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| The UK housing market: a bubble about to burst? |
Focus please....
by rev.hk
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#1000779
of 3278
 15 Nov 2002
01:25 AM |
Dear JS,
There was a time when this forum was interesting. Sadly, it is no longer. Your increasingly long and irrelevant diatribes are partly to blame. You now seem to think that posting a tedious threesome of party quotes is something to be proud of. It is not. It is stupid. Either withdraw from the forum or say something worth responding to.
House prices are driven in exactly the same way as any other tradeable asset. Mark-to-market pricing is what happens when you sell something to someone at the price they are willing to pay.
r. |
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Housing Rob G
by Mr X
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#1000772
of 3278
14 Nov 2002
11:19 PM |
Well yes, if you hadn't noticed, that's how a market economy works and always has done since the Stone Age.
Response - I am fully aware of that - but do not profess that we will have huge drops, but a stagnation. Read what I said earlier.
If we do go into Europe, and I have serious doubts whether a) Gordon Brown's tests will be met and b) our economy will be in a fit state to join and c) the public will actually vote yes in a referendum. His/her payments will remain very stable yes. They will remain as large as they were in relation to his/her income for a very considerable period of time making upgrading to a larger property very difficult and so slowing any upward pressure on house prices in the forseeable future so causing stagnation in the market.
Response - Again read what I said - people having bought a long time ago may only have a small mortgage EG 10 years ago a £50k mortgage today on interest only at 5 % is £209 p m [compared to 10% 10 years ago at £418 per month. So for them its less. Its only for some first time buyers in the last year or so hitched up to the eyeballs that this percentage may be high. And not everyone is a first time buyer as far as the total stock of housing is concerned.
It doesn't matter how long ago you bought. The value of your home can go down as well as up all the same. You aren't forced to sell, but you're probably near retirement so thinking of selling to trade down to a smaller place or you die in which case your kids are likely to want to sell the property to pay the higher IHT and share out the proceeds.
Response - No I am not due for retirement. So what if I sell at the high prices [I gain] Also IHT planning can resolve your problems if you bother to sort your affairs. Ask any good Financial Advisor.
Even if a small percentage of people sell, it is still enough for prices to drop. As I keep saying, it doesn't matter if you sell or not, the value of your house can still vary in just the same way as they can rise without you having to sell.
Response - As I also said, does it matter if your neighbours house has a lower price value. What does that matter if you stay put, and wait til the market picks up again [in the way the economy works since the stone age - as you say]If people do not want to sell they don't regardless of the price. Unfortunately, its the first time debt ridden types that may well suffer only.
If anything, the population of GB Plc is reducing, especially those who are significantly contributing to the economy. There are 1.5M highly paid foreign nationals working in & around London who are leaving and selling their properties on the way out as they get made redundant a hell of a lot faster than the penniless immigrants can climb aboard the bogeys of Eurostar carriages. Most will never be able to afford to buy in their lifetimes.
Response - There is also a large flux of aspiring professionals coming into London too, and not all immigrants are penniless.
Have you seen how many buildings are being constructed in the South East lately? Add to this a change in planning regulations and Fatty 2-Jags' 200,000 houses per year plan and I think that will change rather rapidly.
Response - building by developers out to gain the rewards. And who is going to pay for Fatty jags 200,000 houses per year plan ? Developers will not if they do not see a reward at the end of the day.
And a big fat cut of that goes straight to the treasury. Net effect is that they end up with less property ownership than they started with. Money is lost from the housing market to the government. Prices fall.
Response - In London a possibility but outside London unlikely. See stats on average house prices. London now £200K elsewhere less. IHT kicks in at approx £250k. Furthermore, you plan as I said a few sentences above.
Also your maths must be appalling - if it came to the worse, then a house [assume your only asset] at £250K one year is no IHT. Then by a gain to £350K would mean £40K IHT. Kids still gain £60 for nothing.
Sorry Rob G - you just do not convince me that we are in for a massive crash [probably what you would dearly love, I'm sure]
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Brand X
by Rob G
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#1000771
of 3278
14 Nov 2002
10:29 PM |
Well - obviously you seem to be bound by the old arguments that prices HAVE to fall because buyers will not pay.
Well yes, if you hadn't noticed, that's how a market economy works and always has done since the Stone Age.
1 Interest Rates. In todays enviroment interest rates are low and look likely to remain that way. To go into Europe we have to be competitive with European interest rates in order to survive. Thus with a stable interest rate, if a person takes on a mortgage, he will generally find that his payments will remain stable and not be subject to huge increases [as in the late eighties]The only fly in the ointment will be large scale unemployment.
