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| The UK housing market: a bubble about to burst? |
gilts
by john k
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#1000492
of 3278
 04 Nov 2002
03:31 PM |
how much are these gilts and what is the minimum you can buy?
what are the deals regarding selling them during their term? |
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Fixed Interest
by Extradry Martini
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#1000491
of 3278
04 Nov 2002
02:59 PM |
Re Foreigners investment needs
Fixed interest securities are a good idea in principle, but make sure you are buying as high a credit quality as possible. That really means government bonds (in the UK known as Gilts) or something similar like supra-national debt (e.g. bonds issued by the World Bank). At the moment you should corporate bonds like the plague. Even companies as blue chip as General Electric are risky at the moment for two reasons. Firstly, companies (like households) are carrying too much debt and will find it difficult to pay it off. Secondly, and partly as a consequence of the above, there is a credit crunch going on. This means that no only do these companies find it more difficult to servicee the debt, but if you have invested in their bonds that your investment is worth less.
You will get more bang for your buck buying longer dated government bonds (e.g. 15 years at 4.68% rather than 3y at 4.14%), but it is more risky. In other words, play it safe by buying shorter dated bonds, but if you're really convinced of the bust, go as long as possible. |
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invest it in savings
by foreigners cash
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#1000490
of 3278
04 Nov 2002
02:41 PM |
| i agree foreigner, invest in a savers account for a few years and see what happens with the economy. |
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What then to do with your money....
by Si
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#1000489
of 3278
04 Nov 2002
01:07 PM |
foreigner:
just an observation, but I think you could invest your 325k quite safely in a fixed-interest product over, say, 3-5 years and still get enough income off it to pay your rent, or at least 90% of it, whilst retaining your lump-sum. Depends if the kind of place you're renting is somewhere you'd be happy to live for this time. |
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Safe as houses - NOT
by Engineer
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#1000488
of 3278
04 Nov 2002
11:31 AM |
To foreigner: tell that to the farmers in Zimbabwe!
While blatant expropriation in a "civilised" country is unlikely, punitive taxation of property is still a possibility...
Don't put all your eggs in one basket! |
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What then to do with my money?
by foreigner
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#1000487
of 3278
04 Nov 2002
10:21 AM |
Thanks to all for a fascinating forum.
As a former farmer I've been always taught that you can best 'park' your money in real estate (no-one can steal it). I've just sold my property back on the continent, and am currently renting for 900 a month. I do have 325k available with which I thought I buy a bouse (cuts out the rent). What is the best haven to put my money in for the coming 2 years if it is not a house? |
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Anecdotal evidence
by Davo
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#1000486
of 3278
03 Nov 2002
09:40 PM |
Lots of great economic arguments throughout this forum. Thought I'd share some anecdotal evidence from my weekend phone conversations with friends and family back in the UK!:
Parents tell me their neighbours house has been on the market for 5 months (at a greedy price) and in the past 3 weeks not a single viewing.
My friend owns a reasonable sized estate agency (6 branches) in Bristol and he tells me has had just few new first time buyers through his doors in the last 4 weekends. Compared to the previous 6 months he has described the past 4 weekends as 'unbelievably slow'.
Some real estate agents in my parents area (South Gloucestershire - an area which really boomed over the past 2 years) are starting to advertise price reductions. First time my parents have seen price reductions for 2 years.
The new houses Nationwide put on the market this week in my parents area were noticably cheaper than the other real estate agents - we estimate about 10%. Why?
OK, thats it. Thought I'd share that. |
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re: Rev HK + house ownership
by sparkey
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#1000485
of 3278
03 Nov 2002
09:27 PM |
Semi related ...
When will the UK realise that a persons major lifetime wealth comes from their future EARNING POTENTIAL - not nonimal rise in house prices???
How many people will be stuck with un-sellable homes preventing them from maximising their income??
House price estimate?
40%-60% down soon - probably starting after Xmas.
Process used to determine the figures? - rule of thumb, most market falls tend to loose the last 4 to 5 years of gains.
What will happen next?
The early 90s did not see rises above the RPI from about 92 to 97ish - 5 years down. This time, I guess it will be double that.
See you in 2012 |
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it's a good time to borrow, but be careful what you invest in.......
by keeping it in the bank
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#1000484
of 3278
03 Nov 2002
03:02 PM |
Looking at the figures over the past few years, borrowings as a
percentage of disposable income went along at around 90% for the
majority of the 90’s; it then began to rise in 98, passing 100% in
2000 and currently standing at not far off 110% (still rising as well).
