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| The UK housing market: a bubble about to burst? |
Alpha Zulu and his Brave New World
by Hoogstraten
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#1001170
of 3278
 30 Nov 2002
11:37 AM |
Freddie is a nervous potential first time buyer. He asks the forum for advice. The meek doom mongers say he shouldn’t consider buying, because of short-term volatility (in the long-run, I imagine they hope to inherit the earth anyway).
Alpha Zulu, thank you for then confirming 2 of my main points:
1. “Property makes you money in absolute terms over the long-term. “
2. Meek doom mongers aren’t interested in the long-term when giving financial advice.
Do you have anything substantive to say (apart from confirming my arguments), or is this it?
[Childish name-changes edited]
[This message was edited by Monitor_CS on 30 Nov 2002 at 12:14 PM.] |
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Freddie: too late for BTL?
by zorro
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#1001169
of 3278
30 Nov 2002
11:36 AM |
Singapore D: you seem to have misuderstood Freddie's dilemma since your advice to him is,
'If you wait a couple of years you may be able to pick places up at auction that have been dumped by those in negative equity. Why not rent for a while when rents are low and falling?'
As far as I can see, Freddis is not in need of a place to live but of an investment. And if enough people out there take advantage of your own advice above, ie go and 'rent for a while' that means increased demand for rented property, hence rents would not be falling any more. My very own point from a previous post.
So, Freddie, should you buy a BTL in general? This depends on your own personal financial situation. If you are cash rich and don't want to keep it under the mattress or invest in equities or dodgy corporate bonds, than, with a careful choice of location the answer could well be 'yes' in terms of percentage return on capital.
But it does not strike me that this is indeed your position, since you are talking about obtaining a mortgage. Mind you, even if you did have the 100% cash for the purchase, it often makes sense to stach the cash safely and get a mortgage anyway to offset against tax. First research your target market: what demand is there for rented property in the town you have in mind and for what sort of property? If you should be thinking DSS tenants, how long is the time lapse between the local council paying up and could you afford to last that long if need be? Althernatively, are there enough professionals in jobs, in what industries and what are the short to medium term prospects for that industry?If that stacks up, do your calcs: budget for service charges, maintenance costs, tenant voids of say 20%, letting agents fees (mind you, better to do the letting yourself if you have the stamina) and see if after all this, and deducting the 4.99% fixed cost of mortgage (and allowing for another deduction of the interest lost on the cash element of the purchase price, had you banked that money safely) - are you still standing to gain some 7% return on capital? If not, well: can you still afford to stick it out through the lean years and possibly take a loss, and why would you want to do that? NB, I am NOT saying that the answer to that last part of the question is automatically 'you wouldn't want to do that under any circumstances'; the reason being that when (notice the 'when', not 'if') the credit cruch comes, the current tap of the BTL mortgages will be turned off and only cash buyers will be creaming off the auctioned repossessions. So if you are not in that category, you will have missed the boat for your slice of this particular cake.
I am sorry Freddie to go into this textbook first time BTL buyer's staff. For all I know you have done this many times before and your only query is about the particular location in Wiltshire, in which case I am not familiar with the location, but the usual research needs to be done regardless. Best of luck whichever way you jump. |
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Location, location and location...
by zorro
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#1001168
of 3278
30 Nov 2002
11:10 AM |
| I believe that the hotel 'Paradise' in Mombasa had an excellent business location. |
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Read the topic
by Alpha Zulu
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#1001167
of 3278
30 Nov 2002
10:51 AM |
Dear Mr Hoogstraten,
This forum is not about the long-term. Nor is anyone disputing that property makes you money in absolute terms over the long-term.
It is about the short-term and that is why some people are voicing their opinions that the market is due to correct. Please keep to the topic.
AZ |
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Economics vs reading tea leaves
by Hoogstraten
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#1001166
of 3278
30 Nov 2002
10:13 AM |
Freddie:
In 25 years time, the real value of property will in all probability be higher than it is now. The empirical history of property in the UK shows clearly that in the long-term there is growing real average incomes and therefore growing real property prices. There is obviously also short-run volatility in property prices, up and down.
Property should be considered as a long run investment – the meek doom mongers adopt a very short-term view, and fail to appreciate the benefits of a long-run view. If you wish to purchase property, as long as you ensure that you are not forced to close out during any negative short-run price movement, you will almost certainly do well in the long run. Do not be unduly concerned by the ranting of the glass half empty crew – they seem to generally be quite an unsuccessful group of individuals. Good luck with whatever you decide!
