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| The UK housing market: a bubble about to burst? |
KIP retreats
by Andy B
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#1001268
of 3278
 03 Dec 2002
03:09 PM |
KIP you had previously stated a 25% fall against 2000 prices.
Now you say a 40% fall against 2002 or 2003 prices?
Given price have risen say 20%-25% in 2001 and 25% in 2002 I do not see how you get the 40% drop in 2003 = 25% below 2000.
I suspect this is your way of accepting defeat or a simple error!
Regards,
Andy. |
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Rubbish
by john
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#1001267
of 3278
03 Dec 2002
03:08 PM |
good sets of reports in todays FT. Next year (as people are clearly pannicking) house price inflation is set to fall from an annual equivalent now of 25% to 10 -15%. still plenty growth.
2 things wouls act as a trigger to a collapse:
1 sharp rise in interest rates, very unlikely;
2 sharp rise in unemployment - very unlikely.
so will prices collapse? very unlikely. |
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People will panic, prices will fall, it’s as simple as that!
by Knowledge is Power
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#1001266
of 3278
03 Dec 2002
02:48 PM |
Indecisive,
I too have observed the same increases in lettings in my are (S/E) over the course of the past year. I have also observed several properties that are advertised to buy or let at the same time. This suggests to me that people are looking to release their substantial gains and leave the market. Incidentally, I have also seen properties that a year ago were asking £800 p/m, now asking £650. A substantial reduction in rent!
Home tracks data (which I think is very good by the way) shows that my area has been in stagnation for several months (i.e. no rise in prices). It will be interesting to see what happens over the coming months.
Andy B,
You must have miss quoted me. I have predicted a 40 – 50% drop in prices. So, Come Dec 2003, I believe that prices will be 40 – 50% lower in my area.
Lord of Darkness,
Pushing petty squabbling aside, I am struggling to understand why you believe I am a sheep. The Gov, BoE, mortgage lender, and most of the papers are predicting a stagnation in the market (waiting for earnings to catch up). I do not share this view (so I guess I’m in the minority). So why am I a sheep?
I’ve provided a case for my predictions, based on historical data, local and regional anecdotal evidence, and earnings to prices statistics. This isn’t thin air stuff, I’m not just making it up for the sake of it, Its clear as day if you look for it.
The sheep,
The real sheep are at this moment releasing capital in their homes via mortgage equity withdrawal to finance: Christmas, holidays, spending, weddings, and deposits for their kids. This has all been done on the basis that “interest rates won’t be going up for a while yet, so we should be safe!?!”
BUT WE ALL KNOW THAT IT’S NOT JUST ABOUT INTEREST RATES HERE!
So who’s the sheep? I’m doing what any sane person does prior to the biggest financial commitment of their lives. I’m investigating if now, as a FTB is a good time to buy.
Well, in my area, the market is flat. So, I have the luxury to wait and see what happens. Surely this is a prudent move, or should I follow all the other sheep & dive into the mess?!?
Finally,
For any newcomers or doubters let me set the record straight here. Hoogstraten (the doubters et al) have been asked, by many people, on MANY occasions to show a single market that has behaved like the current predictions of stagnation with the housing market. I.e. they have been asked (over the course of human history) to name a single market that has boomed, stagnated, then boomed once more.
Guess what guys, they haven’t been able to do so. Reason – It’s not possible, it doesn’t happen. People will panic, prices will fall, it’s as simple as that! |
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bubbles
by c
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#1001265
of 3278
03 Dec 2002
02:27 PM |
At the time of writing, 2380 contributors had voted in the above FT poll, 1290 of whom agreed that the UK housing market is indeed a bubble about to burst (option 1). As contributors to other fora will know, little c always takes good note of FT polls, for the simple reason that contributors to such polls are, by definition, business orientated, technologically literate, and interested enough in the topic to express an opinion. For the record, 156 (7%) contributors were rather more bullish on the UK housing market (option 2) and 934 (39%) seemed rather more relaxed (option 3).