For all those people posting with only 10% to pay off on their
mortgages, there are obviously others not in that enviable position as
this average shows. However, in itself this isn’t a terrible figure,
but does indicate that borrowers are more at risk to economic shocks.
On the flip side, interest payments as a percentage of disposable income are at a decade-low point (around 8-9%) due to low interest rates and increasing competition in the lending market (and lenders can’t
co-ordinate low % of value lending or higher interest rates – that’s
anti competitive as mentioned by others).
Given current conditions, it could be argued that borrowers are acting rationally, taking advantage of low interest rates to obtain
funds to invest. People are only looking at their potential costs over
the coming year anyway, leading to a perceived low cost of borrowing (perceived
because we*re in a low inflation environment). If interest rates rose
by 1%, or disposable income fell by 10% (but not both), their income
gearing would still be within historical norms anyway. so far fairly reasonable. However what
they*re investing in may be (I personally believe it is) an overvalued
asset, which isn’t so smart. My view tends towards that of the rev,
extra-dry, engineer et al in that firstly this is an asset bubble,
secondly they always have crashed, not leveled out, and finally the
price is confidence based with feedback mechanisms. My opinion is that
there will be a flip point soon (sometime next year? Beginning of the
following?) when an apparent sensible slowdown in price growth will turn
into a plunge as people all head for the exit at the same time.. So to
answer the poll question, yes the bubble will burst.
This will lead to significant minority of people with negative equity
(and so can’t downsize their property) & who have historically high
debt to income ratios. The first semi-major financial problem they find
themselves in will lead to major default on debt & repossession of
assets (house) followed by the cheap sale of the property they own by
the bank (plus them being unable to get credit because of their
outstanding debt/bankruptcy). Both the fire sale & inability of
consumers to re-join the property ladder should keep the market down for
a while, leaving the opportunity for others to join them in this
predicament. Of course the market will go up again at some point, it
always does, but currently we*re heading for a downturn, which I feel
will last until the latter part of the decade. |
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very interested in the general difference between buying and renting
by Si
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#1000483
of 3278
03 Nov 2002
10:47 AM |
[I've changed my name, as 'not an economist...' was cumbersome]
Rev, I've really appreciated your, Extradry, and others' sagely insights. It has added weight my suspicions regarding the irrationality that is gripping people at the moment, and I'm sure prevented me from an expensive mistake. I can get fair rent where I live whereas the cost and risk of a mortgage by comparison now look a pointless nod to the prevailing hysteria.
However, if an individual has settled in an area which looks set to provide employment opportunities long-term (is this a safe bet these days?) then, at a point in the economic cycle where a property can be bought for fair value, is it not reasonable to buy a house as a place to live over the long term? Clearly now is not that time, but in the years around 94-97ish, looking back, house-prices seemed very reasonable compared to rentals (which appear much the same as they were then), so conversely to now, it seems that one would have been better off buying than renting, assuming one didn't expect to move within 4 years or so, and not accounting for asset-price-appreciation (as we've established it's an illiquid asset).
In a crowded island, we have an oversupply of rentals, and I see every reason to take advantage of nice cheap rented accomodation for the forseeable future. But one day, cyclically speaking, there may be a point where those of us not suffering from negative equity may wish to snap up equally good value property to buy as better long-term value than renting. Is this another fallacy from the mortgage-industry? Or could the economic future be that volatile that it’s not worth looking that far into the future anyway?
This is a genuine question, I’ve no axe to grind, I value your opinion. |
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Loony Luke
by rev.hk
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#1000482
of 3278
03 Nov 2002
03:48 AM |
London Luke's note beautfully sums up the madness of the crowd. Panic buying to save yourself from renting? It's completely bonkers. I have never lived in a home I own and am very happy and financially secure - athough I do own a home on the north coast of Ireland that I bought for my parents to retire in. I can't sell and will probably lose money even though I paid cash, but that's life.
Renting allows you to move around at a moment's notice to chase the highest pay-off available. You can then take risks with your liquid balance sheet that should leave you financially independent early on in life. Nine-to-fivers with a huge loan secured on their home will take decades to get there.
This idea that you need a nest to build a life in is completely crazy. If you get in now and prices flop, you'll be a slave to the bank for the next twenty-five years.
It's time to grow up and stop following the crowd.