If we do go into Europe, and I have serious doubts whether a) Gordon Brown's tests will be met and b) our economy will be in a fit state to join and c) the public will actually vote yes in a referendum. His/her payments will remain very stable yes. They will remain as large as they were in relation to his/her income for a very considerable period of time making upgrading to a larger property very difficult and so slowing any upward pressure on house prices in the forseeable future so causing stagnation in the market.
2 Bought Years Ago. Many people have bought years ago, have low and some very low mortgages indeed [if at all] Not everyone has such high debt levels.
It doesn't matter how long ago you bought. The value of your home can go down as well as up all the same. You aren't forced to sell, but you're probably near retirement so thinking of selling to trade down to a smaller place or you die in which case your kids are likely to want to sell the property to pay the higher IHT and share out the proceeds.
3 To Sell Or Not To Sell. People DO NOT have to sell. So does it matter that if prices next door "drop" - they simply sit and do nothing. After all, what will a price drop do to these people ? Will they take to selling en masse and flee to under the arches to live ?
No, they will simply stay put.
Even if a small percentage of people sell, it is still enough for prices to drop. As I keep saying, it doesn't matter if you sell or not, the value of your house can still vary in just the same way as they can rise without you having to sell.
5 Influx [= demand] Large influxes of immigrants [all keen to grab the rich pickings of property - incidentally, have you ever come across the concept of how that can be done ? Half a dozen buy 1 house, live there and all work and contribute to a deposit for the second, etc and the circle moves on]
If anything, the population of GB Plc is reducing, especially those who are significantly contributing to the economy. There are 1.5M highly paid foreign nationals working in & around London who are leaving and selling their properties on the way out as they get made redundant a hell of a lot faster than the penniless immigrants can climb aboard the bogeys of Eurostar carriages. Most will never be able to afford to buy in their lifetimes.
6 Shortage [= Supply]. A previous posting quite rightly expressed the view that shortages of housing has reached a chronic level.
Have you seen how many buildings are being constructed in the South East lately? Add to this a change in planning regulations and Fatty 2-Jags' 200,000 houses per year plan and I think that will change rather rapidly.
7 Death. How many people do you know who have inherited large chunks of cash only to put down on a property [often from the sale of a property anyway]
And a big fat cut of that goes straight to the treasury. Net effect is that they end up with less property ownership than they started with. Money is lost from the housing market to the government. Prices fall.
And regardless of this, it all becomes irrelevant when prices hit the peak and start to drop. Once confidence in the market ebbs and they realise it's all a pyramid selling scam with no more mugs to suck in it will all go horribly wrong.
Watch this space..... |
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Rob G
by Mr X
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#1000770
of 3278
14 Nov 2002
09:40 PM |
Well - obviously you seem to be bound by the old arguments that prices HAVE to fall because buyers will not pay.
As you also clearly seem to suffer a mental block, let me repeat to you VERY slowly the following -
1 Interest Rates. In todays enviroment interest rates are low and look likely to remain that way. To go into Europe we have to be competitive with European interest rates in order to survive. Thus with a stable interest rate, if a person takes on a mortgage, he will generally find that his payments will remain stable and not be subject to huge increases [as in the late eighties]The only fly in the ointment will be large scale unemployment.
2 Bought Years Ago. Many people have bought years ago, have low and some very low mortgages indeed [if at all] Not everyone has such high debt levels.
3 To Sell Or Not To Sell. People DO NOT have to sell. So does it matter that if prices next door "drop" - they simply sit and do nothing. After all, what will a price drop do to these people ? Will they take to selling en masse and flee to under the arches to live ?
No, they will simply stay put.
4 Possible Bargains. For those first time buyers there COULD be some bargains to be found if the perceived house prices were to drop - that element of the market sales being from divorces, deaths etc.
5 Influx [= demand] Large influxes of immigrants [all keen to grab the rich pickings of property - incidentally, have you ever come across the concept of how that can be done ? Half a dozen buy 1 house, live there and all work and contribute to a deposit for the second, etc and the circle moves on]
6 Shortage [= Supply]. A previous posting quite rightly expressed the view that shortages of housing has reached a chronic level.
7 Death. How many people do you know who have inherited large chunks of cash only to put down on a property [often from the sale of a property anyway]
Therefore, on the up side, with high demand, low supply, stable affordability [particularly those who bought years ago] and chunks of cash to look forward to,and on the down side, the few houses that have to be sold [possibly at a "drop" if you insist] then the overall pressure for prices has to err on the up. Therefore, stability is the reality, but a bust NO.
If I am proved wrong, then for me it will be first time for 25 years [thats why I am sitting pretty now] |
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X Marks The Clot
by Rob G
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#1000769
of 3278
14 Nov 2002
08:32 PM |
Er, sorry but I think you're missing the point.
