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| The UK housing market: a bubble about to burst? |
Rob G - missed the point
by Andy B
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#1000552
of 3278
 08 Nov 2002
02:13 PM |
Rob
The cost (or value) of something - is the future cash flows.
Your theory is if a house is now £200k rather than £100k, then you have £100k less to spend on something else.
But if the reason it was £100k was because at that time it cost you £x amount per month and now to buy a house that still costs £x amount a month the the cost is the same.
As long as you build a factor for cost increases, such as a reasonable increase in interest rates then you are OK.
It is when someone can not pay the monthly cost that it falls apart. |
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Hearsay
by SL
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#1000551
of 3278
08 Nov 2002
02:08 PM |
| Standing in a queue in the local Post Office in deapest Surrey, I spy a chap from the Halifax office. He's chatting with a lady friend who is considering quitting her training course in order to get a job and supplement her husband's earnings so that they can buy a house. She's worried, because she doesn't want to quit the course and miss out on the qualification which would increase her earning potential. She has six months left before the completion of the course but she's afraid that house prices will have risen by so much over the period that she won't be able to buy. She asks the chap from the Halifax for advice. She's a friend, so he tells the truth. "Wait as long as you like", he says. "Prices are flat or declining, you won't lose out..". This little encounter tells you everything you need to know, really. |
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Nick
by Si
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#1000550
of 3278
08 Nov 2002
01:19 PM |
If the recession which people are muttering about happens, then (a) you may lose your job and (b) no-one will be prepared to pay you a price for your flat comparable to what you paid for it (they'll all be too frightened of losing their jobs aswell), at a time when you may have no choice but to sell.
This is how house-prices fall; forced sellers against reluctant buyers. Two years ago few headlines suggested that the stockmarket would fall the way it has, and the same comment can be made about previous booms in different assets over the decades and centuries.
There is a comprehensive analysis in this forum from people who understand the intricacies connecting UK house prices to the global economy much better than I do, against which your analysis is merely confirmation of the sheep-mentality which causes booms and busts.
Anybody buying at the moment expecting to sell at a profit in 2 years' time will need to be very lucky, in my opinion, based on reading this forum and my view of the often naive journalism in the press at large. |
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Jokers
by Rob G
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#1000549
of 3278
08 Nov 2002
01:07 PM |
Andy B
Do I understand you right that 'The price of a house only matters if you are stupid.'?
So explain to me how you arrived at this spectacular conclusion?
So if house prices double again in the next year - no problem?
Think about what you're saying, please.
A person has a finite earning potential throughout your lifetime, correct?
So it follows that if you can buy a house for £100,000 one year and then 3 years later the same house is £200,000 you'll have paid £100,000 over the odds.
That's £100,000 that you'll not be able to spend on anything else over the course of your lifetime.
It's people whose obsession with the monthly 'affordable' cost of a mortgage rather than the total actual cost of purchase over their earning lifetime who are 'stupid'.
And in answer to David Broome; yes, I sincerely look forward to a crash in the housing market, as does every other potential first time buyer. For those like me who are prepared to wait will ultimately be rewarded rather than trapped in negative equity for years like the poor fools who listen to the rubbish being spouted by the lenders and other parties with vested interests (i.e. paracically any homeowner in the country).
Surely anyone who has seen the 'value' of their property double in the last 3 years won't be unduly affected by seeing it halve over the next year, will they?
The people who will be hurt are the poor unfortunate fools who have been persuaded to buy at crazy on the basis of weasle worded talk of 'affordability' by mortgage lenders and estate agents.
Get real, you people!
If there is a recession (and I see it coming very soon - just look at all the redundancies being announced at the moment) it will be wholly the fault of the debt burden that has been generated by the combination of falling interest rates and the gullibility and greed of the average consumer. This is also the cause of the current farsical state of the housing market.
Adam. My advice to you would be to hold off for as long as you possibly can. DO NOT get sucked into the market now, or I think you will come to regret it for a very long time. I am in exactly the same position, so I'm not just giving you 'do as I say' advice. Follow this forum for a couple of weeks and see what happens. Please, please make sure you're making an informed decision. |
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reply to Nick
by AdamUK
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#1000548
of 3278
08 Nov 2002
12:52 PM |
Nick, the population is forecast to Decrease. The current birth rate in Europe is around 1.4 to 1.6, well below the replacement rate for the population. see
economist.com
the current attitude to immigration (which is very necessary for continued economic growth) is unlikely to solve this problem.