Property as an asset class is not like the NASDAQ. You need somewhere to live, but you don’t need to hold technology cash equities. The analogy is clearly erroneous.
Finally, some of the doom mongers argue regarding the applicability of economics. This may be because the meek openly prefer tea leave reading to rational economic arguments. It may also be because they do not understand economics – glib statements require less effort to make. What they do not appreciate is that the core of their arguments is economic in nature!
The meek doom mongers tend to argue there will be property real price falls from 40% - 70%. This would provide a massive shock to the UK economy. There would be an absolutely huge collapse in Aggregate Demand, if these predictions were proved correct. Remember, property is now a much bigger determinant in consumption (and therefore GDP) than it has ever been. A shock of this magnitude would definitely cause a Great Depression. Do any of the doom mongers dare to suggest that property price collapse of this magnitude would not result in economic catastrophe?
The doom mongers are therefore Great Depression theorists, whether they know it or not. ExtraDry Martini is at least honest about this – he openly believes there is going to be another Great Depression.
Clearly, since the doom mongers are forecasting another Great Depression, it is relevant to consider using economic theory how likely this situation is to occur again. There has been just one Great Depression in history so far. The economic situation is radically different now, as compared to 1929.
To convince a rational person that there is an impending Great Depression, I think the doom mongers will have to improve their performance. Growth has temporarily slowed, but it is still positive. Less hysteria, and more rational arguments, is required to convince anyone who does not share the doom mongers desire to make predictions by reading tea leaves.
[Childish name-changes edited]
[This message was edited by Monitor_CS on 30 Nov 2002 at 12:11 PM.] |
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for Freddie
by Singapore D
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#1001165
of 3278
30 Nov 2002
12:20 AM |
Compare a price chart of the NASDAQ between 1995 and 2002, and you will see a bell curve, up and down. Compare a price chart of the average 4-bed semi over the same period and we are right at the top of a similar curve now, with the rate of increase beginning to slow, and the drop-off approaching.
The period of the curve is longer in house prices than in the recent tech bubble, but the bubble is still there, and greed and fear drive all markets. Given that we have seen this same bubble in the late 80's, my personal opinion is that buying property now would be a mistake..."let the trend be your friend", and property prices are starting to trend down now.
If you wait a couple of years you may be able to pick places up at auction that have been dumped by those in negative equity. Why not rent for a while when rents are low and falling? |
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"The jungle speaks to me as I know how to listen" - Jungle Book
by Happy Mango
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#1001164
of 3278
30 Nov 2002
12:10 AM |
We can see by Mr Brown's actions, this week, that interest rises are on the way. This will tumble the house of cards that is the property market.
The inevitable crunch, that is coming, will only hurt the bourgeois property owning class. The worker will not be hurt by these procedings.
The overall benefit will be towards easier access to housing for key workers and the working class. This can only benefit society as a whole, as the unscrupulous buy to let investor will be smashed out of the scene.
And something for Richard:-
"
`But I don't want to go among mad people,' Alice remarked.
`Oh, you can't help that,' said the Cat: `we're all mad here. I'm mad. You're mad.'
`How do you know I'm mad?' said Alice.
`You must be,' said the Cat, `or you wouldn't have come here.'
"
Alice in Wonderland |
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Fruit cake?
by Richard Head
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#1001163
of 3278
29 Nov 2002
11:05 PM |
Am I the only one, or can we all agree that Happy Mango is a fruit cake?
Property prices will decline to reflect the reality of the economy in the not too distant future.
In the meantime, lets just watch the pigs wallowing in the trough of cheap money and high debts, and wait for the day when they are turned into bacon... |
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"You can’t get out backwards. You gotta go forwards to go back." Willie Wonka
by Happy Mango
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#1001162
of 3278
29 Nov 2002
08:33 PM |
Umpa Lumpa, do bitty do,
I’ve got another riddle for you,
Umpa lumpa, do bitty dee,
If you are wise you'll listen to me.
What do you get when you place a quote,
People disagreeing try to get up your goat,
House prices may rise or may fall,
But that isn’t the biggest question of all.
Umpa Lumpa, do bitty do,
I’ve got another riddle for you,
Umpa lumpa, do bitty dee,
If you are wise you'll listen to me.
Why would someone want a fall?
They have no house after all,
They wanna buy cheap and see them rise,
But that is no real surprise.
Umpa Lumpa, do bitty do,
I’ve got another riddle for you,
Umpa lumpa, do bitty dee,
If you are wise you'll listen to me.
