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| The UK housing market: a bubble about to burst? |
sustainability?
by Davo
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#1000881
of 3278
 18 Nov 2002
02:48 AM |
I have just caught up with the postings on this forum.
Andy B - your evidence clearly points to the fact that first time buyers are now older, wealthier individuals. Quite a significant shift in fact. How will particular areas of the country in which younger individuals can not afford to buy property attract young workers? How can businesses survive with a shortage of cheaper young workers?
You can not seriously believe that this change in demographic of first time buyers is sustainable in the long run or even the short run?
How about a statistic which shows the number of people aged under 35 who want to own a house but can not afford to do so? What impact do you think this will have on an area - will people really take it on the chin and stay put and rent? Or, will these under 35's migrate to more affordable areas, or even countries? Its obviously happening already, as businesses in areas with top house prices are unable to attract young workers, particularly young nurses and teachers. Statistics on the number of skilled young professionals seeking to emigrate are escalating. I have to say that your knockout 'evidence' raises more doubts and questions in my mind rather than 'winning' any arguments.
House prices can not remain at levels where a large proportion of the population who want to buy, or crucially, who expect to be able to buy, can not afford to buy. This may not effect the whole market, but it certainly will effect the areas most out of reach for those under 35's. This will have an impact all the way up the housing market chain. FYI I am living in Australia at the moment which has seen unprecedented migration of skilled young workers away from Sydney in last couple of years due to the affordability issue, which has started to bite house prices here (which have risen like in the UK). |
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A genuine question to Hoogstraten & Mr.X re: Hull property
by Si
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#1000880
of 3278
18 Nov 2002
12:51 AM |
| I'd agree with your 2 investment criteria, which beg the question: why is it so cheap anyway if student rentals are reliable; or is it just that too few have cottoned on yet to the potential of Hull, or could it be that this particular house cannot get reliable income so justifiying a very low price tag (ie it isn't actually in a student area)? Regards, Si. |
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Reply to the sceptic
by Hoogstraten
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#1000877
of 3278
18 Nov 2002
12:13 AM |
Sceptic. The answer to your multi choice question is so obvious (even though I have just come back from the pub leathered), it makes your point difficult to discern.
“Question - select the statement from the following list that is TRUE:
(A) Hull is a simple daily commute from London and the South-East.
(B) Hull is an prime location for property investment.
(c) A 12000 pound house in Hull will be in good condition.
(D) A 12000 pound house in Hull will be in a pleasant neighbourhood.
(E) None of the above.”
The answer to the multi-choice question is clearly (B).
Hull is not a “simple” daily commute from London. The property will probably not be in good condition, nor is it a pleasant neighbourhood – but as a property investor, the fact that the poor are prepared to live in these disgusting conditions is at the same time both bizarre and completely irrelevant.
If you are an income based property investor, the only issues you need to address are the rental yields you will achieve (versus interest costs), and the hassle re collection of monies owed. The latter issue explains why there are barriers to entry into the slum landlord market, and gives an indication of why supernormal profits are available from providing this service. I have been considering buying in Hull for some time, so am I not happy that you have revealed my potential goldmine to the UK at large.
Of course, this property investment would be based on income considerations rather than capital considerations. Capital gain over 25 years may in fact be negative – but the differential in the rental yields to interest expense is so great that the capital value of the property can be financed from the poor in a few short years. Is this what you are getting at? Or do you not understand the distinction between a capital and an income based property investment strategy? |
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Morning all....
by rev.hk
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#1000876
of 3278
17 Nov 2002
11:51 PM |
Dear Andy B,
I did read your email and offered you no disrespect. I meant what I said in posting 861. I only asked for an answer to the question, 'If the property bust of 1989 to mid-1990s was economic mismanagement, then what was the boom of the mid-1980s?'
H.
Nice to see you finally having a crack at grown up commentary. I hope the Martian stories are now behind us. BTW, the Korean-style tactics of announcing a victory before the match has even begun aren't very grown up. Generally, arguments that need cheerleaders have low credibility. |
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the ripple effect - another question
by Si
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#1000875
of 3278
17 Nov 2002
11:34 PM |
Andy B.
Thanks again.
One more point where I'd appreciate your opinion.
It's fair enough that there are parts of the country where the supply-demand relationship suggests long-term growth. I think that this has been long accepted in the South-East where the house-buying culture is most mature.
