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| The UK housing market: a bubble about to burst? |
For what it's worth ...
by The RealFakeElvis
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#1001206
of 3278
 01 Dec 2002
06:02 PM |
I’d like to add the following reaction to previous posts:
The bulls’ argument seems to be predicated on 2 points.
1. The old supply and demand chestnut.
2. The old low interest rate, affordability chestnut.
The problem I have with (1) is that exactly the same was true in 1989 but it didn’t stop the fall then. Have a look at the following site for an interesting insight into the demographic situation:
http://www.ppmagazine.co.uk/augfeat1.html
The problem with (2) is that, yes, last time interest rates were higher, but so was the RPI and wage inflation which mitigated the effect for those who kept their jobs. The market still fell 40% in real terms on average, a lot more in the “hot spots”.
Being a housing bull is a bit of a religion, the main tenet of which is “In the long run property will always appreciate in real terms”. A bit like the old stock market adage “If you’re looking at a 5 year timeframe you’ll always make money”. Whatever happened to that? The buy-to-let bull believes that there will always be a profitable market for rented accommodation in the same way that telecoms companies thought there was an infinite future demand for what they were selling. “Everyone’s got to live somewhere” they say. Unfortunately when there’s a downturn and money’s short people tend to live in an owner occupier’s spare room not in their own rented flat. The competition for tenants is increasing and, with more and more corporate ownership of BTL property the pressure on small time landlords to drop rents will be intense. Not good for yields and not good for prices. Those who say that some of this boom’s BTL investors will suffer as the last boom’s Lloyd’s Names may well be right.
On another note I read a few months ago in one of the Sunday’s personal finance sections that only 42% of the UK’s mortgages were repayment, the majority are interest only and the lenders do not insist or check that the borrower has a capital repayment vehicle. Perhaps someone could confirm or deny this. If it’s true it doesn’t help the bull’s argument.
Another bearish factor is the state of the baby boomer’s pension plans after the last few years of stock market losses and low annuity returns. Will this put downward pressure on prices as they try to realise the equity in their homes? I don’t buy the bullish argument that prices won’t fall because so many people have high equity in their homes. They are the ones that can afford to sell at a discount to the current market price. They are exactly the reason why the market could easily fall. And saying that prices won’t fall because I won’t sell is a bit like believing that holding on to your Cisco shares has prevented a tech stock price collapse.
Considering that the Land Registry’s last average price was nearly £150,000 and the average salary in the UK is £20,000 I’m surprised that there hasn’t been more of a consensus on this board over what will happen to the housing market. I moved to the East Midlands 3 months ago and the same properties have been in the local estate agent’s windows all that time. They aren’t selling. History is going to repeat itself for exactly the same reasons. This time inflation won’t rise up and conceal the real extent of the price drop either.
Please feel free to give my opinions a good kicking. No, Hoogstraten I’m not a communist, just an average bloke so my points may be a bit gauche for you. Just remember though - it’s people like me who make up most of the market. |
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Are the doom mongers mostly communists?
by Hoogstraten
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#1001205
of 3278
01 Dec 2002
04:59 PM |
This forum seems to get more bizarre by the day. Starting from the top with Mr Britain:
“The knock on from the .Com Bubble and the farmers problems is working its way down to the shop keepers and the man in the street.”
Farmers are going to cause the property collapse??? First they infect our beef, and then they destroy our property market. For the record, I never trusted these country bumpkin types in the first place…
“If the UK moves over to the Euro then banking jobs will go.”
No they won’t. In any case, the Euro isn’t going to happen in the UK in the foreseeable future.
“…our Taxes are going up to pay for more and more immigrants slipping into the country, AIDS will add a massive amount to the national health bill over the coming years so if you think the waiting list is big now your in for a bit of a shock.”
Aid’s is going to cause the property collapse? I am finding these arguments difficult to follow…
“Prosperity is based upon confidence and confidence is not worth the paper it is printed on. See what’s happening in Latin America.”
Confidence is obviously not the only factor that determines prosperity. Comparing the UK economy to Latin America is simply invalid.
“Since house prices in the UK are now at seven times income then I can not see why the crash will not be at least as bad as the crash of the late 80's…”
Wrong again – do your homework.
“I don’t see much light at the end of the tunnel so I am looking to weather the coming storm.”
Your vision of evil farmers, aids ridden immigrants and banks moving out of the UK (to a confident Latin America?) is certainly somewhat Apocalyptic. I think you have mounted the best argument of any of the doom mongers so far for property collapse.
Helen Mcgregor– I never advertised your book – Jack Straw did. Maybe maths is your forte, as opposed to reading. JoJo says “Not an assumption made by the Hoogs persona, so perhaps you are he cleaning up for yourself?” Wrong – Jack Straw is someone else. He did correctly explain the maths (in a blunt manner).
With regards to leverage, I never said that it isn’t risky in the short-term with property (in the long-term, it is obviously much less so). What I said was that leverage effectively multiplies your gain or loss on your initial investment. Comparing long run returns from cash equities against the total invested in property (including mortgage) is therefore comparing apples with oranges. If the effects of leverage were taken into account in these comparisons, property would outperform cash equities in the long-term. This is a fact.
sho_ryuken said:
“…after showing your ignorance of economics by never having heard of the phrase "dismal science", you now have not even heard of the international phonetic alphabet....”
