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| The UK housing market: a bubble about to burst? |
daring to venture back ...
by sparkey
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#1000864
of 3278
 17 Nov 2002
11:31 AM |
Response to some of the points by Andy B, 833
'I believe housing was undervalued in the mid-90s'
If by mid-90s you mean 94-96 - then so do I, totally agree, 100%. But... not that undervalued ;-)
'correction to bring us on track after the economic mismangement of 80s->90s'
I guess you're talking Norman Lamont ;-)
All economies are mis-managed, it just the degree of mismangement that changes ...
Who is to say the UK economy is not being mis-managed at the moment ...
'not building enough houses'
Agree. Not sure to what extend though.
'causing house prices to go up'
Disagree. There are other reactions to housing shortages. Lots of people have feet, passports, and portable skills. NEVER (for emphasis, not shouting) under-estimate labour mobility. There's not a lot of love for living in the UK at the mo.
Ask yourself one question: How does the cost of living in the UK compare to the cost of living in europe, or the US?
Are we competitive?
Remember the suprise at the UK census saying they could not find 1,000,000 men between in their 20s/30s? The UK population has gone down, not up.
'Land and rent has always been a store of wealth'
Yes, in the middle ages - tithe and all.
True - people with money have always bought property. But the source of wealth has moved on, and will always move on:
From land to ownership of resources (oil, coal, etc) to ownership of manufacturing output (cars, planes) to services/techonology (Banks, Microsoft).
People tend to store (invest) their wealth in the next profitable asset.
'The wealth of those owning housing is increasing'
Well, at the moment, the paper value of one asset, houses, is increasing.
Unfortunately, they will struggle to convert that paper price to cash. Have you spoken to anyone trying to sell a house at the moment.
A bigger problem is that people's (including those who rent!) other assets are declining:
- Equities - no need for extra comment on this.
- Their endowment and other life assurance investments.
- Their pension.
- Their future income stream.
- Should I mention split-caps?
(On a side note - I thought the UK financial services could no longer shock me - but, hey, they do it again. My sincere apologies go to those 50,000 people who have been ripped off).
Do not under-estimate how much trouble the life companies are in.
Do no under-estimate much how middle England wealth is tied to the life companies.
Do not underestimate who much of that wealth is tied to capital repayment on house debt.
'their are enough rich households to buy the houses'
If people were buying houses in cash then I would not have a problem at all.
I think you'll find that people are buying houses with debt, debt that, in terms of salary multiples, has gone beyond scarey.
People are rich in debt - not money.
I really do wish all the best to people buying houses at the moement. I've nothing against houses + capitalism - God knows I'm a big investor, very progressive social + financial liberal. But I know an over-inflated asset price when I see one! I also know when people are borrowing way too much to but that over-inflated asset. I also know what happens ... and to wait and see. |
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Short term - ok-ish. When the economy shifts for the worse (albeit in most cases recoverable in the very long-term) then the affordability of houses will change and with it the housing market. A long-term view for a long-term investment.
by Si
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#1000863
of 3278
17 Nov 2002
02:14 AM |
Andy B,
Hello!
Just got in from the pub again....
Anyway, you said that I'm moving to the middle ground - well I have had to admit that, in current SHORT-TERM (I'm not shouting to be rude, just to emphasize, please don't take it offensively. I've had a beer and am determined to be nice) circumstances, houses are overpriced but not dangerously so. Although the implications for large debt in a low-inflation environment are a little frightening, that ain't short term.
In the long-term trend, they appear to be highly overpriced, but this is of course an assumption based on a chart. Fair enough.
Does the medium term economic outlook suggest that this debt-laden party we've been having is going to carry on into the long-term....? Well, as far as I can tell, no. Something's gotta give - there ain't no such thing as a free party and the one we've been having on our barclaycards, business loans, and equity drawdowns has a credit limit. Nobody's saying what the limit is, and the stock market can't underwrite it any more so we may have already breached it. Rev.hk and extradry are clearly saying that the signs of this credit-limit are already there if you can read the signals. And there is no compelling reason to believe that either the Fed or B of E have any intention or ability to protect their property markets at the expense of other parts of the economy which are more fundamental to long-term growth. It's not the sensible chaps like yourselves who would be the problem; it's the 'shoe-shine boys' with brand new massive mortgages (I know these people - monthly budget - pah! overdraft!). There is a great deal of irrational investing going on, oblivious to the world around them or to relative rentals, or low salary increases, job-security etc.. House prices just maintaining their current values would suggest that the economy continues to take out the same amount of debt year-on-year just to fund the demand-side of the 1st-time buyer equation, assuming a benign medium term outlook to support this, unless they all decide to wait 5 years, which would cut demand.....