However, there are parts of the country where this is less the case - I think of Liverpool, for example, which is expected to see net population-loss, but is currently seeing high property price inflation in the more prosperous southern half of the city, and in city-centre apartments, so I suppose a local supply-demand scenario pushing up prices there, dependent on Royal and Sun Alliance and Littlewoods maintaining their strong employment in the area (RSA downsizing recently due to equity-losses, Littlewoods dependent on high-street consumers). Apparently Leeds and Manchester have had their price inflation, and the spotlight has moved to Liverpool. On a broad scale these are all areas at the edge of the current ripple-effect from the boom initially in London. If there is a supply-demand argument that could support prices (I'm still not convinced but I'm playing it this way to further my understanding of your position) in London and SE, then could this not be consistent with previous experience of property corrections only more so, where core quality investment areas (in this case large portions of the SE where supply-demand overrides shorter-term economic fluctuations) maintain their value, but 'up-and- coming' areas, including regional hotspots, may see some correction?
And I appreciate your offer of a better job! My job is not what concerns me, but the fact that should I get onto the 'property ladder' in Leeds then I would have to become a pauper, when compared to my nice cheap rental costs, or live in a rough area, which I suspect negates the long-term investment benefits of buying one's own property, or established wisdom would suggest so based on prior property-cycles (some areas of Manchester, the only northern city to see big gains in the late 80s, suffered disastrously in the early 90s correction, and never recovered their values, I wonder if I'm seeing a repeat across the North, bearing in mind we don't have the SE's pop density). And of course low wage-rises would make this a long-term choice of relative poverty. The only benefit I can see of buying would be gains from further price-rises, which I am dubious about since rentals are clearly falling in the properties/areas in which I am interested in.
So am I right in saying that you think that house-prices are likely to demonstrate long-term growth (fair enough in most peoples' opinions I imagine, especially in the increasingly crowded SE), and that there is NOT likely to be a drop superimposed on this long-term trend in the next few years? and what of the regions such as the M62 corridor where I live?
And is there a strong case to say that the economy has much better foundations for the next few years than I believe from rev.hk's arguments? |
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Si - question
by Andy B
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#1000874
of 3278
17 Nov 2002
10:45 PM |
I noted your question after I posted my last set of figures and arguments.
I think the answer is the real price of housing has increased due to the underlying economic factors I have identified. So Yes it is going to be harder trade up and you will need to improve your real income rather than gain from inflation. I have identifed the mid 1990s as one of the best times to buy - due to the long term upward price being knocked by poor economic management in the late 1980s - maybe there will be some more mis-management then you can jump in and get a better house.
Or maybe the masses will wake up to my theories and demand the government ensure significantly more houses are built.
If this happens then the price could fall in the long term as supply moves up. Look at the US (long term) they have more land and so even though they are richer their houses appear cheaper - (spec for spec etc).
Regards,
Andy B.
PS: if things are really bad I could get you a better job? |
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More haymaker blows for those on the ropes
by Andy B
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#1000873
of 3278
17 Nov 2002
10:28 PM |
With the affordability argument now won - I am moving move onto the structural supply and demand issues as i prepare by case against Rev.HK.
BUT you have to wait for that posting
- For now just kick you when you down and answer a few of the counter attacks:
Consider the following data:
Year Housholds Dwellings
'000 '000
1980 17068 17912
1985 18049 18697
1990 19020 19634
1995 20032 20279
2001 20992 21134
2006 21733 21847
2011 22519 22559
You will note the surplus of dwellings to households is 4.9% in 1980 and 0.7% in 2001.
The 2006/11 projections for households are government numbers. I have assumed can build enough houses at the rate we have seeen over the last 6 years (net of losses) to get my projections for 2006/11 dwellings. The bad news for non- home owners is last year the rate of increase fell from the average I am using of 142,500 to 130,000. If that continues then we run out of housing before the end of the decade. Note these are the numbers people do not want you all to see - because they worry you will be running through the streets rioting.
Given the simple supply and demand figures above what is your bet on the REAL PRICE of houses over the next 10 years?
Long term decline - NO.
We need somewhere to live so you will given up a lot of disposable income to get a house - in the future!
Just to throw a second punch at anyone still standing:
In my theory of house prices posted on Saturday - I suggested house prices where far closer to equalibrium then most of you think.
To add weight to this consider the following:
Mortgages to Incomes
1995 2.1
2001 2.3
Hardly moved yet the price has doubled!
For anyone still trying to use the 'Drunk on Debt' card consider the following:
Equity %
1980 26%
1990 18%
1995 11%
2001 21%
This is the amount of equity paid into a house by a first time buyer. New Households are less geared now than in 1995! Yet the mortgage rates are lower! If this was a company then it would get a BUY not SELL.
Just in case you have not shot yourself yet. In my theory I suggested that first time buyers would (and would have no choice in many cases)wait longer in their working lives before buying.
Some more ODPM figures:
1990 30%
2001 17%
These are the % of FTB under 25. The 13% loss has moved to the 25-35 (8% up) and 35-40 (5% up). Proof of my theory about the age impact. People are buying later with larger deposits and stronger incomes - this is pushing up the REAL Price of housing.
I will leave you now - Sleep we in your beds - while you still have one!
