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| The UK housing market: a bubble about to burst? |
Of course its serious!
by GREEDY
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#1000477
of 3278
 02 Nov 2002
05:40 PM |
Luke, would Gordon Brown lie to you?
Of course the owner occupiers who rent out part of their properties do not intend to sell up. And just think of all the potential buyers such as yourself, ready to snap up any studios or 1-beds that are for sale. Breathe the the air in the tube in rush hour, and look at the congested streets, and it is obvious that people are not leaving London. Listen to the foreign languages, and think of all the new immigrants wanting to settle here. Who wouldn't be prepared to pay a premium to own a tiny part of such a thriving metropolis? Tony Blair has even pledged to rid the streets of bubble gum, which is bound to cause massive house price appreciation!
To "Not an economist but..." : corporate IT is declining because Microsoft has made huge improvements in their software, so less of these "experts" are required. We are on the threshold of a new productivity boom in other sectors of the real economy as a consequence.
In the real estate sector, business is strong. Builders are thriving, and estate agents are set for big increases next year when lower interest rates stimulate the market again. We will soon be at 1.75% like the Americans, and are heading for even lower rates like they have in Japan. Just think, one day it may be possible to borrow almost interest-free! Imagine how smug you'll feel sitting in your own flat, watching all the renters pouring money down the drain while your huge mortgage virtually pays itself off! |
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*** EARTH TO LUKE ***
by Rob G
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#1000476
of 3278
02 Nov 2002
05:24 PM |
| I think you'll find that Greedy's not being entirely serious. |
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Greedy
by Luke
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#1000475
of 3278
02 Nov 2002
03:44 PM |
Greedy are you being serious?
Rents are low in london but what do you think about my view that only a proportion of these are non owner occupied?
I also disagree about people leaving london. |
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'Being young, your salary can only go up'
by Not an economist but...
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#1000474
of 3278
02 Nov 2002
02:32 PM |
Mmm I think not, there appears to be a contraction of salaries beginning, perhaps only for 5 years or so, but I can’t tell. The reason mortgage lenders historically limited to 3.5 times salary, and 5 or 10% deposits, is because, taking into account general salary-growth, most borrowers would be okay with this, from institutional experience of 50 years and more. Not 4 and 5 times one’s salary. If you read some of the broadsheet newspapers you will see that there are significant joblosses in the private sector, being offset by public-sector and part-time retail sector making employment figures look strong. And borrowing is paying for these last two. Greedy, I believe your comment to be naive, but I wish you the best of luck.
In the corporate IT sector in which I work (major cities, reasonable professional salaries, but not stratospheric city-of-london salaries related to the downturn at the top-end of the London property market), we have seen a 7% drop in permanent rates and 8.4% in contract rates IN THE LAST 6 MONTHS. See:null
What is the status in other sectors? All comments appreciated. |
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Wait
by FTB
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#1000473
of 3278
02 Nov 2002
02:08 PM |
Luke
When I saw greedy's first post I thought it was a joke. Why should prices in London keep going up? Unemployment is rising, particularly at the expensive end and salaries for those in a job are flat or falling. London's population fell by 80,000 last year and given the job situation is likely to do the same this year. In the meantime the rental market is flooded with flats renting at less than the interest you would pay on a mortgage. Interest is wasted money just as much as rent is. The only reason to buy now is if you think prices will be higher this time next year and the downside risks seem much heavier than the upside. Panic buying is most likely to lead to a mistake. |
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Don't despair!
by GREEDY
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#1000472
of 3278
02 Nov 2002
01:03 PM |
London Luke, there is still hope for you. A home is not a luxury, everybody needs one. Being young, your salary can only go up, so now is the time to make your move before the next wave of increases when interest rates drop much lower.
Remember, Gordon Brown, our prudent chancellor, has quite categorically stated that he has abolished boom and bust, so clearly the pessimists on this forum have their own political agenda and are not to be trusted. Who knows better than our chancellor what the future holds economically? If he has stated that boom and bust is over, then quite clearly he will not allow a bust to happen.
So don't waste your opportunity, get on the ladder now, and in a couple of years you, too, can be smiling! |
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I wish I could buy
by London Luke
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#1000471
of 3278
02 Nov 2002
12:04 PM |
I am desperate to buy a property in London where I work but just can't afford it. 2 people in my department (all in 20s) have just bought and 1 other is buying at the moment. If this is the trend then OH NO.
I just cant see prices coming down as interest rates are like to go down to maybe 3.5% which wont help me but will no doubt give the current waning price rises a kick up the back-side.
Does anyone really feel that an exodus in the buy-to-let market will create a crash? Around London most buy-to-lets which are not owner-occupied are studios or 1 beds, buy-to-letters who rent out their spare room would not sell up would they?