So:
short term (unless the economy changes), these prices seem high but not terrible providing you ignore historical lending-multipliers.
long-term - way above apparent trend, unless something fundamental has shifted to make everything more efficient or whatever (it hasn't - but please take issue with this if you wish)
medium-term - very important this, things are going to change in unpleasant ways.
So, do I think property is a good long term buy? Yes.
Do I think there is a correction coming? Yes..
Can I afford to buy my first property at the moment? Yes (short-termism)
Do I think this is a good idea? No. Renting is so much cheaper it would be silly, I could save up the cost of the property quicker than paying it off in a mortgage (assuming all things will remain the same, which they won't), with less risk, and the ability to move to a bigger house with insignificant transactional costs. I don't have to worry about deflation or 'stag-flation', or insuring myself against losing my job or becoming very ill.
When do I think I will buy? No idea. I just don't see the point right now.
Why am I on this forum? The emotion of having missed out on a good scam. But these emotional things from time to time go into reverse and magnify shifts in the prevailing short-term influences. Hence booms and busts being bigger than a rational market would suggest.
Have a good Sunday. Cheers all, and I mean you to Hoogsy ;-) |
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OTCP2
by rev.hk
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#1000862
of 3278
17 Nov 2002
01:08 AM |
AB,
I forgot to mention that about 500 postings ago I explained how the arguments being used to talk up p prices in the UK are identical to those used to do the same in my home town in 1996/97. Prices are down here by 70% since the peak. Markets with lots of family breakups, long term supply constraints, increased wealth and reams of supporting government papers do collapse - even when everyone is getting wealthier on a long-term basis.
r.
PS Before you give me the London is not an emerging market, you might learn that Hong Kong isn't either. GDP per cap. here is higher. |
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Open the curtains please
by rev.hk
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#1000861
of 3278
17 Nov 2002
12:52 AM |
Dear Andy B,
Aligning yourself with the inane ravings of the copy and paste brigade simply destroys your credibility – I don’t mean JM by the way. You have made a good argument and have met with resistance. In fact, I think you are the first person in this forum that has made a decent case for the status quo. But someone who truly believes what they say and has the evidence to prove it does not have to play the insults game. I’m sure you are perfectly able to stand on your own two feet without groping around for find partners to back you up.
Moving on, you are completely correct to say that there is a huge difference between an economy with deflation – mine - and one with RPIX growing at 2.3% p.a. – yours. But this forum is about the future not the recent past and telling us that we can have more debt because our pockets are bigger doesn’t really say much and ignores the worsening global outlook - of which the UK is a part & despite the claims of some.
Equity markets are in the middle of a long decline and have lost more in market capitalisation in the last 30 months than they have ever lost over a similar period in history. Global bond markets are offering long-term yields that are unheard of for decades. Both of these are due to the highly deflationary effects of corporate restructuring in the aftermath of the 1990s boom.
Dramatically lower short-term interest rates are doing nothing to improve the outlook for equities even though they should improve the relative performance of counters with high debt-equity ratios. That these counters continue to fall even after dramatic interest rate cuts should be worrying – although it appears not so if you read the postings here.
In addition, we now have the pensions and the insurance industry finally owning up to the problems that they strenuously denied would ever happen but most market economists knew was inevitable. Under funded pensions and poor portfolio management mean that many people have pensions or endowment mortgages that are significantly lower in value than projected when they took out their policies.
What goes up doesn’t always come down. But if you are sincerely telling me that a long debt workout – which normally puts heavy downward pressure on asset prices – and further losses on UK pensions and insurance policies will have no negative effects on consumer confidence and then, eventually, on the level of house prices you are a very brave person indeed. I really mean that.
I look forward to your next reply that explains why Island Blighty will be immune to the deflationary forces that are sweeping our increasingly integrated world and why property prices will rise when everything else is falling - including incomes and wealth.
Yours with -4 deflation
r. |
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See below
by Andy B
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#1000860
of 3278
16 Nov 2002
11:34 PM |
Just to case someone reads my posting - apart from Hoogstraten!
I am not saying house prices will rise another 30% in the next year - merely there is clear reason for the long term upward movement in house prices.
