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| The UK housing market: a bubble about to burst? |
Jeff Morgan
by The RealFakeElvis
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#1001407
of 3278
 06 Dec 2002
07:15 PM |
Come on, what exactly was wrong with '...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.' ?
By your logic your house is only really worth what you paid for it, whenever that was. The price is what someone is prepared to pay at any given time Jeff, and that price varies - hence negative equity.
You’re a bull Jeff. It’s pretty obvious from the tone of your posts. In your position who wouldn’t be? You don’t want to see all that lovely equity evaporate and your judgement is somewhat clouded by this. Perhaps you’re the one who should be learning to “separate out reasoned debate from emotion.” |
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Housing
by Mr X
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#1001406
of 3278
06 Dec 2002
06:50 PM |
Mr Britain - please !!!! I know your argument is flawed and so do you. I am not suggesting that property will crash at all. Listen carefully now - people have bought recently [including several friends] They know what they are paying each month, and can afford it [nobody would take on something they could not afford to pay each month - perhaps yourself even]. Then, next year they expect a 2 - 4 % wage increase. In one year their level of affordability ratio declines. Agree ? Also on a 25 year mortgage after 1 year they will have paid just over 2 % of their debt Agree ? Therefore, they will feel more comfortable after 1 year. So long as they continue to work, why should they need to sell. Therefore why should they even consider putting it on the market for a price less than they purchased it at. Explain ?
Then, interest rates rise, so does inflation to follow and so do the wage demands.Then increase in wage compensates for increase in mortgage payment.
So, unless unemployment increases rapidily, then these same people will not or need to put their propoerty on the market. Result ? Price stability.
Do you get it know ? [and please, do not flee the forum without at least presenting a decent mathematical arguement to disprove mine]
I am waiting. |
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Mr X Spit it out
by Mr Britain
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#1001405
of 3278
06 Dec 2002
06:29 PM |
You can not be suggesting that having interest rates go up would help maintain property prices at the current levels. People are screaming now. Fact is that if you are agreeing that the ratios are about the same for 1990 as it was in 2000 then we are well overdue a crash.
I accept that inflation helps erode repayments over time but at the current levels the gamblers have nothing in reserve. Do you not think that prices will follow the rental returns and that’s down the last time I looked.
When in history has property gone up at 30% pa without a crash
You can smell it, Taste it so spit it out. "CRASH" it will make you feel much better. |
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Housing
by Mr X
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#1001404
of 3278
06 Dec 2002
05:58 PM |
Mr Britain # 1400. Your sums are the same as mine in this your posting. But, in your previous posting, you said that if inflation rates are to go above approx 3 % then interest rates would also have to rise above 4 %. If that is indeed to be the case, then we are back to the inflationary scenario where the affordability ratio based on the purchase in 2000 gets better as it will chip away at the 44 % odd talked about.
Its unlikely that interest rates will rise and inflation remain low - it just does'nt happen. The late eighties proved that.
No sorry - you still have a lot of convincing to do. If people can afford the ratio now, then unless we have massive rises in unemployment [ a factor in the late eighties], then the same people will gradually see their affordability ratios decline AND their mortgages gradually being paid off. The combination of reducing debt and increased affordabilty means that prices will have to remain stable at worse. |
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by QED
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#1001403
of 3278
06 Dec 2002
05:51 PM |
| True - 3.9% gross yield may not be representative of all of London although as FPD Savills quote a prime central London net yield of 2.8% (and I do know the difference between net and gross before you ask) it seems reasonably representative of prime areas. As discussed many times in this forum there isn't a national housing market as such just a series of local markets. If we banned from talking about local areas (such as Jeff Morgan's street) then conversation in this forum would stop. |
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Its late on Friday so I'll make it short
by Jack Straw
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#1001402
of 3278
06 Dec 2002
05:51 PM |
QED / Mr Britain,
"Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover!"
Mark Twain
Life is not all doom and gloom go out drink a beer, catch a fish, watch a football game this weekend I plan to. |
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Jeff Morgan
by Mr Britain
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#1001401
of 3278
06 Dec 2002
05:48 PM |
Are you saying that you know of many IT Contractors that are self employed but have no work and that the ones that do have contracts are being flogged to death.
In the 80’s when we had a building boom I was working 7 days a week and so was many of my mates. In the 90’s and even just before the millennium bug was predicted to explode I did’t know many contractors doing a seven day week. About this time the government was going on about a skill shortage in the industry. The only shortage was consultants who would work for £10.00 per hour. Now we are told of a shortage of property. Yes never has so many buildings been pulled down as in the last few years. I THINK NOT. |
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Mr X Files
by Mr Britain
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#1001400
of 3278
06 Dec 2002
05:32 PM |
I think you miss the point.
1990 £70,000 over 25 years at 11% is £692.65 a Month on £20k Salary
2000 £217,000 over 25 yeras at 4% is £1157.54 a Month on £31k Salary
Not much change in the ratio there but it was in 1990 that property crashed. Looking to the future was property to more than double during this decade (as It has done in the last) then clearly wages could not keep up else that would lead to inflation hence interest rates would need to go up. Putting it another way. Interest rates at 11% may well come down whilst interest rates at 4% can expect to go up.
