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Buffer Bear

Downvaluing......

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By "real time" on FT forum.

01 Jan '05 19:00

prudence

i agree on certain points but i firmly believe that the confidence has evaporated from the market, as it did in the early 90s, house builders and estate agents are once again in denial, which long term creates its own momentum leading to panic.

The corporate groups of estate agents by mid Feb will start to instruct branch offices to value to the market, building society surveyors are already as early as november starting to de-value this will intensify (they rem the late 80s boom when they were sued at a later stage for overvaluing), so all in all the market at the moment is like an oil tanker still going forward allthough reverse thrust has been deployed!!

Let's have an update Surveyor.

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[quote name='Buffer Bear' date='Jan 1 2005, 11:41 PM']By "real time" on FT forum.

01 Jan '05  19:00

prudence

i agree on certain points but i firmly believe that the confidence has evaporated from the market, as it did in the early 90s, house builders and estate agents are once again in denial, which long term creates its own momentum leading to panic.

The corporate groups of estate agents by mid Feb will start to instruct branch offices to value to the market, building society surveyors are already as early as november starting to de-value this will intensify (they rem the late 80s boom when they were sued at a later stage for overvaluing), so all in all the market at the moment is like an oil tanker still going forward allthough reverse thrust has been deployed!!

Let's have an update Surveyor.
[right][post="49461"]<{POST_SNAPBACK}>[/post][/right][/quote]
Greed turns to fear very quickly!!

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[quote]Greed turns to fear very quickly[/quote]

It certainly does which is why all those FTB'ers pushed up the prices over the past few years.

Panicking they were missing out they put in inflated prices to secure the property.

Thank god their money supply has now dried up and only those with real collateral can now play the market keeping it both stable and affordable.

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Thank god their money supply has now dried up and only those with real collateral can now play the market keeping it both stable and affordable.



Stable?
Affordable?

Are you still under the influence?
Sober up mand smell the coffee.
The market is in free fall.
The market has reached an ridiculous over valued level which has precipitated that free fall.
The sensible collateral of FTBs and STRs will remain earning interest whilst the capital required to buy in reduces.
Our only problem is when to call the bottom, 25% (minimum IMO) 40% (thats the point at which i go back) or 50% (crap lost out on another 10% but what the hell, loads to choose from and as the bulls say, its somewhere to live not an investment).
At 40% it will be as cheap to buy as rent which sure as hell aint the case now!
I expect to be house hunting in Feb/March 2006 having spent an enjoyable 12 months watching the financial nightmare about to unfold.

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[quote]Our only problem is when to call the bottom, 25% (minimum IMO) 40% (thats the point at which i go back) or 50% (crap lost out on another 10% but what the hell, loads to choose from and as the bulls say, its somewhere to live not an investment).
At 40% it will be as cheap to buy as rent which sure as hell aint the case now!
I expect to be house hunting in Feb/March 2006 having spent an enjoyable 12 months watching the financial nightmare about to unfold.[/quote]

My first point is that if houses became cheaper to buy than renting then they would all be bought up by BTL Landlords who have the collateral to do just that.

Those that are not already BTL Landlords would be sure to jump on the bandwagon I know I certainly would.

If I could purchase properties at 40% off todays prices I would buy as many as possible and setup a huge property rental empire. Rents will never go down, just as Petrol prices will never go down at best they may soften as demand weakens however all the pointers are that demand is greater due to massive housing undersupply.

If housing were to drop 40% then unless you have got cash you will be unlucky as it is most likely in this scenario that the UK has gone into recession and you will most probably not have a job and the benefits system will be in Chaos as the spending Chancellor has already cashed in the family jewels and there is nothing left in the pot today let alone in a recession.

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Rents would go down if you had a period of rising unemployment and low inflation.

We've got the low inflation and now Gordon must stop hiring public sector workers we'll have rising unemployment. In real terms rents in London are much lower than they were 8 or 9 years ago.

There are two certainties in life, and neither of them involve rents never falling.

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In 1998 I was getting around 700pcm for a two bed semi.

Today I would get 700pcm for the same property so it is true that rents have not risen. However they have also not gone down.

House Prices have risen, however the real cost of ownership has gone down as interest rates are much lower as are utility bills. Council Tax or what was the rates have gone up but then those burdens are the domain of the tenant and not the landlord.

From what I can see the figures still stack up for BTL, maybe some will hold off for a while happy with their current portfolios however there is still money to be made in BTL V Penions.

