|
|
| The UK housing market: a bubble about to burst? |
housing market crash
by Clive
|
#1000567
of 3278
 08 Nov 2002
04:08 PM |
Will there be a sizeable shift in demand resulting in a crash? Could the factors that have driven demand beyond a rational range diminish or end. I think there could be a shift in demand within 6 months that will ultimately result in 20-30% reduction. I believe the following factors will slowly combine over the next few months to cut the current appetite to pay higher prices.
The following are already happening or could happen soon.
1) The full benefit of low interest rates has factored in now. Not more benefit to come.
2) Wage inflation is low and therefore can't finance higher loans.
3) Investment in rental property, which has had a considerable effect on the lower property tiers by boosting 1st & 2nd rung sectors is rapidly evaporating as today’s net returns don't make economic sense.
4) Speculative investors will dwindle as confidence wobbles.
5) Unsold stock / have to sells will have to discount (already happening in my area of London)
6) Property investments companies will accelerate their current 'offload' strategy.
None of these on their own are dramatic, but stick in the threat of higher employment, higher taxation leading to less net pay, but together I think you have enough factors to shift the supply & demand balance and burst the bubble. |
|
The other option
by Rob G
|
#1000566
of 3278
08 Nov 2002
03:47 PM |
Hoogstraten, do they give prisoners web access these days? Shocking.
BTW, you neglected to mention the 4th option - living with family who already own property. That's my option, and the option of many other potential 1st time buyers with any sense and lucky enough to have reasonable parents.
It's certainly a better option than signing part of your property over to finance your offspring to buy as some deluded people appear to be doing in ever greater quantities.
A lot of people are extending their family homes to accommodate more people. Next door to us is another family living with 3 generations in an extended family home.
This is a growing trend, while the number of homes may not be increasing, the number of people living in one home is. Far more people in their 20s are remaining at home rather than moving out and setting up a family primarily because of the cost of housing. This can only be bad for the economy in the long run. Who will pay for your retirement when there are no new families?
Of course the same trend will lead to a reduction in population in the longer term and so a reduction in housing demand. What goes around comes around. QED. |
|
The yield is what matters
by Clare
|
#1000565
of 3278
08 Nov 2002
03:34 PM |
Yes, Hoogstraten you are right the yield is what matters and in where I live in London the monthly interest to buy the flat I am in would cost significantly more than my rent - and that is with a 20% deposit and low interest rates. We rented our flat this year at 20% less than the previous tenant and hope to renew next year at a further 10% less as rents have fallen again since we signed the lease.
May you have long void periods and falling rents! |
|
Bring Back Thatcher
by Hoogstraten the Hero
|
#1000564
of 3278
08 Nov 2002
03:22 PM |
The correspondence indicates to me that some people are born to be tenants, and restores my confidence in the property market. Send me your poor, huddled masses yearning to pay me rent.
The options open to residents of England re property are to:
a) Rent
b) Buy
c) Emigrate – discounted for the purposes of this analysis.
If you choose to rent, the chances are that over 25 years you will gradually pay off your landlords mortgage (even with current low London yields), and your landlord may well even "earn" a nice capital gain at the end. This represents petty bourgeois capitalism at its best (a good thing for the sickly liberals amongst you). Do not think we landlords do not appreciate your endeavours on our behalf - your plucky efforts to keep your heads above water against the odds are admirable. This admiration would obviously have to quickly change to retribution by way of eviction and retention of bond if one rental payment were missed.
The erroneous obsession with short-term movements in capital values misunderstands the fact that with property it is always the yield that matters (in comparison to the opportunity cost of rent), because cash flows are always king. As long as interest charges are less than rents, over the course of 25 years you should be much better off. Predicting and betting on short-term fluctuations in property prices is for gamblers and fools – but in 25 years all historical empirical evidence would suggest property will be more expensive than it is now in real terms.
What about those longhaired, bunny loving, tree hugging, sandal wearing types that finds saving a deposit too much of a barrier to entry to buy a property? I suppose you may find solace from the fact that your hard-earned rent money is helping landlords everywhere to be happy. |
|
by Simon
|
#1000563
of 3278
08 Nov 2002
03:11 PM |
| So much capital tied up in (largely) unproductive assets will result in a market correction. |
|
Hedging
by Ronan Donnelly
|
#1000562
of 3278
08 Nov 2002
03:09 PM |
I guess that more than enough has already been said about the direction of house prices so I won't add to that.
However as I have just bought a property I am concerned about falling prices. I have bought out of necessity but from a purley speculative point of view I would be a seller. With this in mind I have been trying to think of ways to hedge against a fall in the property market other than by renting.
The first option would be to sell City Index property price futures. This is the most simple hedge but their maximum bet size will only allow you to hedge an eighth of the value of the property for anything with a value over 251k.
So what can we do about the rest ? I thought of betting on interest rate rises. If they were to rise then it would cause house prices to fall or to increase less quickly. In reality though this is unlikely to happen. House prices currently provide one of the most significant upward pressures on UK base rates. If prices were to fall then rates could be lowered or left on hold for longer.
