as Rob G - then I would suggest you become more specific as to who you are. Or are you simply one of those "wishy washy" types ? |
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All, together: "Oh Yes I Have!"
by Rob G
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#1000375
of 3278
27 Oct 2002
09:12 PM |
| You obviously haven't read far back enough. |
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Housing bubble
by Curious
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#1000374
of 3278
27 Oct 2002
08:11 PM |
| To Rob G from Curious - you seem to very good at taking the "mickey" so as to speak. Yet you have not made a single constructive comment on what your views are on the housing topic. Do you have one or is that beyond your reach ? If you have one, put your arguments down for all to see and I'll then for sure comment alright. |
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Curiarse Facts
by Rob G
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#1000373
of 3278
27 Oct 2002
06:41 PM |
Curious, you make me laugh. To quote your article:
'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.'
What a joke. Do you really think that article writers for financial columns in newspapers really have more of a clue what's going than the rest of us? If they were that knowledgeable, surely they'd all be millionaires by now instead of newspaper hacks... Further to that, they are also presumably home owners, so it's not in their interest to talk up a housing price collapse, is it? |
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Bubble
by Curious
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#1000372
of 3278
27 Oct 2002
02:42 PM |
To sho-yrun guest. Again, you seem to be on the side of the "wishy washy " theorists who clearly say a lot but are not prepared to come up with a prediction. You play with the word prediction like all economists play with their chosen brand of words. On this subject it would clearly be apt for "economists" like martini and the rev to present their theories with what they expect is the likely outcome of the price dips they so firmly believe will happen. There is nothing wrong with that. You and your merry band are quick to ridicule the experts who are subsequently proved wrong - yet are not prepared to place yourselves in that position. What is the worth of an economist if all they do is play with words and not commit to a sensible guestimate of what they see in the near future ?
At the company I work in we used to have many economists who regularly played with words -but declined to make quantitative guestimates. The company clearly became frustrated with this word playing philosophy, thought it exceptionally costly to employ people with this approach, just to listen to a more sophsticated version of what you could find any man down at the local pub come up with. Half were subsequently made redundant.
Come on guys, get real, who wants to listen to those who are quick to criticise others but are not themselves prepared to commit. |
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Facts ?
by sho_ryuken
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#1000371
of 3278
27 Oct 2002
01:13 PM |
Curious - you are well wide of the mark.
Your so-called experts have made a "factual prediction" ?!!??!?
As rev.hk said in post 367, a prediction, by its very nature, is not factual and never will be.
Your so-called experts have made a lot of predictions in the past about the housing market, and they have generally been a long way off the eventual outcome. That is economics for you - you can only evaluate the limited information you have available and attempt to identify underlying trends. As to when things happen and by how much, nobody can say that for sure. Economics is not an exact science - surely you must know that ??
I find it interesting that people are talking about house prices "levelling off", just as renowned economist Irving Fisher said share prices had reached a "permanently high plateau" just before the 1929 crash. Despite the important theories he offered to economics his reputation will always be tarnished by that regrettable remark, poor guy !!
I think some of you may find this article of interest:
http://www.guardian.co.uk/Archive/Article/0,4273,3968309,00.html
It was written about the tech boom but is just as relevant here. Notice it is also warning about global deflation over 2 years ago, and I have seen articles even further back that were warning about the tech crash and deflation. Some people have got their heads screwed on and dare to challenge accepted "wisdom", but they normally get ignored until after the event, when everybody claims they could see it coming anyway. Sound familiar ??
To Extradry Martini and rev.hk - keep up the good work !! I am glad to see that at least a couple of people have still got some sense.
[Name calling removed.]
[This message was edited by Monitor_JDW on 27 Oct 2002 at 01:37 PM.] |
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