[edited to repair URL]
[This message was edited by Monitor_JDW on 08 Nov 2002 at 01:11 PM.] |
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Investor behaviour
by AdamUK
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#1000547
of 3278
08 Nov 2002
12:46 PM |
The chattering classes view housing as an investment and seem to forget that it is a place to live. The only aspect of this that I find irrational is that we firmly believe, as house owners, that increasing prices are actually good. If car (or petrol) prices went up by the same amount then there would be uproar. Having a house now and looking to move up, the 50% price difference gap between houses is getting wider and wider. This benefits few people as the virtually no one moves into a smaller, less desireable residence. The additional costs of living in this country undermine our competitiveness (call centres moving to India (anyone phoned ebookers recently?), software written in Central Europe, factories in the Far East - it won't be long until banking, consulting and all information based service industries are located in cheaper locations overseas).
Personally, I find the exuberence exhibited by the middle classes frighteningly similar to that exhibited in the dot.com boom.
In the longer term, given that the UK population is forecast to decline, housing may not be the safe investment is once was.
I feel for those saddled with 5x their salary as those debts will be present for a very long period of time if inflation remains at its current level.
As the company I work for is losing money and announced a 10% reduction in the workforce, I think I will hang-fire at the moment.
cheerio
Adam. |
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Suppy and Demand
by Nick
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#1000546
of 3278
08 Nov 2002
12:39 PM |
Two factors which will ensure increasing house prices are that 1. Population is increasing 2. Land for development is restricted.
Two factors which will ensure that prices come down 1. Interest Rates rise 2. Higher Unemployment. None of which looks like will happen in the next 2 years. By then I hope to sell the flat I am moving into next week. |
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The UK housing market: a bubble about to burst?
by Andy B
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#1000545
of 3278
08 Nov 2002
12:29 PM |
The price of a house only matters if you are stupid.
The price of a house doesn't matter, the question is can you pay the mortgage, insurance, utility bills, taxes etc.
If you can not then you are in trouble!
The issue is will mortgage rates go up and criple the house owner.
If we move into a time of great deflation - why would interest rates rise? They would fall too! So we carry on with lower house prices and lower mortgages.
But if interest rates rise due to a major boom in the ecomony in say 2 to 3 years time. Then the whole thing falls apart.
If you are stupid then you then you do not think about a rise in interest rates from say 4% to 6% and you end up living in a tent! |
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1st time buyers
by adam
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#1000544
of 3278
08 Nov 2002
12:25 PM |
| So , here is my dilemma - just married , but no house. I do have money for a deposit , but am just about to leave the country to work abroad as a volunteer for a year. Should I buy a house now , hope to rent it out , and cover the mortgage , or invest my deposit money else where , hoping that in a year and a half the housing market may have cooled down somewhat. The worry is ofcourse that house prices will continue to rise and my deposit will have lost some of its value by the time I return if I do not buy now. Also , living in the South West and seeing prices continue to rocket , it is difficult to see that the trend will change so much in a relatively short period of time as to make houses cheaper than they are now. |
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by Erik Haar
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#1000543
of 3278
08 Nov 2002
12:10 PM |
I belive that the house prices is on the way down, whatever other reports says.
Report are nomaly made long time after the event.
My personal experience is:
I viewed a propperty in Croydon area at a asking price of £ 365,000. The propperty need some refurbisment and was not realy what I was looking for. The keen estate agent asked for an offer and I gave him the price I already had in my mind £250,000. He replied quickly that if I would bid £ 300,000 he would forward my offer.
£300,000 is 18% under the asking price.
This was 1.5 month ago and the house has not been sold yet. |
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Property Bubble
by David Broome
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#1000542
of 3278
08 Nov 2002
11:42 AM |
All the 'experts' have failed to predict the resilience of the property sector. What is it with some commentators? - do they wish to see property crash and take us into a full-blown recession?
As the gap between some house prices and affordability widens - momentum will begin to abate. The slowdown in London is good evidence that the Southeast is cooling off.
The growth in prices has been good for another reason - in that it has opened up hitherto unfashionable places to new residents. High prices in trendy suburbs is as much an aid to regeneration as pouring in millions of taxpayers money! |
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The 'Experts' Admit They Are Clueless
by Rob G
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#1000541
of 3278
08 Nov 2002
10:58 AM |
http://www.thisismoney.com/20021108/nm55334.html
So if these guys (Halifax and Nationwide) have been forced to revise their growth estimates by more than *20%* in the space of 6 months, then how much weight should we attach to their predictions that a period of 'low growth' is the most likely outcome.
I can't stop laughing. |
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Soft Landing My Foot
by Rob G
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#1000540
of 3278
08 Nov 2002
07:35 AM |
So, another 5% increase last month? 31% on the year.