Anyway, lets stop wasting our energy on discussing the future direction of house prices and try to come up with a way to protect ourselves against future movements. Ideas please ?
ronan_donnelly@ftnetwork.com |
|
There is a simple solution to a soft landing of the housing market price boom
by Morten Nielsen
|
#1000561
of 3278
08 Nov 2002
03:09 PM |
The problem with the housing market is not that prices are going up relative to earnings a long as people can afford to pay their mortgages. The problem comes when there is a large principle mortgage amount still left when people comes close to retirement or earnings fall due to unemployment. What the government and BoE should do is to prohibit interest only mortgages and force mortgage borrowers to repay somewhere between 1 and 2% a year on the principle amount. that way the systemic risk of a collapse is reduced and house prices will be much less volatile in the future.
mnielsen@pipemedia.co.uk |
|
UK Housing Bubble
by Tom Christie
|
#1000560
of 3278
08 Nov 2002
03:00 PM |
The forecasters are struggling to adapt to the changing macro economic model. Ever analysis I have seen so far continues to apply historic trends to the current situation.\
If interest rates return to the cyclic ritual we saw in the 70-early 90s then the 10% change with clearly have an adverse impact on house prices.
I believe this is unlikely, an certainly the more general availability of 2-5 year fixed rates with sheild the average buyer from the cycles - if the apply some simple risk mitigation.
Tne other factor is the greater independance of the BoE in setting interest rates, with inflation targets as a driving force. This will add considerabily to stability, and confidence in the housing sector.
The biggest risk is clearly fiscal irresponsibility from the Government or a Global Event outside the UKs control. tomchristie@supanet.com[EMAIL][/EMAIL] |
|
High prices not beneficial
by Engineer
|
#1000559
of 3278
08 Nov 2002
02:59 PM |
AdamUK has hit the nail on the head in post 547.
The only people who really benefit from house price inflation are those who can sell the property and keep the cash! I would suggest that these people are either property investors/speculators with multiple properties, or older people who are able to downgrade or move to a cheaper location (probably due to being retired).
The rest may think that they are wealthier, but the best they can do is increase their debt using their new "equity" as collatoral.
Hence it appears that high house price inflation penalises the younger, more productive members of society, who are also expected to support an ageing population.
Is this the mark of a healthy society? I think not, and any government with some sense would do all in its power to resolve these problems, rather than trying to shore up an indefensible situation as some posters are suggesting. |
|
forgot to say
by Martyn Fenton
|
#1000558
of 3278
08 Nov 2002
02:57 PM |
Oh and another thing Why are interest rates at 40 year lows Oh I wonder? Could it possibly be because out there in the real world things are not quite as they should be Well if thats true:
1. Housing market cannot be insulated and if lower rates it will suck more people in at yet higher prices - the bigger the long term bust!!
If not true:
2. Then rates will go up and at 4 or 5 time income (including bonuses, overtime incidently) then god knows
Fortunately I am on the housing ladder 10 years ago I have made a tidy PAPER profit but take no comfort from it!
One of my friends is a housing surveyer - he never stops gloating over his PAPER profits and yet I wonder at what age his 3 children will ever be able to leave home? |
|
Andy B missed the point
by Clare
|
#1000557
of 3278
08 Nov 2002
02:46 PM |
"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. "
Andy - constant monthly repayments are not a valid comparison when the general rates of inflation are so low. If you borrow £100k and wage inflation runs at 10% then in five years the real value of your debt has halved. If by contrast there is zero inflation then your monthly payments do not go down over time. If inflation is high then it makes sense to go for the highest monthly repayments you can afford as these will decrease rapidly in real terms. You can then trade-up after 5 years to a better place. However, if inflation is low and all you can afford are the repayments on a dingy one-bed flat above a kebab shop then in 5 years time you're still stuck there.
So yes, total price does matter |
|
OH ANDY!
by Rob G
|
#1000556
of 3278
08 Nov 2002
02:40 PM |
Andy B
What on earth are you talking about?
So by your logic, it would be fine for me to buy a car that would have cost me £20,000 3 years ago for £40,000 now as long as I borrowed the money to pay for it?
I think you've been listening to too many mortgage brokers.
What if I was buying the house for cash?
Maybe if *wages* had doubled in the last 3 years, then the value of the house would have realistically increased that may be teue, but they haven't.
All that's changed is that it's now possible to borrow more money that *appears* to be twice as cheap as it was before. Of course it isn't, because (as has been discussed many times here, but some people never seem to grasp) with low interest rates, the debt will not be reduced over time.
Please understand: THE PRICE HAS DOUBLED IN 3 YEARS
What else has doubled in price in the last 3 years, Andy? |
|
Boom & Bust
by Martyn Fenton
|
#1000555
of 3278
08 Nov 2002
02:40 PM |
| No more boom and bust? Dont make me laugh Like all things - the Euro, equity markets and housing markets there is no such thing as a free lunch - its just the amount of scraps you leave for some poor ****** if you are lucky. If the BOE were realy serious on inflation housing prices should have been included in its remit. Lets get real for the average family what are the major lifetimes costs ; housing or the price of CD's et al |
|
Rob G was right
by Si
|
#1000554
of 3278
08 Nov 2002
02:35 PM |
'The cost (or value) of something - is the future cash flows.'
Yes, your future cash flow will be severely restricted due to low (or even negative) wage inflation, making a given loan just as expensive over the long term compared to your salary (for which natural wage inflation used to be significant long-term, but now is much much less so).
In other words, compared to your salary and its long-term inflation, a £200,000 loan is still twice the size of a £100,000 loan. Think 'real' interest rate compared to salary, not 'nominal', and you'll see that Rob G is correct over the long-term.
I’m sure this point will come up again, as it has already done so. |
|
Thanks to the FT for Therapy
by Andy
|
#1000553
of 3278
08 Nov 2002
02:32 PM |
This is a great forum, well presented and some really interesting thoughts.
Having spent the last year pondering whether to purchase a house in central london, I have decided against it on the basis of unsustainable growth and the amount of debt I would be carying as a first time buyer.
andy |
|