I have heard of the phrase “dismal science” – the fact was the Singapore D used it completely out of context. This phrase generally refers to the 18th Century economists such as Malthus, who believed society would be perpetually in poverty – because population growth would always greater than food supply growth. It does not refer to economics being useless per se, as the contributor was using the phrase to mean.
Similarly, with regards to the International Phonetic Alphabet, this refers to Mr Zulu describing himself as “Alpha Zulu”. This is where an education helps. I think the reference to Alpha is probably from a book called “Brave New World”, where the Intellectually superior Alphas are the top dogs. Understandably, I found this claim bizarre, my brave Epsilon.
You say:
“Yes, I do think this forum has become very tedious - mostly because of you - but sometimes I feel I have to post something to help prevent any more hapless FTB's listening to poor advice and buying at completely the wrong time.”
To quote the most famous piece ever written in economics, by Adam Smith:
“Every individual necessarily labours to render the annual revenue of society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it...He intends only his own gain, and he is, in this, as in many other cases, led by an invisible hand to promote an end which was not part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. (From the Wealth of Nations)”
Indeed – that you are providing advice for the public good is bogus, or at least little good will come of it.
By the way, global economic wealth is not inflation. I would elaborate, but this is too obvious to bore anyone else with.
You say:
“If you think we are heading for Irving Fisher's "permanently high plateau", then good luck to you.”
This exposes you as one of the Great Depression theorists – I have been through this a number of times, economic conditions are completely different now as compared to 1929.
The fact is that the current affordability argument has been proved time and again on this forum. The doom mongers, when they get shown this, then change the subject to say we are about to enter a Great Depression. No empirical or economic evidence is able to dissuade them in this view – their inherent distrust of capitalism will not be changed. I suspect most of the doom mongers are in fact communists. |
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Stuthepooh Hai
by The Grand Inquisitor
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#1001204
of 3278
01 Dec 2002
04:24 PM |
This forum has ongoing discussion on Japanese economy with referenced links
Glocom |
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Lessons from Japan
by stuthepooh
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#1001203
of 3278
01 Dec 2002
04:10 PM |
To the Grand Inquisitor:
With reference to your post #1079 on 26 Nov
I was very interested by your comments about the Japanese property market over the last decade.
Can you give any more info, in particular regarding rental yields over the period? Given borrowing costs are close to zero in Japan, and prices have dropped substantially, are new property investors now seeing large profits?
Do you know of any analysts reports on the web covering Japan over the last decade?
Thanks
Stuthepooh |
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House Prices
by Mr Britain Msc, MCP
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#1001202
of 3278
01 Dec 2002
03:37 PM |
Jack Straw or is it Mr Prescot
Can you really trust a used car sales man or the corporation of London who both contribute to the grid lock surrounding the city. Next you will be telling me that charging a Toll of £5.00 per day to enter London by the corporation will help the local economy and house prices to rise. Have you not seen empty properties in some part of the great city.
Your cheap dig at “IT is not a profession” is out of order but you are correct when you say it is a “bubble industry” and the popping of the bubble is affecting house prices especially in London since many of these professionals moved to the area to take up the big city jobs.
I think you will find that repayments are now higher than at the time of the last crash and add to that hidden taxes such as VAT on insurance plus beer and fags going up above inflation then this leaves even less money to pay the mortgage with.
Your Simple calculation that investing £20k as a deposit on a £200k Property will yield a 50% return fails to mention Stamp Duty or legal fees, Guess Council tax and estate agents are free in your area. Not to mention the gamble when prices crash. Take these figures into account and I believe your money would had done better in the bank.
During the past 100 years there have been many bull markets and all have been followed by nasty bear markets else we would all be retired. |
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Mr Britain
by Jack Straw
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#1001201
of 3278
01 Dec 2002
02:54 PM |
I am interested that you dont believe there is a shortage of properties in London. Since the corporation of London believe this to be the case ,and they are in charge of the management of London infrastructure, and you arent I know who I believe.
Secondly you are in a bubble industry, IT is not a profession. Professionals have professional bodies, i.e. doctors, solicitors, surveyors, accountants etc. Oh and microsoft certification does not count  .
I believe you will find that repayments as part of salary are actually lower than at the time of the last crash. Still thanks for showing me how to change IP addresses  . |
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House Prices
by Mr Britain
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#1001200
of 3278
01 Dec 2002
02:01 PM |
I don't see the property prices having a "Correction" but a BIG CRASH since the average debt per person is now £12k to £15k excluding mortgage. Including Mortgage it comes out at £80k per person. Just think about the interest charged on that amount. As for London being short of properties how can this be. Many people are now trying to cash in their chips and get out of the place. Did some one just blow up half of London or has the whole working population decided to move there.
We are going into a recession and the Brit's continue to borrow and party. I Work in IT and I can tell you it's very hard to get any work in Europe or the UK at the moment. The knock on from the .Com Bubble and the farmers problems is working it's way down to the shop keepers and the man in the street.
