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| The UK housing market: a bubble about to burst? |
I think I must be bored....
by Hoogstraten
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#1000977
of 3278
 21 Nov 2002
05:54 PM |
I would be happy to volunteer to be the buyer on the terms you suggest if:
1. Actual and forecast economic growth is running over 25% pa.
2. Rental yields are consequently spiralling upwards.
3. Inflation is running around 2%
4. Immigration is booming, with high net worth, well-educated individuals entering the country.
5. Mortgage interest rates were 1%, and not forecast to rise for decades etc
Valuation of whether any property is under or over valued should be based on the fundamentals (current and future populations, economic growth, interest rates, and rental yields).
If the conditions above were met, only a 10% price rise would be a bargain. The rate of increase in property prices is irrelevant – the rate of increase in property prices in comparison to current and future economic conditions is the issue. To look at one without looking at the other is nonsensical. |
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One buyer, one seller
by The Grand Inquisitor
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#1000976
of 3278
21 Nov 2002
05:26 PM |
| In theory all we would need is one buyer and one seller who would keep purchasing at a 10 percent premium to the prior year. By 2007 the annual equity withdrwal amount for the rest of us would be 21K and by 2012 35K.... not bad... any volunteers?? |
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Misrepresented?
by Hoogstraten
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#1000975
of 3278
21 Nov 2002
04:53 PM |
Jeff – I agree, I think there will be big regional deviations in future house price changes. London is much more exposed to the precarious state of the financial markets, and expensive London property is much more exposed to price risk than the cheaper parts of London. The poor recent performance of the financial sector of the economy should obviously have a much bigger impact on top end housing – as has already been seen in Kensington, Westminster and Knightsbridge.
Rob G – I think that you have misunderstood Stuthepooh (this does not mean I necessarily agree with him either, but what he was arguing is different from what you have interpreted).
I think his thesis is that mortgage interest rates could go down due to long-term yields coming down. This would cause property prices to rise.
Inherently, he is assuming that rentals will stay the same with the comment:
“Property is an income generating asset. Halve interest rates therefore double the justified price. As the price of property (rentals or purchase price) is closely linked to earnings, it follows that the price/earnings ratio, now at a historic high, should double. Prices are therefore at or below equilibrium.”
He is correct in theory, in that if mortgage interest rates did halve (other things such as rentals remaining equal) prices would double – irrespective of what a FTB does, so long as someone else can finance the purchase. |
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to Hermit
by Jeff Morgan
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#1000974
of 3278
21 Nov 2002
04:27 PM |
It was another special case.
Some guy bought up a row of houses to build a hotel then couldn't get planning permission. In the meantime the houses deteriorated and a couple were vandalised. Noe he just wants to get rid of them.
Unfortunately I can't remember where they are, I think they were in one of the eastern valleys in South Wales, maybe not far from Ebbw Vale (?)
Frankly I didn't take much notice, having enough of a percentage of my investment in property already. |
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Rises and Falls
by Jeff Morgan
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#1000973
of 3278
21 Nov 2002
04:20 PM |
Andy B,
First thanks for the interesting posts. I'm not an economist (that's my wife's qualification) but I could follow the gist of the argument and it helped a lot.
As for my forecast of house price falls in relation to yours of rises, it is entirely possible that the data will show those figures are compatible. This will happen in the main because my forecast is (and given my lack of information can only be) based on local knowledge. And since I live in London - and I think there is agreement that London is a special case - we may well see that London prices can fall while others don't, or at least don't to such an extent. And, other factors may intervene; for example if more people extend rather than move, the perceived value of their house will rise and, even if they sell in a lower-priced market, the price they get won't reduce by as much as it otherwise might have. This will of course be due to the additional investment - but in this forum we are being asked about house prices and not about whether the return on such an investment is reasonable or not. |
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Afternoon Update
by Rob G
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#1000972
of 3278
21 Nov 2002
04:15 PM |
Andy B:
I actually posted my predictions for better or worse a few postings back. Try #1000930
StuPoo:
It's of little concern whether your posting was intended to be a social commentary. Anyone who says they don't care about FTBs is stepping into that territory whether they like it or not, and I will comment accordingly.
So do you really believe that in a world where purchasing is no longer an option because of the high price of housing that this will not lead to an increase in rents?
Of course it will.
Which in turn will lead to an increase in interest rates across the entire economy, which will increase the mortgage payments, etc etc. |
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Interested....
by Hoogstraten
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#1000971
of 3278
21 Nov 2002
02:27 PM |
Stuthepooh,
There is going to be hell to pay when Revolutionary.hk/Rob G et al get around to reading your piece of petty bourgeois imperialist capitalism – I don’t think they would agree that this is a good thing.
I am not sure that I said that the long end of the yield curve is dictated by government policy – I believe that I said that government policies are not consistent with the long-term end of the yield curve halve and stay that way (semantics maybe). I presume your logic flows from your assumption of continued low inflation and low Government debt? Would the Government spending and borrowing with socialist governments such as New Labour (for example, the current fire-fighters dispute), create fiscal and inflationary pressures and increase the yield curve at the long end? I would have thought that the Governments demand to fill their ballooning deficits would sap a lot of the supply of long-term money?
DryMartini was arguing that 30-year bond spreads have been ballooning massively, which gave me the impression that the curve was not flattening (he is a proponent of the “credit crunch” concept). I think his argument might go along the lines that even with low inflation (I think he would actually argue deflation), there is still a significant risk of default, pushing up the price of long-term rates. Is this the case?