Regards,
Andy B |
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Too subtle?
by Sceptic
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#1000872
of 3278
17 Nov 2002
10:20 PM |
Ha ha ha!
"Sceptic welcome to the promised land!" - Andy B, post 859
I don't suppose this promised land is a 2-bed terrace house in Hull?
I conclude that your judgement is just as bad as that of Mr X! Why don't you look up the words 'irony' and 'sarcasm' in a dictionary? Is this clear enough?
A simple test for Mr X, Andy B, Hoogstraten et al. It is a multiple guess question, so no long essays are required. Do not write down any of your working on the answer form.
Question - select the statement from the following list that is TRUE:
(A) Hull is a simple daily commute from London and the South-East.
(B) Hull is an prime location for property investment.
(c) A 12000 pound house in Hull will be in good condition.
(D) A 12000 pound house in Hull will be in a pleasant neighbourhood.
(E) None of the above.
I'll leave you a while to ponder, it may be a slow process... |
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Andy B. Thanks for your clarification
by Si
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#1000871
of 3278
17 Nov 2002
10:17 PM |
Andy B. Thanks for your clarifications in #866.
A couple of genuine questions, not rhetorical or attacking or anything:
The stats support the view that the relationship between ftb income and mortgage costs is the same as it has been in the past. Fair enough, I can't dispute good stats. But that doesn't answer the concern about long-term affordability of such a loan in an environment where it is not eroded by low income-inflation. Does this simply lead to the conclusion that trading up will be naturally be much harder in the future, due to low supply of houses? And what is there to negate the longer-term risk that comes with the relative debt staying high for so long - surely, even if not in the next 2 years, ftbs now face medium term risks to economic problems, owing to a high medium-term mortgage commitment, which would have evaporated with inflation much earlier in the life of a mortgage in a higher inflation environment...?
Sorry if you've already clarified these, but I think I got lost in the arguments some time ago and am just seeking this particular clarification.
And thankyou for helping to civilise this discusison. |
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Hoogstraten Housekeeping
by Hoogstraten
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#1000870
of 3278
17 Nov 2002
08:35 PM |
The proponents of the apocalyptic vision of properties crashing seem to be struggling, so to facilitate them fighting on rather than throwing in the towel, I will give them a hand clarifying their arguments. I think the doom mongers are actually split into two camps (although it seems these “end of the world is nigh” move from one camp to the other, without even realising it!).
The first camp says that property is overvalued now on current economic conditions. The second camp says they will be overvalued in the near future, because the economy is looking down the abyss, and is about to topple over the edge – economic conditions are on the verge of changing drastically.
When the doom mongers (from now on called DM – same as Dry Martini?) get obliterated on the first view, with the cunning of a fox they shift the focus onto the second view. This second view is obviously less tangible due to the uncertainty of future economic conditions, enabling them to flounder on.
1. Are we overvalued now – to answer this, I will quote others, because I am too lazy to do the research myself:
Andy B said:
(a) “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)”. …the average ratio per the Bank of England's August Report was just over 2.3 for non- first time buyers
[ie. Demand side is not overstretched]
(b) “Going back to ODPM data … the ratio of houses to households has fallen from 104.5% in 1982 to 101.25% today”
[ie. supply side is stretched].
Mr X then goes through a number of examples at a micro-economic level. See posting #1000790 of 833 for an example.
These prove, as Mr X rightly points out:
“Conclusion, earnings to monthly repayment affordability the same in 2002 as 1995. What we have seen is a correction over the last few years as interest have fallen [not withstanding lack of supply, etc]. As we are at the same affordabilty levels now then in 1995, it would be difficult to see massive drops in prices, unless we have massive rises in interest rates”
DryMartini reads this mail, and inherently concedes Mr X is correct! He does not argue with the current affordability argument that Mr X has so generously gone to the trouble of presenting to him on a plate.
Instead, what DryMartini does is to switch the debate to the view two, that economic conditions are going to change sometime soon in the future! For example, he proffers the idea that average wages are going to go down in the future. Or that his capital crunch theory means that capital will either dry up, or mortgage rates will rise (despite his other view that mortgage rates are actually going to come down in the foreseeable future, as a result of BOE rates cuts more than offsetting his alleged future credit spread increases). Rental yields in his world will also reduce in the future. The cunning of this change of tack was to not address Mr X’s impeccably researched argument that property is generally affordable and appropriate on the basis of current economic conditions!!!!! |
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Definition of FTB
by MutzNutz
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#1000869
of 3278
17 Nov 2002
08:28 PM |
By this I mean individuals (not couples, mates buying together etc 'to get on the ladder' )
Unless I missed something fundemental about last time around,88- 93ish)
FTB's are the most important drivers of the long term stability of PM.
In many areas outside of London, SE and various BS & EA declared 'Hot Spots', they just might be able to get their dream homes if they are planning long term.