Also I think that you can not rely on the monthly figures from the Halifax and Nationwide - you need to use longer term measurements. The short term figures do get revised and one bank's figures do not tie with anothers!
Regards,
Andy. |
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You are fighting against the tide of human nature - Land is the natural store of wealth !
by Andy B
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#1000859
of 3278
16 Nov 2002
10:41 PM |
Rev.HK and friends
It surprises me that you like so many on the side of bust now appear to have abandoned the battle field of economic
reason. I expected you to come back with a strong economic argument against the thinking I had posted. Instead
you have resorted to the conclusion that you can not trust economic thinking to explain the UK housing market. Is
this the white flag? I am glad senior US economists have used the same thinking as myself - though my focus is purely on the
UK market and if I analysed a different market I may conclude at different answer for that market.
The arguments I have put forward using econometric analysis & thinking tie in to the quick thinking instinctive
arguments used by Hoogstraten, the practical thinking of MR X and Jeff Morgan, the down to earth points made by
Gman and the share the common ground of Jack Straw. I even sense Si is moving to the middle ground. (Sceptic
welcome to the promised land!)
It is rather amusing to see FT.MONITOR having to protect the other-side form the almighty Hoogstraten! The
monitor must feel like a feeble UN Official negotiating on behalf of a beaten & captured army - saving them from public
execution.
It is strange that so many of those that argued the case of ‘unsustainable valuations’ are not home owners. I have
never hidden my feeling that I would like lower prices compared to my income - though like many I am
happy with my dwelling.
However, if Rev.HK, Sparkey, Rob G, Extra Dry Martini, Claire do dare to again venture back into the battlefield of
rational thinking then before you do - consider the following:
Have we seen a boom or just an upward correction. I believe house prices were UNDERVALUED in the mid 1990s.
What we have seen is a correction to bring us back on track after the shock of economic miss-management in the late
1980’s and earlier 1990s. Houses prices have been rising for many years due to the long increase in the wealth of the
nation. Look at the long term - not the short term. Even if there is a real heavy shock to the economy and everything
falls - house prices will recover and stretch ahead of the present valuations.
Why do I think this. It is not because of the past - but because of the future economic factors you have missed.
Housing is in short supply - not surplus. I pointed out to the forum that the ratio of houses to households was falling.
In 1982 is was 104% now it is 101%. At the same time we have an increasing population and far more importantly
an increasing number of households. If you go to the Office of the Deputy Prime-minister’s website you can obtain
the full history and forecasts for household numbers. We are not building enough new homes and the price is going
to have to rise - in real terms - to balance supply & demand. Look at the evidence again - Even in London as at Q3
2002 (per ODPM statistics) the ratio of mortgage cost to household incomes (after taxes) - for first time buyers is
only 20% compared with 32% at the house price crash of 1990. When the dot.com bubble burst - as we all new it
would - it was because there were no earnings to support the market. The housing market has very strong household
earnings to support it.
What we are seeing is a supply unable to keep up with a rising demand curve. Therefore the real price has to rise. I
understand we need millions more new homes to stop this happening. I expect that certain types of housing are still
undervalued - these are 3 to 5 bedroom houses in residential areas. As the society advances more people seek
professional careers. People tend to get married later in life, they have kids later, so they live in trendy flats until their
early thirties - some may rent others may have a good enough job to buy the flat. When they do decide to settle
down they do not want to live a warehouse in the centre of a City. Given they are in their thirties these people are in
stronger position than the previous historical first time ‘house (not flat) buyer’ - they want a good house, in a good
area, with good schools - so they all chase the same housing. The price goes up and up. Land is finite and household
numbers are increasing. The wealth of those owning houses is increasing at the same rate.
New Labour have realised this - it is contained in a series of reports they have quietly published. The issue for them is
that as they study the so called “boom” they have asked - why is the affordability ratio not reducing ?- i.e. why have
we not got back to the 32% seen in 1990? Answer - Because the market is remaining in long term equilibrium.
There are enough rich households to buy what property is available. The poor are homeless or renting! Younger
people will just have to wait longer before they can get on the ladder - they will to get promoted a few times and if
they do not, then they will never own the house they want - unless they get it from their parents. This of course is not
in New Labour’s interests as their prime long term voters - 18 to 35 are being priced out of the housing market.
From this forum we have seen City Market Dealers, of all people, suggesting intervention and blaming the
government !