What we need to watch is the BoE,
They are the trigger for all to see,
If interest rates they do rise,
Woe will be tone of house owners cries.
Umpa Lumpa, do Dumpty dah,
IF YOU'RE NOT GREEDY YOU WILL GO FAR,
YOU WILL LIVE IN HAPPINESS TOO,
Just like the umpa lumpa dumpty do. |
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Another Greedmonger?
by Rob G
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#1001161
of 3278
29 Nov 2002
07:14 PM |
Freddie:
Have you ever seen a bubble that had a free lunch inside it?
No, neither have I. |
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BTL
by Freddie
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#1001160
of 3278
29 Nov 2002
06:27 PM |
Should I go ahead and purchase a BTL? The margins seem excellent now with the ability to fix for five years at 4.99%.
I am planning to puchase is market town in Wiltshire. Which hasn't seen the high anuual gains which are posted in the news.
Am I mad! |
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Hoogstaten, perhaps it was a question of my differing perspective giving differing definitions
by Si
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#1001157
of 3278
29 Nov 2002
04:57 PM |
I suspect that I was thinking of different types of poorer areas! I.e. Very nice suburbs with detached 5 bed Victorian houses versus merely nice but with 3/4-bed semis!
According to 'established wisdom' (books, magazines, and a website called www.housingoutlook.co.uk), it's a 'bad idea' to buy in an 'up and coming' area when the housing market is booming. A nice established residential area is thought the safest bet, and is often borne out by quoted experience, over the long term (concurring with you so far).
Some areas, populated heavily by dhss-tennants, at times of a boom, start to see overspill of people buying here because they can't afford the nicer areas. Some don't, and I know a few, and I just wouldn't want to live there, even though the property prices remain heavily subdued and comparatively untouched by the boom, although I appreciate that, to a rational and dispassionate investor, they can offer rich pickings on a rentals-basis.
Those that do boom, and may become 'up and coming' areas, often, after the boom (and I am not talking from personal experience, just my own reviews of the available literature) collapse again, quite badly, witness Salford near Manchester city centre following the early-90s correction.
I interpret it that you are seeing it as a return-on-investment equation, whereas I am seeing it from an FTB's point of view. I believe an FTB can afford to wait, just about in any major city, whereas clearly there is still money to be made by the dispassionate profit-oriented prospective landlord. Notwithstanding macroeconomic stuff which I am unqualified to comment on! |
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To Knowledge is Power #1154
by Jeff Morgan
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#1001156
of 3278
29 Nov 2002
04:49 PM |
Agreed, the demand / supply argument works on that part of the housing stock that is traded, therefore 'at the margins'.
If the government (or anyone else) had built 500,000 houses and apartments earlier it would have had a great effect on the availability and would probably have made it easier for Nurses, police, teachers and so on in the South-East (and to a lesser extent in Manchester, Birmingham, Leeds, Edinburgh,...) to find places to live. But they didn't.
I think the Lib-Dems are on to something. I listened to the 'Today' programme this morning and it seems that the government has made a provision of £21 Billion for Netwrok Rial, which was not mentioned yesterday.
[It seems to me that the Enron exectives could have come across to the UK for lessons on off-balance sheet accounting]. |
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Hmm.
by Rob G
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#1001155
of 3278
29 Nov 2002
04:16 PM |
What do you mean finally, H?
How does that differ from what I've been opining for weeks? |
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To Jeff
by Knowledge is Power
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#1001154
of 3278
29 Nov 2002
04:11 PM |
Jeff,
I understand your reservations with my wording, but please bear in mind this was in relation to anecdotal evidence in this area.
I've moved twice in the last year, and generally keep a good eye on the number of properties to rent in this area. IMHO, there has been a massive increase on the number of properties to rent comming on to the market (maybe a 50% rise compaired to the same period last year).
The other thing I've noticed, is that there are several properties that are both to let or buy at the moment. Something that I haven't observed before, and suggests to me, a transference of BTL landlords putting out feelers to sell.
Ultimately, you are correct, the number of sales accross the UK hasn't massively increased over the years. Guess that puts a nail in the reduced supply argument?
Thanks for your kind words, I assure you, I will only use "strong" language, if on occassion I feel it emphasises a point.
My reckoning; London 20/40% drop by Dec 31st 2003, and S/E a 20-30% drop too. But, I don't think it will end there.
PS: the Lib Dems say that the PFI hospitals & Rail bail outs pus borrowing over acceptable limits. Are they right, has Mr Brown cocked up and put the UK in an even bigger threatening position? |
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