Having read many of the hilarious replies below, and having commented myself rather less than most, I should perhaps come clean and say that I remain neutral on the property bubble. The FT poll probably has it about right: few people are suggesting that UK property prices will continue to rise by >20% per annum, and we may indeed be in for some kind of correction, indeed, even a recession, as a fall in the housing market would have real implications for many other parts of the UK economy.
Bubbles?
c. |
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Saturation of the BTLmarket
by Indecisive
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#1001264
of 3278
03 Dec 2002
02:06 PM |
A quick read of the property pages in my local newspaper gave me so food for thought.
Four years ago I was in the market for a rental property, there were 1-2 pages worth of lettings in the local paper out of around 40 pages worth of properties.
Two years ago I was in the market for a rental property, there were 2 to 3 pages worth of letting in the local paper out of around 40 pages worth of properties.
The last two months worth of papers now shows 10 to 11 pages worth of letting out of around 50 pages worth of properties.
For a background, I live in the West Midlands, south of Birmingham and have been renting for over 9 years 4 of which were spent as a student.
Buy To Let has gone mad, where on earth did all of these landlords get the idea that there were enough people to rent these properties?!? This is not London.
Most of the lettings are two beds of exactly the type a FTB would want to buy. Many have been in the paper for months and some are empty and the rent on these are adjusting down on a weekly basis. I wonder how many of these landlords can afford to keep these properties empty for 3months, 6months, 1 year...? Even the properties in the newly built areas are commanding lower rents than six months ago. I think that the smart landlords are now starting to sell the propties they bought 2 to 3 years ago so they can mop up a bigger profit that they would waiting for the next 5 years worth of rent etc..
I was in a local site office for new builds last year and a landlord was 1buying properties before they'd laid the foundations, prices were silly then but I have since heard of a people buying a new build at 150k and selling at 200k within 6 months of this year. Pure greed and who will pay for this greed. The FTB's.
I know that people in the FTB market are finding it hard to see the bottom rung of the property ladder and I for one am priced out of the local market but I can't believe that everyone is going to rent all of the propeties that these landlord have very 'kindly' provided for us!!
Local property prices have gone through the roof and a large number of new builds or two beds (houses/flats) are being bought as BTL.
I am not a betting man but I know that in two years time there won't be 10+ pages of letting in the local paper.
The local area very residential and is not known for its large base of tennants, too many FTB's have parents and friends they can live with.
Everyone wants quick money but for one man two make a lot of money a lot of men need to lose a lot of money.
I am hoping that prices do come down 10% to 20% and before anyone suggests I am just frustrated that I didn't get into the market a few years ago. I wasn't in the market for a property a few years ago.
The synical side of me suggests that Tony Blairs' secret bid to become the president of Europe has one important pre-requisite. The Euro, for us to get into the Euro we need to adjust the value of our currency, hence the 'planned' forthcoming house market collapse to shake things up a bit. |
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The market is not listerning !
by Andy B
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#1001263
of 3278
03 Dec 2002
02:06 PM |
What I want to undertstand is if all our economic analysis based on long term trends and econonic factors driving supply and demand - is wrong - and we are the stupid fools - then why have so many people just paid 25%-30% more for houses - than last year?
And after weeks of Rob G and his gang of yob culture IT bandits constantly setting up urls linking to reports on Nationwide & Halifax analysis - Why do they no not set up links to these same organisations now saying they expect growth next year of 10% plus?
London can be far better explain through economic analysis than crazy postings on this website. London saw a large increase in high earners in the mid to late 1990s, many from abroad. The large bonuses where invested into property pushing up the prices. The City is now shedding many of these jobs and so prices can not be supported. But London is not rising now - the large price rises are across the country in middle class areas - London is a separate market with significant exposure to outside financial factors.
London is the exception both when it rose and if it falls. Yet it appears to be following the middle ground option of a 'peter out' - even when faced with such a lost of high income buyers. I define 'peter out' as a gentle rise or fall in prices from the end of 2001.
For many non-commercial reasons, to do with getting kids into good schools or finding somewhere with more space, people will pay more than the price they consider fair. (I'll not repeat my own economic analysis on long term housing S&D again!)
I have not yet seen any substantive evidenced posted on this website to support the 70% crash in real prices now being suggested by KIP etc. Martini was the only person to try and provide this but I noticed his name in another forum - after I KO'd him on his credit crunch theory a while back.