What about the vast pool of potential (well informed)buyers who just cannot afford even a studio in London or Brighton for example?
This is critical mass stuff & does perhaps underline the push for better public sector pay increases.
The current frenzy, as ever is fuelled by greed & fear. The distinction between private & public sector pay has not yet been dissected here.
Why should a paper pusher in an Ad Agency be in a better position (at the moment) to get their foiot on the ladder?
Huge can of worms innit. |
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Muddy Waters - Indeed Rev.HK - Try reading my postings slowly.
by Andy B
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#1000868
of 3278
17 Nov 2002
05:20 PM |
I note your posting below which demonstrates that you did not read mine.
'I have the data' referred to the data on the level of incomes of thoses buying houses, which has risen at the same time as house prices have. A fact few in this forum know. For example I am fed up of people quoting average wages - the poorest group of people in the UK can not buy houses at anytime so they are not part of the equation. You have to look at incomes of house owners - you exclude the poorest income groups. This seems tough but a hard fact of life! I have the data of this - NOT DEFLATION ECONOMICS!
To your question on Deflation I said I will have to get back to you. I assume it is late where you are, but even so, do not attack me for belittling the argument when you have just half read a reply which I thought gave you great respect.
Regards,
Andy B. |
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I have the data?
by rev.hk
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#1000867
of 3278
17 Nov 2002
02:59 PM |
Dear AB,
Lemmings are famous for running over a cliff without knowing what awaits them down below.
I look forward to your reply which will detail the exact reasons why first timers in the UK property market have nothing to fear from the spread of deflation from global manufacturing to the service sector and an almost doubling of UK household debt in less than a decade. It's a complex argument and is the precise topic of this discussion. It would be splendid if we could have focus in this time of great decision making for so many.
Incidentally, the IMF did a lovely round up of the 20th century and its effect on global wealth in their spring 2000 world economic outlook. It's at www.imf.org and is a pretty good read - except if you're an African dictator.
BTW, if the property crash of the early 1990s was economic mismanagement then what were the property booms of the mid-1980s and the last five years?
Night-night. |
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Clarifications first!
by Andy B
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#1000866
of 3278
17 Nov 2002
02:25 PM |
Thank you Rev.HK for your comments and those of Si and Sparkey - I hope you are enjoying your weekend.The argument that Rev.HK is putting is that the UK will be hit by the damaging
impact of global deflation. This is an argument which will take time for me to answer if you want me to continue the more serious economic debate - so I will have to get back to you on this.
In response to the attacks on those that have not used more formal economic analysis - I do feel I have to defend them for giving practical examples of what I have tried to explain using current
economic theory. The most common being battle over affordability etc.
In response to Si - I have the following observations - Please look at the actual statistical information - I have tried to draw your attention to the fact that according to a report published by the New Labour government last week (11 Nov 2002) the average income:house cost of a
household buying a house for the first time is in line with longer term averages. So they have not
extended their mortgage credit well beyond reason as you suggest - the reports conclusion was that on average those buying houses are richer. This does not mean the average person in the
country is richer, but just those buying houses. This indicates the strike price is still supported by real incomes - this result was a worry to the government and maybe they will relax the rules which are stopping house building on green field sites.You are still arguing from the point of view that house prices have increased faster than average wages - my argument is that is has
been balanced somewhat by the lack of supply compared to a stronger demand. So people have been priced out without there being a ‘bust’ in prices. This explains why house prices went up 30% when we all thought they should go down. The wealth I refer to is household income compared to mortgage costs and even mortgage advances. See my earlier postings on the figures.
Rev.HK understands this argument his concern is drawing attention to the risk of deflation - which we both do not want! I have the data if you want it - but according to the latest figures I have seen a lot of people are walking into estate agents with enough household income to pay
the price being asked. But there are also more stood outside waiting for the bust!
In answer to Sparkey - I think you also have to take note of the above - but renting has nearly always been cheaper I was only the second generation of my family not have to rent. Socially though I expect you will want to buy one day and there this argument is flawed - unless you believe we in the UK will change our habits and rent rather than buy throughout our adult lives.
I would like to see the research to support this. |
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Sparkey
by Mr X
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#1000865
of 3278
17 Nov 2002
12:18 PM |
| Sparkey - re my last posting. How do you explain the relative undervaluations of properties in Lincolnshire [my example] and the next posting of houses for £12,000 [not the only area in the counrty to be overvalued] {Incidentally, for the Buy to Let merchants, these areas still represent extremely good returns eg 2 bedroom house in Hull to accomodate 3 students with one room each - 1 per bedroom plus front room at £40 per week each for say 40 weeks per year is £40 x 3 = £120 per week x 40 = £4,800 or return of £4,800 / £12,000 = 40 %. Or quite simply in less than 3 years you have paid the property off. Anyone care to comment now ? |
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