It has just become the case where owning your own home is a luxury. |
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Buy, buy, buy
by GREEDY
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#1000470
of 3278
01 Nov 2002
09:56 PM |
| Lets break all those records set at the end of the 80's! There's obviously a shortage of housing which will only get worse, and you don't want to end up living on a park bench. When interest rates drop to 2% or less next year, prices will easily double, but will still be quite affordable for first time buyers. Give up cigarettes and booze so you can put all your money into property - just think of the health benefits! Borrow as much as you can, for maximum leverage. Take out an interest only mortgage, and the huge gains over the next 25 years will make the initial capital cost insignificant. Don't miss out, get in now while others are hesitating, or it may be too late. |
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FT Interest Rate Discussion
by Knowledge is Power
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#1000469
of 3278
01 Nov 2002
02:34 PM |
This other FT discussion is worth a look:
http://forums.ft.com/2/OpenTopic?q=Y&a=tpc&
s=646099322&f=451094803&m=7013027175&p=1
I'd love to read your comment's on interest rates Rev HK, Extra Dry, et al.
(Edited by FT to break long url.)
[This message was edited by Monitor_JL on 01 Nov 2002 at 03:17 PM.] |
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Single Owners
by Rob G
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#1000468
of 3278
01 Nov 2002
01:57 PM |
The move to an increased number of single owners is (IMO) going to make things rather more tricky when things start to deteriorate in the economy as a whole.
Based on total free income, far higher income multiples are being lent to single people than to couples.
This is bound to lead to single owners, particularly those stretching to become first time buyers, becoming very exposed to reposession in the event of even short periods of unemployment.
With absolutely no income buffer, forced sales are far more likely with this new breed of owner-occupier.
This can only act to further destabilize the housing market in periods of economic downturn. |
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Move to single occupation
by sparkey
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#1000467
of 3278
01 Nov 2002
01:19 PM |
One topic the 'it's different this time around' people keep hitting on the is the rise in single occupier house hold. Which, reading between the lines, is a nod to the high (and increasing) divorce rate.
In reality, consider Mr + Mrs Married, who own a £200K house. Then they divorce. This does not result in demand for another £200K house but rather a split of £90K each plus £20K in legal costs.
Ignoring the 'too high' or 'will carry on rising' arguments. As an asset class houses are horrible -
they are illiquid,
they concentrate a lot of money (and risk!) in a few square metres,
they are an 'all or nothing' investment, you cant sell a door to release equity!
and, finally, as soon as they are built, they start to fall down. |
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Going liquid
by Lulu the Cat
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#1000466
of 3278
01 Nov 2002
12:49 PM |
I'm with the bears on this one and have been following this discussion with interest.
Like Davo and others I believe the housing market, like any other, is driven by sentiment, but in particular I think the role of first time buyers is of immense importance for obvious reasons. Anecdotally at any rate, I get the strong impression that the ftb brigade is getting fed up with realising that all they can afford is a damp bedsit above a kebab shop in Neasden. This is now leading to ftbs getting cold feet and friends of mine who were hoping to buy earlier in the year are now saying things like 'I'm waiting till things calm down a bit'. I've also noticed from press reports that the volume of first time buyer mortgages is steadily declining which appears to back up the anecdotal evidence.
So convinced am I that the London market has peaked, that I have actually just sold the London flat I bought in 1997, and have stuck the equity into isas, premium bonds and other savings vehicles (not quite brave enough to get into equities yet), and am now renting a lovely flat at a bargain rent due to the collapse in the buy to let market!
I have since heard of friends, and friends of friends who have also decided to 'go liquid' for a while, watch the market, and buy back in at some point in future. |
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Loans Direct!!
by Tim
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#1000465
of 3278
01 Nov 2002
11:31 AM |
Well I'm extremely releived at the results of the poll...at least 53% of people have sound economic fundamentals!
One key factor that has fuelled the boom is interest rates. For some strange reason there seems to be a belief that the cyclical trends of interest rates and prices is no longer with us! Many people still buying base their price thresholds purely on the monthly mortgage payments they can afford and seem to discount any long term interest rate rises.
Another argument for buying is the "shift" argument that I see in the current discussion...ie; monthly payments are the same as they were in the early nineties so people can still afford houses and there will not be a bust situation! The key here is that volatility of monthly payments is so much higher that before. In early nineties rates were at say 9% and a 1% movement only affected the pmt by 11%. The same increase now will increase pmts by +-20%...a huge difference!
So far the BofE has tried to no avail to correct the downturn by lowering interest rates without adequately weighting the impact on House prices as they comment "their focus is on the economy not Housing and consumer spending". Recent stats report consumer debt both short term and mortgage has increased at its fastest rate ever in September...surely there is an argument for the BofE to counter this by raising interest rates.