It seems to me the argument is between the real market reality and a group of posting junkies.
Infact most of you seem proud not to have any economic analysis to support your views!
Regards,
Andy B. |
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Risk Adjusted Yields
by The Dark Lord
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#1001262
of 3278
03 Dec 2002
02:03 PM |
The Grand Inquisitor :
Good questions. I can only answer based on my personal observations ... everyone will have a different risk profile - ie. be more or less averse than the market average.
Intuitively, all risk adjusted yields must be the same ... if that were not the case, money would flow into a particular asset class instead of another because they would provide a higher long run *risk adjusted* return ... thereby resuming equilibrium.
This is one of the reasons that a change in base rates will cause a change in aggregate demand.
A risk premium is simply an excess over the risk free rate (which is generally accepted to be the central bank rate) which is built in to compensate for the risk of owning and cost of financing the asset - eg. with property: prices may fall, voids, war, wear and tear etc.
Based on my observations and experience over the last 5 years in the UK the risk premium on property in London has historically been about 3% - implying it should currently be about 7% (base + 3%) ... at the current time, yields are lower - implying either prices must fall, and/or rents must rise (assuming 3% is correct).
I prefer personally to tie it more into the cost of financing than base rates ... a 3% premium over the financing cost is of more interest to me than over base rates ... although the correlations are obvious ... this may perhaps be a more accurate reflection of risk premium - I invest based on my yardstick, not somebody elses.
Obviously how you define your market (London vs UK vs NYC vs Globally) will depend on exactly what the risk premium tends to hold for your 'market'.
If you are Rob G, you are of the opinion a change in base rates has little or no effect on aggregate demand ... which implies he does not believe investors are rate sensitive/require a risk premium to compensate them for holding an asset ... obviously I consider such claims to be completely absurd.
*Bubbles* |
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A strong Austrian to lead us
by Hoogstraten
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#1001261
of 3278
03 Dec 2002
01:59 PM |
| The Grand Inquisitor/Pooh - Will have to brush up on my Hayek (I do think we need a strong Austrian to lead us) – its been a long time since I read this stuff, last lot was off the top of my head so may not be 100% correct (though it was the gist of it I think). Will get back to you later. |
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To Hoogstraten
by sho_ryuken
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#1001260
of 3278
03 Dec 2002
01:54 PM |
Thank you so much for your non-reply to my question, as I expected.
I am not talking about chartism, I am talking about learning lessons from the past, which people never do in every bubble. I do not need to look at a chart to learn lessons from the last housing boom. You on the other hand are suffering from extreme naivety to think the classic line that "things are different this time".
Thank you also for your reference to "economic fundamentals". I notice in the FT today that the Council of Mortgage Lenders said "the continuing strength of the housing market cannot be explained by economic fundamentals and surprised us". Maybe that means that the chart is about to turn ?? You did say "economic fundamentals determine whether the chart will turn", didn't you ??
And what is wrong with chartism anyway ?? I admit it has its flaws, but it is all about crowd psychology, which both creates booms and then bursts them. It is widely used in a lot of areas, including FX and commodities trading. If, as in the article I referred to previously, this is taken seriously by university professors, how can you dismiss something you actually know nothing about ??
The fact is that consumer psychology is the only thing keeping the economy and the housing market going at the moment, driven by record levels of debt. If that psychology changes tack, we'll see where your "economic fundamentals" get you.
All the best
sho_ryuken |
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interest rates
by stuthepooh
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#1001259
of 3278
03 Dec 2002
01:46 PM |
The BOE base rate is the minimum rate of interest charged by the Bank of England to commercial banks should they need to borrow money. It effectively becomes commercial banks overnight rate and defines the front end of the yield curve.
The natural interest rate is the interest rate where the quantity of investment demanded is equal to the quantity of saving supplied. For separate maturities this effectively is the yield curve.
Therefore the base rate defines one point of the natural interest rate. The rest is defined by the supply and demand of market participants.