Yes, if you're definately not going to sell it's irrelevant what prices are. It will have the effect of preventing you from moving though if you end up with a large degree of negative equity.
Don't tell me that if there are no buyers that prices won't drop, that's a pathetic argument and patently absurd.
I will repeat slowly as you obviously have a hard time understanding...
If first time buyers lose confidence and stop throwing cash into the market at the crazy rate they are now - which WILL happen sooner or later - then PRICES WILL FALL.
Once they start falling, what do you think is going to stop them falling?
Just as everyone panics to buy in a rising market (the steeper the rise, the more the panic) nobody wants to buy in a falling market. The quicker the fall, the more the fear etc until prices are so obviously cheap that people start buying again.
This is fundamental bubble psychology and it's happening right now. Any price rise chart will tell you that. We're in the final acceleration phase now if you hadn't already realised. |
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Rob G
by Mr X
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#1000768
of 3278
14 Nov 2002
07:21 PM |
Frankly, I do not understand your logic.It does'nt matter what your house is worth if you are not going to sell it. Just because your next door neighbour decides that through divorce, relocation etc he is going to sell, does'nt mean that you too have to sell. Whatever the price he gets [thereby relecting the price you would get] you may decide that it is not the time to move - therefore, you simply sit on it, wait for the situation to change, and then move on. Explain - why do I then have to move and sell at what my neighbours have sold for ?
First time buyers holding the reigns ? I do'nt think so ! Those already on the bandwagon have effectively ringfenced those non property owners out. Thus, if first time buyers do not want to buy at the stated price, then the chain stops and at best we will see a stagnation in prices. But of course, those having to buy and sell may see themselves financially penalised through price drops but at best this only relates to a very small minority of properties. Just count how many For Sale signs you come across down your street / road etc. Bet you its not a lot. Remember, a vast majority are not forced to sell.
PS I take it you are one of those on the wrong side of the fence, dying to get in. |
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Andy - Take a deep breath and calm down.
by Rob G
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#1000767
of 3278
14 Nov 2002
07:02 PM |
That hardly matters does it?
The point is not whether interest rates are high or low. That's just one possible trigger. There are plenty of others lurking in the wings.
The ultimate question - as I've repeadedly been saying is buyer confidence.
No confidence, prices drop.
If you hadn't noticed, there's a recession brewing in the US, Germany and the UK.
The market is a pendulum and it's just about got to the end of its swing in one direction. Low interest rates have given it a stronger push but they won't keep it there. Not when people start to relise that there is also a dark side to low interest rates. |
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Rob G - time to put up or shut up !
by Andy B
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#1000766
of 3278
14 Nov 2002
06:48 PM |
Leave poor Mr X out it it and tell me when the housing market has crashed without higher interest rates.
Andy B. |
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-DUR!
by Rob G
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#1000765
of 3278
14 Nov 2002
06:43 PM |
Mr X
What are you on about?
The price of a thing is whatever anyone is willing to pay for it. You don't have to sell your house for it to be worth less.
There will always be some people trying to sell houses whether because of relocation, redundancy, divorce etc.
If nobody sells, then prices are totally irrelevant anyway. You can't then say your house if worth anything.
The only way to have your house valued is to see what houses similar to your own have been sold for recently. If others similar to your own have been sold for less, yours is by implication worth less also. QED.
The people in the market with the most power are actually first time buyers. They will start to realise this very soon, and so will many others to their considerable cost.
Wake up and smell the bisto. |
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Answer the question!
by Andy B
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#1000764
of 3278
14 Nov 2002
06:11 PM |
Now and again someone in this forum tries to anwser the question - initially asked - boom or bust? The ideal solution for the ecomony being a gentle correction over time, (maybe a quick correction from the last year rise of 30%), then a steading over time. I wish - you wish!
People have missed a few key points:
1. Not all houses have been sold at the present price - infact sales have been slowing down. Most of the households have made a large UNREALISED profit since only a small % of houses have been bought and sold at the prices seen in the last 18 months.
2. A bust needs a trigger to the demand side - No-one has answered my question of when have we seen major fall in house prices without a fairly sharp rise in mortgage rates?
Despite what has been said in this forum the ratio of house prices to average earnings has not reached the peak of 1989, but using the ODPM figures it is near to 90% of that peak. In 1995 it was at 65% of the peak. This fact is important in the affordability agrument (see later).(Interestingly the Halifax Stats on this show us further away from the 1989 peak - you just cannot trust them! on their figures!).