Come on all you bulls...keep spending and buying houses as I'm sure you've factored in adequate volatility into your monthly outgoings....NOT. Maybe 'Loans Direct' stock is the way forward in the medium term!!! |
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Property needs new metrics?
by rev.hk
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#1000464
of 3278
01 Nov 2002
11:27 AM |
Dear Max, Daniel and Mr Dunsire,
You are making a horrible mistake in your assessment of the long-term repayment schedule of mortgage debtors. Not only are you assuming that everyone is going to have a job in twelve months time, but you are looking at nominal interest rates and proclaiming a huge reduction in monthly interest payments....with the final conclusion that this must be supportive of property prices. This is completely wrong.
In fact, you should be looking at the real rate of interest, the rate which you need to pay once inflation erodes part of the debt you owe to the bank. At the moment, real interest rates in the UK are actually higher than they were in the late 1980s before the crash of 1989 - even though a person’s mortgage as a % of salary is lower. In the late 1980s, real interest rates actually went negative in the latter stages of the boom as the chancellor lost control. In 2002, they are positive and widening, which is a very worrying phenomenon in a market which is clearly over-valued. Max, your theories about new metrics for the property market remind me of the accounting tricks pulled by I-bank analysts in the latter days of the IT-bubble. They are no less preposterous.
The prospect of further falls in the headline rate of inflation are being signalled in the bond market where long-end gilts have been strong performers this year. And with nominal interest rates at 4%, the BOE has little room for manoeuvre if UK debtors start to sell assets to pay off debts… due to either a fear of the future, a curtailment of new credit or actual rises in the rate of unemployment. The central bank will then be faced with falling inflation and a forced reduction in the spread between bonds, cash and deposits. The game is up when the spread falls to the point where there is little reason to keep money on deposit because cash yields almost the same….as it has done in those parts of the world where debt-deflation has brought about substantial falls in prices. Once that happens, the ability of banks to lend will be severely curtailed by a lack of fresh money to lend.
It is important you understand this. Banks can only expand their loan portfolios if the amount of money held in time deposits is growing.
The following is a quote from Kensington Mortgages after they completed a recent survey of ordinary peoples’ attitude towards debt....
About a quarter of people would not feel concerned about what they owed until they started missing bill payments, while 20% would be worried only if their debts exceeded their earnings.
..and then a bit of scaremongering from the home-owners favourite rag, the Daily telegraph.
http://www.telegraph.co.uk/property/main.jhtml?
xml=/property/2002/09/04/pjapan04.xml
Davo,
The Asian Financial Crisis has hardly been mentioned. The Asian angle is to highlight that property markets with tight supply can fall precipitously even when the number of outstanding mortgages is small. Asian property markets were the victims of price bubbles and debt-deflation bursting at the same time. The warning flag for post-internet UK is very, very pertinent indeed.
(Edited by FT to break long url.)
[This message was edited by Monitor_JL on 01 Nov 2002 at 03:22 PM.] |
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Boom now - bust soon
by Engineer
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#1000463
of 3278
01 Nov 2002
10:45 AM |
Max Southall, you make an interesting suggestion, namely that the "true market value" or what I would prefer to call the "fair value" of property has undergone a step change (or "structural shift") in recent years, due to major changes in the economy/society etc.
This sounds suspiciously like the whole "new economy" concept that was used to justify the technology bubble, which has subsequently been revealed to be wishful thinking. I suspect that your supposed "structural changes" in income distribution etc are largely the consequences of the whole techology boom, and that some of these changes are currently in the process of being reversed. Based on what I have read, the age of first time buyers is increasing, not decreasing as you suggest.
I do not believe that huge step changes in the economy or society occur as you have proposed. General trends such as increasing numbers of single households etc occur gradually, and will have been taking place throughout the last downturn as well as the current boom. They may contribute to gradual changes in the real long-term trend line, but massive changes in prices over a short period of time are nothing more than over-reaction : a boom. As I have said before, in the real world I know of no system that keeps booming indefinitely, so a prudent person would be wise to factor in a corresponding bust soon.
If you are still convinced that there has been some sort of step change in society or the economy to justify massive house price inflation, then I will draw another analogy with the physical world to try and convince you that there will be a bust anyway. When any real system undergoes a step change on its input, then its output (the house prices in this case) start to change in the appropriate manner. If the output is to shift smoothly to a new 'steady state' value due to the input step change, then the system has to be perfectly damped, in which case the response time is rather slow and the rate of change of the output very gradually flattens off as it approaches this new value. In contrast, the propery market is not well damped, which is evident from the very rapid change in prices, and the fact that the rate of change of prices has increased as the boom has progressed (notice the increasing steepness of the Nationwide price curve). Thus the output overshoots the "correct" value by a long way, and then retraces its path and also undershoots the "correct value" by a long way. This "ringing" continues for some time, due to the lack of damping. In my opinion, any correct "fair value" that prices were aiming for has been passed many years ago already, so I would expect a correspondingly large downturn in due course (though I do not believe that this step change argument is correct, anyway). |
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