Stuthepooh |
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Hoogstraten, Hayek and Central banks
by The Grand Inquisitor
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#1001258
of 3278
03 Dec 2002
01:44 PM |
| Is it true that hayek was also in favour of getting rid of central banks and fiat currencies? |
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Cultist Closet Communists for Collapse
by Hoogstraten
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#1001257
of 3278
03 Dec 2002
01:37 PM |
Dark Lord,
I am shocked that you believed that the doom mongers (generally cultists worshipping the idol of 50 – 70% real property price falls) would actually bet with you regarding their wild predictions.
These people are the meek who hope one day to inherit the earth – they generally do not have the courage to buy property (it involves scary leverage!). The idea that they would gamble in any way is inconceivable – of course, the biggest risk is never to take a risk.
I do not think many of them even believe in private ownership – I have already exposed a number of them as closet communists.
Administrator – if this were are a prizefight the referee would step in. The doom mongers are taking so many hits to the head; it is not competitive any more.
The Grand Inquisitor – it is a long time since I studied economics. However, the natural rate of interest (Hayek) or the natural rate of unemployment (Friedman) is more what level of interest rates or unemployment is thought to be the long-run conceptual equilibrium (based on some kind of historical estimate). Friedman believes in adjustments to the money supply (for example, changing the base rates) when there is too much or too little inflation. Hayek believes that if the base rate is cut below its natural rate, this will lead to a boom and bust scenario.
The natural interest rate under Hayek would not necessarily be the base rate.
However, I believe both Friedman and Hayek do not believe that their natural rates (of unemployment and interest rate respectively) are set in stone. There can be a shift in the level of natural rates, with changes in economic circumstances (for example, technological advancements) shifting the curves.
There is, however, a difference in emphasis with regards to how the two economists would manage monetary policy – for Hayek, there would be less tinkering with base rates than would be the case with Friedman. |
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Natural Interest Rate : Hayek, Hoogstraten et alia
by The Grand Inquisitor
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#1001256
of 3278
03 Dec 2002
01:10 PM |
Is the natural interest rate the same as the Fed/BOE/BOJ/ECB rates?
If not what is the difference? How does this arise? |
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Dark Lord...Risk Adjusted Yields?
by The Grand Inquisitor
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#1001255
of 3278
03 Dec 2002
01:04 PM |
In the interests (apologies for the pun) of debate:
What are the risk adjusted yields on property?
How are these calculated? Do you have a nominator and a deniminator?
What have been the historical rates?
Is the prevailing yield (set at the margin) the yield for the whole market? |
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Ceilings, Floors and Open Doors
by Rigormortis
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#1001254
of 3278
03 Dec 2002
12:50 PM |
On one hand it seems easy to argue an economists rationale for sustained real ‘long term’ price increases in London and South East and a few other UK ‘regions’. That may continue until, the total (owned & rented) stock grows faster than increase in demand for more properties, or put another way, the inward migration of people (employment) into the region ceases or reverses.
The long term increases will be punctuated by periods of real price acceleration and decline determined by interest rate and employment and debt fluctuations and speculative investment, the precise timing of which will be hard to call. Also the perceived relative merits of renting or owning may vary lending adding to these fluctuations. The relative illiquidity of property versus financial assets would leads to prolonged periods of their price fluctuation.
I find it far less credible to extend the same rationale for sustained price increases to the UK as a whole. Indeed, on the assumption that international influences (migrations of people/capital) are neutral, it would be logical to assume a reciprocal real decline in the prices of properties not in the ‘favoured’ regions.
?Is it reasonable to assume therefore that when real UK property prices are rising as a whole several-fold per annum above any conventional measure of real wealth (GNP, GDP etc) and this on top of several years of modest real growth, that this price escalation is:
a.) Unsustainable.
b.) Due to be followed by a reciprocal correction.
c.) To the extent price expectations are built into the price rises this should be a guide to a reciprocal – short term – floor to the correction cycle. I.e. the fall in prices below ‘fair value.’
Any thoughts?
Incidentally, as the primary function of my (S.E.) property is a home rather than an investment, I have decided to stay put regardless, although I might now favour selling then downsizing, moving geographically and/or renting given a combination of insecure/transitory employment prospects, migratory options, and a large mortgage/total debt. |
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