Properties in Portsmouth are around 140k for a three bed terrace, now that stacks up for BTL and for so long as that is the case I cannot see anything like a 40% drop in the market.

At the end of the day we all know that the price of a house is irrelevant the question is how much does it cost each month to buy and can I afford it and with low long term fixed rates there is certainly no crash on the horizon.

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[quote name='laurejon' date='Jan 2 2005, 10:36 AM']My first point is that if houses became cheaper to buy than renting then they would all be bought up by BTL Landlords who have the collateral to do just that.

**how ?, The BTL muppets over the last few years are HEAVILY INDEBTED ALREADY on property, that is not worth what they paid for it, so if they want to raise money to purchase property based on their "portfolio" they'll find that not even the most bully bullish of vested interest estate agent/mortgage broker liars will lend them MORE money to waste on a asset that is losing value.
where were you when they did the basic ecomonics lesson at skool ?**

Those that are not already BTL Landlords would be sure to jump on the bandwagon I know I certainly would.

**This sums it up really doesn't it. - You're going to jump on a ship that the rats have already left, tell me "how stupid are you ? prices go down so you try to buy more knowing that they are likely to go down even more ??????**

If I could purchase properties at 40% off todays prices I would buy as many as possible and setup a huge property rental empire. Rents will never go down, just as Petrol prices will never go down at best they may soften as demand weakens however all the pointers are that demand is greater due to massive housing undersupply.

**What with?, you have enough cash to buy more houses then ?  rents do go down, petrol prices have come down !, get real.
You really need to take an economics course, whoops, no you dont, you're just another lamb to be slaughtered,  keep going.
There is no housing shortgage, just a shortage of affordable homes, another vested interest lie**


If housing were to drop 40% then unless you have got cash you will be unlucky as it is most likely in this scenario that the UK has gone into recession and you will most probably not have a job and the benefits system will be in Chaos as the spending Chancellor has already cashed in the family jewels and there is nothing left in the pot today let alone in a recession.


**welcome to the real world**
[right][post="49554"]<{POST_SNAPBACK}>[/post][/right][/quote]

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[quote name='laurejon' date='Jan 2 2005, 11:07 AM']In 1998 I was getting around 700pcm for a two bed semi.

Today I would get 700pcm for the same property so it is true that rents have not risen. However they have also not gone down.
[right][post="49557"]<{POST_SNAPBACK}>[/post][/right][/quote]

Laurejon, are you familiar with the concept of "money illusion" ?

If you left cash in a bank for 7 years, and received no interest, would that cash still be "the same" ?

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[quote]The BTL muppets over the last few years are HEAVILY INDEBTED ALREADY on property, that is not worth what they paid for it,[/quote]

That is a myth.

Most BTL'ers are those that have cashed in their failing pensions or their malignant savings that have been eyed up by the Labour Party from the first day they took office.

The Labour Party have made no secret of their plans to penalise anyone who dares to save for their retirement. Pensions in the Labour Parties eyes are the fruits of a lifetimes work in the public service and not the domain of the humble drone working class taxpayer.

BTL'ers contrary to popular belief have to undergo strict vetting by banks and building societies before the money is advanced. If Joe Public walks into the high street armed with 10K deposit for a BTL they would be laughed out of the bank.

In the BTL world the financial institutions have no charity in mind they are hard nosed lenders and as such will not enterain anything that does not stack up in their favour which is not the case in domestic Mortgages.

In short the vast majority of BTL'ers are essentially letting their second homes and for so long as it is still legal to raid pensions and tax savings BTL will remain the safest place to secure your future into retirement.

200k invested in a BTL will return around 900PCM.

You can argue that 200k invested in a particular share over the past six months has returned more than that, however many neglect to point out the shares that were losers either slightly or completely.

That 200k is unlikely to see more than 450 pcm in a term deposit after tax. And with property in the long term there will be significant capital gain at the least or a property to hand on to your children saving them the hassle of saving up a deposit and walking the treadmill to get onto the ladder.

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[quote name='laurejon' date='Jan 2 2005, 10:36 AM']however all the pointers are that demand is greater due to massive housing undersupply.

[right][post="49554"]<{POST_SNAPBACK}>[/post][/right][/quote]

OK, let's assume that this is correct. On this basis BTL'ers would keep piling in.

Would you agree that at some point (in the future?) we may reach a situation where supply of rental property may exceed demand? If so, what do you think happens to rents, and what would you do with your BTL portfolio in such circumstances?