Mortgage advances to incomes are higher now than in 1989. Critically - first time buyers - per CMI figures - are borrowing (on average in England) 2.5 times their incomes. In 1989 through to 1999 this figure was below 2.3 times. (5 times is the exception not the average - we are not all stupid). This is explained - probably - by the impact of a low general inflation economy.
Low inflation flattens the life time curve of the ratio between Mortgage Payments and Income and therefore in simple terms you feel you can borrow more because you can afford more upfront. In real economic terms - there is no free lunch - so you infact end up in 15 years time with a larger mortgage to income (all in real terms). But it is the nominal values which drive the demand curve in the short term (not real terms). People think in actual shop window (nominal) prices.
In theory - In high inflation economies (say RPI 10% not 2.5%) the intial nominal mortgage cost is higher to nominal income, due to the high interest element. At a constant 10% RPI ( and mortgage rate say 15%) inflation does mean that over long periods the nominal income will also increase - but the mortgage payments are the same in nominal value terms - so in real terms the burden is reduced. With low inflation this does not happen to the same extent. Many people in the forum have used this analysis to agrue for a lower house price rate (Rob G and friends etc)
But if you bother to read what the Bank of England said in the last few months they have used this agrument to explain why houses prices will, in real terms, remain higher than in past decades. They point to cash flow affordability. The lower mortgage cost pushes the price up for good - or as long as inflation is under control. High inflation or the risk of it - is seen as a major cash flow risk to the household. High interest rates restrict cash flow and reduced the willingness (and ability) of
borrow to spend their income on a house.
A low inflation ecomony can shift the house price to real earnings ratio - this is econometric speak for "moving the goal posts". So many of you have shot at a goal area which was their 10 years ago but has been moved. Rob G missed the goal but I did not have time until now to explain this.
There is another reason for the ratio to shift and this comes down to the supply side rather than demand. The number of vacant/unused houses has dropped significantly over time. I would like to but an old house and do it up - but there are very few left! Going back to ODPM data (and John Prescott will approve of this - if you know what ODPM stands for!) the ratio of houses to households has fallen from 104.5% in 1982 to 101.25% today. Therefore supply has fallen significantly compared to demand. The result - a higher price - in real / nominal and other money terms.
This supply side agrument points away from a bust - as the this ratio was just above 103% in 1989. The Halifax are therefore happy to use ODPM's figures here!
So from an ecomonic basis - house prices could be sustained at these high levels - unless we move away from the lower interest environment. And in theory they could rise more as people learn to live with higher mortgage payments - remember the 2.5 ratio was for first time buyers - the average ratio per the Bank of England's August Report was just over 2.3 for non- first time buyers. We have plenty of debt capacity left to push the prices higher. Ask the Halifax - they will lend you more!
Now most people have also said what they want to happen. I want lower prices but in my heart I know Steady Eddie and Gordon Brown will play it safe and try to avoid that crash. Only Saddam and Bush can help us - Oil prices of £40 a barrel and we could see a crash.
If you have a 5 times mortgage you need two jobs mate! So stop contributing to the forum and get earning! You are not normal.
Check mate! |
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rogues or imbeciles
by jack straw
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#1000763
of 3278
14 Nov 2002
06:02 PM |
which are we? I consider that,
"He occasionally stumbled over the truth, but hastily picked himself up and hurried on as if nothing had happened"
Churchill On Stanley Baldwin
May have some relevance - at that i rest. |
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Slapper
by Mr X
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#1000762
of 3278
14 Nov 2002
06:00 PM |
| Yes - what a wonderful mantra and more words of wisdom. Even imbeciles [presumably Mr X] can take a rest - [I have with my £1.1M cash in the bank acquired through property transactions over the last 25 years.] |
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yes again!
by Jack Straw
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#1000761
of 3278
14 Nov 2002
05:56 PM |
I agree, I have stated many times on this forum. The govt predict demand for 1 million new homes in the next 10 years.
There is a reason that the UK has 4 of the 10 largest banks, by asset value, globally. The housing market is that reason. |
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Lunatics with values
by Slapper
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#1000760
of 3278
14 Nov 2002
05:55 PM |
Ah, pretty, the usual mantra. How value able!
"I prefer rogues to imbeciles, because they sometimes take a rest."
Alexandre Dumas |
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Housing
by Mr X
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#1000759
of 3278
14 Nov 2002
05:49 PM |
| Thank you , honey, for your words of wisdom. Yes, of course you never need to buy - that is, YOU may not. However, the fact of life is that we are in a society that values home ownership. Add that to fact that there is a desperate housing shortage, hugh infuxes of immigrants, monies flowing down the family lines for deposits etc. Once you have evaluated that, love, then you will realise that your comment about no-one ever buying is laughable - unless you live on planet Pluto of course. |
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