That sounds sustainable.
Sounds like we're almost at the top of the curve now! |
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Tell us what you really think..
by rev.hk
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#1000539
of 3278
08 Nov 2002
12:35 AM |
Dear John,
I am 8 hours ahead of you and tend to read the days comments when I first get up at 0600. Today I must be feeling groggy since I struggle to understand what it is you are trying to tell us. Am I correct to believe that your argument is thus….things are different this time, history is no guide to the future and if things do take a tumble then the government will bail us out. Is this correct? I’d appreciate Y/N since if this is your line then it is a very important one.
It’s important because if the answer is yes – as I assume it is - then your line is a very dangerous, complacent and clichéd one.
It is dangerous because there are large numbers of young people in the UK who are desperately trying to decide whether they should, or should not, get onto the property ladder. The decision is an agonising one for many and if they sleep walk into a falling market, it will hamstring their finances for years. UK lenders are already warning about the gung-ho attitude amongst young people towards debt.
To perpetuate an argument that they have nothing to fear – without actually providing any evidence - is not a productive way of engaging in this discussion. They must do their homework, of course, but if you believe all is well then you must tell us why.
Glib and meaningless statements that ’people are productive’ simply will not do. Interest payments are low by historical standards because interest rates are low by historical standards. If everything is fine – as you say – then interest rates will return to their neutral level in a few years and ordinary people will be faced with monthly payments of roughly twice their current level. Can you please explain to this forum why you think this will have no impact on property prices?
You are complacent since you seem to believe that central banks and governments know what is best and know when to act. Recent history – never mind the really old stuff from the 1980s - tells us very clearly that they do not. You have only to follow the debate about Pinball Alan Greenspan’s failure too snuff out the NASDAQ bubble to realise that there is a great deal of uncertainty in policy making and often the results of carefully thought out decisions can be the opposite to the desired. A classic example was the after-effects of German re-unification. Remember the ERM crises of 1992/93?
Your view is clichéd since it is the same one that is always used to defend markets that have risen sharply and now appear to rest well above fair value. Amazon.com is rife with books on financial manias where the arguments used to defend over-valuations are exact replicas of your own recent postings. ‘Devil take the Hindmost’, by Edward Chancellor is perhaps the best recent one. I’d recommend you read it.
Please play the Devil’s Advocate all you like. You won’t change my opinion and opposing views make ffor a better discussion. But please make your arguments consistent and back them up with facts.
I’ve worked as a professional economist in emerging markets economies for over ten years and have heard all your inflationist arguments before. The ending is almost always the same and it sin't a happy one. |
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Interest rates
by sho_ryuken
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#1000538
of 3278
07 Nov 2002
09:19 PM |
Hmmmm - a very heated and interesting discussion this has been recently !!!
I would just like to stick my oar in about a comment earlier about low interest rates ("there will be no crash. not with rates at 4% (rediculously high by global standards) and going downwards")
I think that this is a little naive and misses the point somewhat. This is recycling what we hear from the mortgage lenders time and time again.
It has already been mentioned here before, but low interest rates are not necessarily a good thing for the home buyer. I would be much happier taking out a mortgage at 15% that 4%, as this will mean that house prices are depressed through mortgage providers lending out less.
This means that my deposit will go a lot further as a percentage of the asking price, there is a fair amount of inflation in the economy which will help to erode the debt burden over time, and chances are interest rates are at a peak and will fall, reducing my mortgage payments and increasing the value of my home at the same time - so I win both ways.
Of course, if I buy when interest rates are at the bottom of the cycle then I LOSE out both ways. And if you overstretch yourself when rates are at 4% then you are a lot more sensitive to any rate rises.
I think it is important as well to stress that 4% is LOW by any normal standards - remember that the US may have lower interest rates than us now, but they came down very sharply from 6.5%. The current interest rates we are seeing are abnormal due to a global recession led by America. Look at the yield curves for any of the major economies (except Japan) and you will see rate rises priced in not that far away, by the very same institutions who are lending us our mortgages!!
And low interest rates do NOT guarantee investment - you just have to look at Japan to see that. In Keynesiam terms it is all to do with demand. The monetarist fad has given rise to the idea that anything can be achieved simply with interest rates, but if the demand for investment is not there it will not happen - that is how Keynesianism came about in the first place.
So don't listen to talk about "lowest interest rates for 40 years" without doing your homework. The housing boom will only last for as long as the banks are willing and able to keep lending us more and more money. Believe me, they won't be able to carry on like this for ever and they know it - but they are certainly never going to share THAT with us !!! |
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