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I dont have a BTL portfolio

[quote]Laurejon, are you familiar with the concept of "money illusion" ?

If you left cash in a bank for 7 years, and received no interest, would that cash still be "the same" ?[/quote]

I am indeed which is why you money is better off in property than in the bank.

Those advocating STR and banking the dosh are in free fall.

Inflation at 2% and they get 3% return after tax at best on their money.

In real terms they are renting for a measly return of 1% on their money.

Housing has ups and downs and if you guage them correctly you can hop in and out of the market place. However to do that you have to know the high and the low and given that over the past five years even the sum total of the UK's analysts have not been able to guage that, nor the treasury, nor the BOE then I am dammed sure that Joe Blogs logged on to Nothingventured.com is going to have any information that is more valueable than theirs.

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[quote name='laurejon' date='Jan 2 2005, 11:26 AM']Most BTL'ers are those that have cashed in their failing pensions [right][post="49564"]<{POST_SNAPBACK}>[/post][/right][/quote]

So, they effectively sold shares at the bottom to put the money into property at the top.

Isn't it better to buy [i]low[/i] and [i]sell[/i] high ? :P

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[quote]Would you agree that at some point (in the future?) we may reach a situation where supply of rental property may exceed demand[/quote]

No I would not.

You have sixty million people who require a roof over their heads.

Unless people are prepared to double up or live in corrugated tin sheets with polythene groundsheets by the roadside it is irrelevant the tenure of the property.

Rented, or Owner Occupier it will always be a resource with a use.

Every Property is owned by someone, they dont just spring up out of the ground.

They are either sold or let and one things for sure there are not enough of them and never will be.

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[quote name='laurejon' date='Jan 2 2005, 10:36 AM']My first point is that if houses became cheaper to buy than renting then they would all be bought up by BTL Landlords who have the collateral to do just that.

Those that are not already BTL Landlords would be sure to jump on the bandwagon I know I certainly would.

[right][post="49554"]<{POST_SNAPBACK}>[/post][/right][/quote]

You seem to be under the impression that there is an infinite demand for rented property. In my area the oversupply of rented property - as a consequence of half the middle class people in the area buying a flat as an investment over the last few years - is mind boggling. Everywhere you go, every little block of flats has two or three To Let signs outside. The local paper has hundreds and hundreds of properties to rent. Half the blocks of flats also have two or three For Sale boards - I guess this is the aforementioned middle class landlords trying to sell as the rent (when they have tenants) does not cover their mortgage costs.

So, as prices fall, why would you buy BTL properties. True the price will be less so the mortgage will be less, but so will the rent - as, if lots more people jump in as landlords, there will be even more over supply.
Markets have a way of sorting themselves out and I would think there are a lot less new potential BTL landlords now than there are BTL landlords trying to sell up and get out.
So, I am not bothered if some new BTL landlords jump in on the way down - this will just keep rents down. Ultimately prices must come down to the point where youngsters can get a reasonable start in life without having to take on a 5 times salary mortgage for a hutch to live in.

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[quote name='laurejon' date='Jan 2 2005, 11:46 AM']Housing has ups and downs and if you guage them correctly you can hop in and out of the market place. However to do that you have to know the high and the low and given that over the past five years even the sum total of the UK's analysts have not been able to guage that, nor the treasury, nor the BOE then I am dammed sure that Joe Blogs logged on to Nothingventured.com is going to have any information that is more valueable than theirs.
[right][post="49574"]<{POST_SNAPBACK}>[/post][/right][/quote]

I agree with you here. My personal interest in HPs is that I do not want to get ripped off and live in a dodgy area, when with a little patience I may be able to afford to spend the rest of my life somewhere nicer.

I have put my effort into getting good at my job. Being useful is my security, and I love my work. Constantly scheming on how to get rich quick without effort or knowledge is not my bag. I think there are many others who think like this. Many BTL types seem to assume that we all share their outlook on life (I don't mean LJ here or anyone in particular - and I agree it takes all sorts :) )

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Laurejon you have to accept there is a possibility of a house price crash on the horizon. You may argue its a remote possibility, but you can't ignore the possibility.

If you are getting 700 pcm now and were getting 700 pcm 6/7 years ago you aren't making as much money in real terms as you used to be. Rents have fallen.