SP, Prices in 'up and coming' areas do fall much further in a crash since their intrinsic value is lower. If they were nice areas to live in or were anything other than plain cheap, they would have been in demand at the beginning of the boom rather than at the end. |
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Do you really trust the statistics?
by Newsseeker
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#1000481
of 3278
02 Nov 2002
07:22 PM |
More than two years of continued economic contraction, company after company laying off staff in multiples of thousands, and then going for round two of layoffs, again in multiples of thousands per firm, then round three, then round four...you get the picture. And many of these occurring in the lucrative consultancy, professional services, technology, telecoms and investment banking sectors, affecting professional staff with 5+ years of experience and good career profiles. Yet miraculously official government unemployment figures keep on coming down. How can this be? Are all these 'wretched dispossessed' taking a dive off Blackfriars bridge, unable to live with the shame of it all. My view is that the official figures are no more a statement of actuality than Mussolini's train timetables (or come to mention it, our own train timetables).
Are we on the brink of a recession? No, we are in a recession. And it could get far worse, the global economic slowdown is precipitating a deflationary environment. EU enlargement will certainly move any remnants of manufacturing into accession countries and further afield. the service sector will also be directly affected. Already we see competitive pressures from Asia for technology sourcing and call-centre facilities, which make Europe a less attractive proposition for such businesses. Lack of return from capital markets has and will continue to cause contraction of the sector, and/or capital outflow to newly developing regions such as the accession countries, particularly in the medium term. And these are merely the headline items.
Does this signify that the time is no longer right to invest in a UK housing market, which by most conventional measures is overvalues? I certainly think so. Particularly if the economy continues to underperform. And also, that the housing market cannot exist in isolation from the rest of the economy - for that surely is a bubble. |
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white-collar interconnectedness across the country
by not an economist but...
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#1000480
of 3278
02 Nov 2002
07:19 PM |
To add to sparkey's good point:
Up here in West Yorkshire we've a plethora of financial-services companies' head office functions, often strongly mortgage-oriented, and currently doing record business (notably including Halifax/BOS Abbey NAtional, Bradford and Bingley, Yorks. BS , Yorks. Bank, etc.) Hence bolstering the economies of Leeds, Halifax, and further afield (where substantial numbers commute from over the M62) influencing the economies of York and Manchester, as well as interconnected office services etc.
If you go out in Leeds on a Friday night you can't throw a stick without it hitting someone whose job is connected to this.
They've already had to curtail their employment in stocks-and-shares-related operations. Sounds like the employment prospects up here are kinda dependent on continued mortgage borrowing. In the post-industrial era I wonder if this may mean that, in the absence of the industrial spread that the regions used to have, any substantial correction in the South East might propogate to the regions faster and more substantially than before.
People are saying that Leeds and West Yorkshire didn't feel the bust last time, so it couldn't happen here. To which I reply that we didn't experience the boom here last time around, unlike now.
I'm interested to know from anyone who does know - does the principle of 'up-and-coming' areas collapsing the hardest also apply to broad regions of a country? Out-of-town investors are going crazy to buy up lettable-properties in Leeds, on the expected future post-industrial growth. But surely, as above, we are DEPENDENT on the national economy, and could get let down quite badly in the event of a recession...? |
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more for the poll
by sparkey
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#1000479
of 3278
02 Nov 2002
06:30 PM |
Here's a good game that relates to last few posts.
Pick any medium to large sized town (30,000+)in the south (draw a line between the Bristol + Cambridge for your N/S divide limit).
Now check the town's top 3 private sector employers.
Odds on it's a financial services firm. Odds on it's related to (excuse the Daily Mailism) 'stocks + shares'.
Now check if that company is currently making a worthwhile profit - no, I don't mean robber baron levels - just more than the 7%+ on revenue.
Now try and work out what will happen if that company goes under, relocates, etc.
Unrealistic?
Reading (Pru).
Bournmouth (Eagle Star)
Tunbridge Wells (Eq Life)
The housing cost of the south, and the rest of the UK, is having a noticable effect on the companies located their. I think the financial services based in the South faces a situation akin to manufacturing in the 80s.
Unlike interest rate hikes, which hit everyone at the same time, the slowdown will be caused a large companies shutting down their operations.
Unlike interest rates, jobs losses cannot be corrected by moving the rates back down. |
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ROFL
by Rob G
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#1000478
of 3278
02 Nov 2002
05:48 PM |
Sorry Greedy, I can't believe I ever doubted you.
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