I am interested in finding out more about this – the money markets are not my forte. What has happened to long term versus short-term yield rates recently? What proportion do Governments consume? etc
Cheers,
Hoogy |
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Straw house?
by The Grand Inquisitor
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#1000970
of 3278
21 Nov 2002
01:48 PM |
| If house price rises were to increase forever at 10% per year then annual equity withdrawal would facilitate a concomitant boost to consumption in perpetuity. The size of this boost would be equal to the relative size of household income to available equity withdrawal (150000 * .1^n?) ???? |
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Interest rates
by stuthepooh
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#1000969
of 3278
21 Nov 2002
01:26 PM |
Hoogy
Let them live one the streets? Why would they need to live on the streets when the have nice, warm and very cheap rental accomadation to go to?
The long end of the yield curve is not dictated by government policy. Policies can have some impact, but only indirectly.
Far more important is the supply and demand of long term money. Here we see a world were funded pension schemes are becoming ever more prevalent in developed countries. Increasingly, the resulting massive sums of money are chasing diminishing returns.
A case of an increasing oversupply of money, leading to a decline in long term interest rates? |
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Interest rates
by stuthepooh
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#1000968
of 3278
21 Nov 2002
01:13 PM |
To Rob G: This forum is discussing whether property prices will rise or fall, not the social effects thereof.
My comment asking if it matters that FTBs cannot afford to buy was not a social comment, therefore you misread the posting.
High prices do not necessarily lead to children leaving home later. But it is likely to lead to them to rent rather than buy due to inability to raise the required debt.
Rents are not dictated by investors, they are set by supply and demand.
[Last line removed by FT]
[This message was edited by Monitor_CS on 21 Nov 2002 at 01:50 PM.] |
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House prices % falls
by Andy B
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#1000967
of 3278
21 Nov 2002
01:08 PM |
Rob G
Given you continue to debate from a point of view of what goes up short term must go down short term - maybe long term. A view which doesn't help those debating for a fall due to deep worries about the medium & long term economic positions (eg Extra Dry & Rev.HK).
What % price fall due you expect say from 2001 year end prices?
How long do you expect that price fall to last?
Is your analysis based on just the area you live in or England or the UK or Europe or the World etc.
Once we know this we can then re-debate your concerns.
To those now focussing on 1998 to 2002 - I suggest you read one of Rev.HK's quotes on Schumpeter. I can not remember the posting reference.
Andy B. |
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Liquidity Trap
by Hoogstraten
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#1000966
of 3278
21 Nov 2002
01:04 PM |
I have 2 theories of why house prices might have gone up since 1998:
1. Lower mortgage rates have shifted the property demand curve.
2. Evil investment bankers want to crucify and eat the poor, as part of their conspiracy for world domination.
For the record, I prefer the second theory.
Rob G – I think you are arguing point 2 in Andy B’s mail 911, the liquidity trap, which I believe, caused the last (and only so far) Great Depression. One of the reasons that we haven’t had a Great Depression since is there are policies the Central Banks can pursue to mitigate these risks.
Japan at the moment does have this type of situation (though obviously not as extreme as the Great Depression), but this was as a result of the failure of the Central bank to act quickly enough. What you say is possible – but unlikely. Capitalism is not inherently unstable – it has stood the test of time for a reason. |
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Lest We Forget...
by Rob G
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#1000965
of 3278
21 Nov 2002
12:49 PM |
Hoogstraaten,
Your assertion of factors protecting property prices from a large fall again fails to consider that it's not an increase of forced sellers which is likely to force prices down, but a lack of buyers.
Buying confidence will start to drop quite soon. Once it does, it will pick up speed as word spreads among plebean society that property is now a 'bad bet'.
It will take a long time before confidence is regained, and in that time, prices will drop.
The same thing that pushes the market up (the FTB's) will also pull it back down.
Everything else is relatively incidental. |
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Isn't it to do with the financial markets?
by Knowledge is Power
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#1000964
of 3278
21 Nov 2002
12:26 PM |
To The Grand Inquisitor,
Haven't a great deal of investors (both corporate & private) moved in to property, e.g. when the Asian Crisis happened, the fall of the NASDAQ & the FTSE etc. These more or less fit in with the 1998 onwards time line.
More property investors = more buyers = more demand = less supply = higher prices.
Can it be that simple!?! |
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A relevant question short term? long term?
by The Grand Inquisitor
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#1000963
of 3278
21 Nov 2002
12:20 PM |
To all the debators out there, who appear to have caught a bad dose of (central bank induced?) historical (???) myopia.
Why did house prices only begin a steep increase from 1998 on.?
Methinks this cannot be due to sudden changes in fundamental supply....demand (household formation) conditions and the patently agonising decision of whether to buy/move out etcetera etcetera. (Or could it?... Then which are these? Evidence please.) If it is not then all the dicussions focusing on this aspect of the market (bodies vs bricks) are reduced in relevance.
If so what other aspects influencing demand could have changed in such a precipitous manner?? If it is these factors that seduced (heh! heh!) the rise in prices then it will likely be a reversal (of trend/direction) in the same that will signal a change in the direction of the market.
If this is agreed then it it is these factors which need to be examined to determine the likelihood and severity of any burstin and a much more interesting and fruitful debate will occur around these. |
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