If you bought shares in one of the big banks in 1998 your dividend would now be significantly higher than it was in 1998. And if you'd reinvested the dividends in the shares you held you'd now probably be receiving an income 40-50% higher in nominal terms on your shares where as you're now getting the same dividend (rent) on the property.

Now you would between 1998 and now probably have made much larger capital gains on a house than on blue chip shares, but that trend is unlikely to continue.

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It is better to buy on the low and sell on the high.

But for most people they just want a house/roof over their heads.

They dont want the hassle just like Christmas when the shops put up the prices you could have bought the same thing cheaper in the summer.

If we were that bothered today we would all be out shopping for christmas cards and decorations at cheap prices for next year.

Life is too short to be worried about what is a high and what is a low. What matters to BTL'ers is, does it cover the loan if I have one. That covered then we all know that Property in 10 years will be more than it is today.

As for FTB'ers how old are they going to be when they get onto the ladder. Today we here the average age is 35 years old, can they really wait till they are 50 to get onto the ladder.

On that basis at what time do they start a family 40 these days is reckoned to be tops for most couples.

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And another thing. Every year - what is it - 140000 new properties are built. But are 140000 knocked down? Most of the development in the fairly urban area where I live is still green field. So we have a constantly increasing supply of houses as far as I can see. And, until very recently, a falling population. And lots of people that want to leave the country. And a chronically low birth rate that means in a generation's time there won't be enough young people to pay for pensioner's state pensions.

What's the answer? Millions of immigrants doing valuable jobs like pointing out to people where there are empty car parking spaces in Marks and Spencer's car parks?

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[quote name='laurejon' date='Jan 2 2005, 11:49 AM']They are either sold or let and one things for sure there are not enough of them and never will be.
[right][post="49576"]<{POST_SNAPBACK}>[/post][/right][/quote]

No-one knows if that is true. A recession would cause immigration to dry up, and we are not breeding enough, and the baby boomers are staring to get old. Also

[url="http://www.telegraph.co.uk/news/main.jhtml;sessionid=2X5RGXGP0TAWZQFIQMFCNAGAVCBQYJVC?xml=/news/2004/10/16/nhome16.xml"]Planners back Labour's building programme[/url]

has everyone forgotten that 500,000 more homes are planned.

Where I live (Nottingham) there is a glut of new build and plenty of empty houses. There is no shortage round here, just speculation.

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We are whether we like it or not part of Europe.

And on that basis we will always be the number 1 destination for most of the new entrants.

Like it or not we will always be overpopulated and for what the British dont make up for in breeding because they are overtaxed and underpaid and too knackered to start a family the new arrivals are making up for ten fold.

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The return on many BTL is paying a 2% risk premium over cash (although the viability of BTL is reducing in the geared case as rents fail to meet mortgages).

Is this risk premium sufficient? No one really knows - the market will decide when sentiment has averaged out a bit.

The risk premium on BTL averaged 2% in the eighties during periods of higher inflation (where the capital risk was obviously much lower). BTL valuation may be in question right now because the risk premium has not moved up to reflect the higher risk associated with holding property during periods of lower inflation. Needless to say, an adjustment from a 2% to a 3% risk premium would be painful as this implies a big price fall.

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[quote name='wrongmove' date='Jan 2 2005, 01:00 PM']No-one knows if that is true. A recession would cause immigration to dry up, and we are not breeding enough, and the baby boomers are staring to get old. Also

[url="http://www.telegraph.co.uk/news/main.jhtml;sessionid=2X5RGXGP0TAWZQFIQMFCNAGAVCBQYJVC?xml=/news/2004/10/16/nhome16.xml"]Planners back Labour's building programme[/url]

has everyone forgotten that 500,000 more homes are planned.

Where I live (Nottingham) there is a glut of new build and plenty of empty houses. There is no shortage round here, just speculation.
[right][post="49585"]<{POST_SNAPBACK}>[/post][/right][/quote]
The issue is the availability of affordable housing, not of housing quantity. If this were not true then the supply (number of properties for sale) would not have risen in the last 3 months

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[quote name='laurejon' date='Jan 2 2005, 11:07 AM']In 1998 I was getting around 700pcm for a two bed semi.

Today I would get 700pcm for the same property so it is true that rents have not risen. [b]However they have also not gone down. [/b][right][post="49557"]<{POST_SNAPBACK}>[/post][/right][/quote]

But if inflation averaged around 3%pa between 1998 and 2005 then you are now making 20% LESS in rent that you were in 1998. So rents have fallen 20%.

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