Land & the buildings have always been a ‘store of wealth’ - well before money was invented. It remains a plain fact
that in the long run (look back a few thousand years) it better to own land than money - this will not change. This is
why Hoogstraten and Jeff Morgan are right in their thinking!
You are arguing against the tide of human nature. |
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Great insight
by Sceptic
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#1000858
of 3278
16 Nov 2002
09:43 PM |
Thank you, Mr X. For I while I sceptical about the possibilities for further growth, and I was not sure about your judgement. But now I am convinced.
The web is also still booming, despite what the doom mongers would tell us! I think we will be able to find room for your book. |
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bust or BOOM
by Mr X
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#1000857
of 3278
16 Nov 2002
09:01 PM |
To sceptic - thank you. All we have had are doom mongers on the site. Just look around you, analyse and work your brain around the issues. I could write a book about why their will be a gentle petering /stagnation of prices in the coming future. But alas, there is not enough room on the web !
For years I have gone through the same scenarios that we are hearing these days. The point is - believe in what YOU yourself believe in taking into account all the factors presented, but do not be led by popular belief.
FTB's, its not all doom and gloom out there.
Anyone care to comment ? |
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Cheap homes!
by Sceptic
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#1000856
of 3278
16 Nov 2002
08:41 PM |
I have just found a 2 bed terraced house for sale on fish4homes in Hull for 12000 pounds!
Who said there was a property boom? I calculate that the average male could afford to purchase 6 such homes without being remotely extended. So Mr X must be right, there is still a lot of room left in this market for growth. |
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Definitive Proof - No !
by Mr X
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#1000855
of 3278
16 Nov 2002
06:37 PM |
To Rob G Post 853 - Disagree ! Obviously regional variations need to be taken into account. These are the areas where there is still gains to be made and the steam has not yet run out. These will impact on statistics nationwide and show that the average house prices will merely stagnate as these areas will serve as peaks to other areas where there may be some possible decline. Example ? Lincolnshire. Take a look at some web pages [eg fish4homes]and check out that 3 bedroom terraced houses are still going for £50,000. Now take a scenario of a couple who wish to purchase a typical semi [by passing the cheaper terraced option] for £90,000 Lincoln Fish4homes]. Also check out the The National Statistics Office publication called "Labour Market - New Earnings Survey 2002". This shows the average Male earns £20,509 and Female £16,599. Calculator time now - Cost £90,000 with deposit £3,000
giving mortgage £87,000 [£20.5k x 3.5 + £16.6k x 1 = £87,000] Total cost per month on capital repayment basis is £515 at 5 % for 25 years. Or £515 x 12 = £6,180 / £37,100 giving 17 % affordabilty ratio to gross earnings. Still a long way away from the figures of 27 / 28 % expressed in my earlier posting and the levels of 1995.
So, no, unfortunately you do not have definitive proof. |
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Crazy Prices
by PG
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#1000854
of 3278
16 Nov 2002
06:21 PM |
| Rob G - You think that's bad, check this out Small is beautiful for home buyer. This is a true story from only a weeks or so ago. |
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DEFINITIVE PROOF
by Rob G
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#1000853
of 3278
16 Nov 2002
05:04 PM |
Now, something for anyone who doesn't believe that the housing market is over-heated.
I snapped this ad from the very same newspaper containing the article I previously posted. It was the cheapest property I could find in Hampshire.
http://www.namegalaxy.net/images/mobilehome.jpg
Please note that this has not been edited in any way.
Would those who say that the market is offering 'fair value' care to comment? |
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Agents
by PG
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#1000852
of 3278
16 Nov 2002
04:15 PM |
Rob G - you know it, and I know it, the real tragedy is most don't, an it is those unfortunates who will get badly burnt, perhaps taking many others with them.
Thanks for your input, I read your comments with great interest. |
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Oops.
by Rob G
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#1000851
of 3278
16 Nov 2002
02:48 PM |
That's bizarre, I don't know how that got posted twice. Apologies. Too much use of the back button, I fear.
To PG, If you read my posting, you'll see that I'm not saying it isn't true; just treating it with the synicism that the people who wrote it obviously intended.
[I removed the duplicate, Rob. CS]
[This message was edited by Monitor_CS on 16 Nov 2002 at 03:08 PM.] |
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Living in fear
by Sceptic
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#1000849
of 3278
16 Nov 2002
02:39 PM |
| I shouldn't think you'll find many estate agents here, a "bum and tits" rag is more their level. |
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