I was working on the Isle of Man during the past year and it's booming due to the Banks moving to off shore Tax islands but some are now moving from the island to India. If the UK moves over to the Euro then banking jobs will go. Manufacturing is in the pits. Lloyds insurance is not doing so well any more. Shares are going down whilst our Taxes are going up to pay for more and more immigrants slipping into the country, AIDS will add a massive amount to the national health bill over the coming years so if you think the waiting list is big now your in for a bit of a shock.
Being in IT i've been working at the Royal Bank of Scotland and also an on-line share company so I get to hear a few things. Who is going to tell you the truth?. Your estate agent or the government, maybe your Bank Manager or the car salesmen. At the end of the day the government loves you being in debt, because it means that you need to work harder and for every pound you earn they get 30% to 40% back as Tax and NI.
Prosperity is based upon confidence and confidence is not worth the paper it is printed on. See what’s happening in Latin America. Yes it's not just individuals that can go bankrupt but whole nations can. Japan has been fighting to stay alive for the past 10 years and I am not sure that they are winning the battle.
Since house prices in the UK are now at seven times income then I can not see why the crash will not be at least as bad as the crash of the late 80's and remember at that time we had MIRAS plus it was possible to claim part of your mortgage from the dole office. Now your on your own with no relief.
Add to the above that the UK has an ageing population then I don’t see much light at the end of the tunnel so I am looking to weather the coming storm. |
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tom thumb's iq
by helen mcgregor
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#1001199
of 3278
01 Dec 2002
10:40 AM |
To Hoogstraten, the one, but maybe two
Thank you for advertising my musical maths book and then going on to apply it to personal finance. I'm sure your intrepid audience will be delighted to know that you have conclusively shown that buying property is just as risky as buying equities on margin, wth the noticeable exception that you can get out of an equity contract almost instantaneously while it can take months of sweating to flick a prop. You're a star and I'm sure the DMs must be quaking in their boots (DMs?) at the bashing you have just given them.
I also loved the way you contrasted the UK's bond market with the emerging market nightmare that is South Africa. That was an act of genius and proved conclusively that UK bond yields have nothing whatsoever to go with the basic maths of growth and inflation... as they do in the US and the world's influential economies.
In fact, I would like you as a sonsor of my book, I think so highly of your ability to hold your own in a room of intelligent people and not give the game away every time you open your mouth.
How right, losing your property because you went in at the top of the market and didn't do your sums is infinitely worse than renting.
Yours in music
hm |
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Already answered.
by Monitor_JL
FT Administrator  |
#1001197
of 3278
30 Nov 2002
10:58 PM |
quote:
There is a 2 tier policy operating here. FT monitor please explain?
See the post before your own. |
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UK Housing
by Chairman Mao
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#1001196
of 3278
30 Nov 2002
10:28 PM |
There is not going to be the great crash of predicted by some people. Spread betting in the city has a the following:-
1. 7% fall in prices in London
2. 2% rise in the rest of the country
Thus, these people have placed their money where their mouth is. I go with their policy
On a closing note I think Jack Straw appears to be right. There is a 2 tier policy operating here. FT monitor please explain? |
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Jack Straw
by Monitor_JL
FT Administrator |
#1001195
of 3278
30 Nov 2002
08:49 PM |
quote:
why is my comment deleted -when a comment to me, from Jojo, entitled "schizo" is allowed.
Jojo was fairly obviously referring to your dual identity in this topic. I didn't take it as a personal attack. As for your deleted post, you obviously knew it would be deleted when you made it.
I've deleted several other posts that are metadiscussion of the topic. Time to get back to the housing market. |
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Monitor sort it out
by Jack Straw
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#1001193
of 3278
30 Nov 2002
07:33 PM |
why is my comment deleted -when a comment to me, from Jojo, entitled "schizo" is allowed.
I can see there being one of the following issues generating this problem
1. you have not read it
2. you are the same person |
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There can be only one Hoogstraten
by Hoogstraten
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#1001192
of 3278
30 Nov 2002
07:23 PM |
The charts that show cash equity returns versus property returns are calculated by comparing the capital appreciation and dividends on cash equities versus the capital appreciation on property.
Jack Straws advanced mathematical calculations are therefore correct (he is not yours truly). I do not think it would have been difficult for him to work out.
Am off to the pub, so will need to continue smashing doom mongers some other day. |
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Interesting
by Jack Straw
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#1001190
of 3278
30 Nov 2002
07:07 PM |
When calculating an ROCE we cant incorporate interest. Why.....
Clearly the choice of renting or buying has little significance for a cost basis, i.e. interest vs rent.
If you cant work out that 10k is 50% of 20k then I believe you should look at the following further reading,
Tom Thumb's Musical Maths by Helen McGregor |
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Schizo?
by JoJo
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#1001189
of 3278
30 Nov 2002
06:58 PM |
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Mortgage and rental income are assumed to net, for simplicity for you. Of course rent is greater than mortgage.
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Not an assumption made by the Hoogs persona, so perhaps you are he cleaning up for yourself? |
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