Take the argument that rates do go down much more then it starts to look like we are going the same way as Japan and I would suggest this will have a much worse effect than property going down 40% from today’s price. |
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"'I have done that,' says my memory. 'I cannot have done that' -- says my pride, and remains adamant. At last -- memory yields."- Nietzsche
by Jack Straw
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#1001399
of 3278
06 Dec 2002
05:31 PM |
QED,
Thanks for the reply, but my concern would be that only an idiot would take a small a series of streets and conclude that that represents the whole London market. This is a niche, unless of course, you are suggesting the average price in London is 499k?????? This mistake is the same as taking national wage levels and concluding that London prices are too high.
I have taken the time over the last few days to research my postings; I believe anyone questioning my economic concepts can at least give me the common courtesy in doing the same.
"We don't see things as they are, we see them as we are."
Anaïs Nin:
"Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true."
Demosthenes: |
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Jobs and work
by Jeff Morgan
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#1001398
of 3278
06 Dec 2002
05:19 PM |
Desormeaux #1310 - I don't know anyone out of work. I know a couple of people who don't have 'jobs' (that is, are not employed by someone else). All of these are very much in work, in telecoms and IT funnily enough, where there is a shortage of people, though an excess of jobs.
My wife also see the same thing with people from the city - less jobs but more work to do.
That might explain some of the differences in experience from the published figures. |
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Yields
by QED
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#1001397
of 3278
06 Dec 2002
05:13 PM |
Reply to Jack Straw
Your yield calculation for London is way too high based on my observations. I have seen properties advertised to sell at £499k and to rent at £375pw or £19.5k per year. This gives a gross yield of 3.9% assuming of course no void periods and no agency fees, expenses etc. If 6% is a reasonable gross rental yield then this requires a 35% price fall to £323k.
Of course this may differ in other areas and I am not predicting a 35% price fall - but this to me suggests that a 20% price fall in certain areas is not unreasonable. |
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Money Illusion
by Rik
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#1001396
of 3278
06 Dec 2002
05:13 PM |
"Rik, "money illusion" is an economic concept. It's the confusion between real and nominal prices. "
Jack, not quite sure what your point is?
Although I do agree about the deceit part. Suffice to say you could rather clearly divide those who talk the market up from those who talk the market down as those who have a vested interested in it going/staying up (Landlords, property investors, highly leveraged homeowners) and those that have a vested interest in it going down (FTBs, those that cannot afford to move, those that have already got out).
Not professing to be really deep or anything here 
Rik |
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Chartism
by Jeff Morgan
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#1001392
of 3278
06 Dec 2002
04:45 PM |
I have reached post #1260 (sho_ryuken) about chartists, amongst other beings.
Having been trained as a mathematician and statistician I frankly view chartism as another form of black magic. It suffers the same flaws as all correlation techniques, that one can construct connections between all sorts of factors which have no bearing on each other. Correlations by thamselver prove nothing at all.
One example from earlier days - I once was asked to review a paper that correlated the number of swimming pools in the North-west of England with a set of factors (I have no clue why this was done). One factor that had a high correlation coefficient was the rate of unemployment. On the graph the chart looked good.
On looking at the normed equation though, the multiplier for this factor was approximately 0.000135. I did therefore point out that, while the correlation might have been high, it would take an additional 100,000 unemployed to create 13 swimming pools (presumably whiling away their spare hours).
The final test of a hypothesis is not the prdiction it makes, but the prdictive power it has. And in the end, only the data matters. |
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"Where is fancy bred, in the heart or in the head?" Willy Wonka
by Jack Straw
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#1001391
of 3278
06 Dec 2002
04:38 PM |
Using KIP's prediction 50% drop
I will use 2 areas ( London and Non London )by using London and Hull:-
2002
Price Rent Yield
London 200k 12k 6%
Hull 20k 3k 15%
2003
London 100k 12k 12%
Hull 10% 3k 30%
Using Martini's theory of 70% drop
2002
Price Rent Yield
London 200k 12k 6%
Hull 20k 3k 15%
2003
London 60k 12k 20%
Hull 6% 3k 50%
Now is we accept that interest rates remain at a low level, say 4-5% for simplicity, we are looking at super normal profits to be gained in housing. This, again using simple economic theorum, would lead to what we can call a "money rush" as people pile in.
Anyone who recognises or values these as contributions believes in the emperor's new clothes. Martini had a flawed economic concept, and his logic was as weak as american lager. He, like the phantom of the opera, hissed when exposed, and has left for another forum!
Rik, "money illusion" is an economic concept. It's the confusion between real and nominal prices.
In summary I think the doom mongers/rain dancers and proponents of the housing market can be divided by this quote,
"Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true."
Demosthenes |
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Housing
by Mr X
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#1001390
of 3278
06 Dec 2002
03:56 PM |
Knowledge is Power # 1384. refer to my last posting. Can you in any way whatsoever prove to the forum in simple basic mathematical terms how you can have the opinion on how we will have a price reduction of 40 - 50 % on current prices by the end of 2003 ???
Perhaps the knowledge I have presented in my last posting will make you re-assess [or are you simply just one of those doom mongers] |
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