Monday, Feb 12, 2007
Another day, another house price survey
Firstrung: House prices rose at 9.9% in 2006 - DCLG
The UK house price inflation rate rose from 8.8 per cent in November 2006 to 9.9 per cent in December 2006. Between November and December there was a rise of 0.9 per cent in the prices of properties bought compared with a decrease of less than 0.1 per cent over the same period last year resulting in an increase in the inflation rate
Posted by converted lurker @ 10:18 AM (234 views) Add Comment
24 Comments
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1. David20040_0 said...
And they still keep going up.
I admit I was wrong, there won't be a crash. Anyone care to join me or are you all going to keep delluding yourselves?
2. kpjcomp said...
Well that would be about right, with flats in London going for £84m.
3. george monsoon said...
nearly 10% rise in house prices and yet inflation is (apparently) just touching 3%
Ok, in that case if the government figures are correct (oh look a flying pig!) the price to earnings ratio widened by 7% last year.
What a joke. And nearly all the people I know are scoffing at my attempts to warn them of the impending disaster with the uk economy. As I get older I have started to see a real blinkered approach to reality in most of the people I know. With the exception of a few very trusted friends, the majority of people have their heads in the sand when it comes to the housing market, blinded by the media hype that houseprices are going up,up,up!
I really am starting to question my own intelligence. Am I missing something? is there a rosey outlook cutting through all the corruption, greed and misinformation?
4. d'oh said...
Yes George, there is a rosey outlook which can work for a period of decades....until it doesn't. Will the housing market and economy unravel in the next few years - I suspect so, but then I have suspected so since about 2002. What one can be sure of is that with the economic consequences of peak oil, global warming, baby boomer demographics and so on, something is going to cause this house of cards to collapse at some stage in the future. What one should consider is whether knowing that it is a pack of cards is going to help one avoid some of the nastier consequences of the collapse. One's savings won't be much use in snapping up a bargain house if one doesn't have a job. If it isn't going to help, then perhaps I should have joined everyone else in the wealth delusion. Would have been a happier camper I'm sure, but my mind has a disagreeable tendency to not allow me such comforts.
What really annoys me is that back in 1996 I couldn't get a house loan for 60k from my bank because my university job contract was only 4 years long (how many people can honestly guarantee employment for 4 years these days?!), now they'll lend me well over £300K and don't give a rats...
The simple equation I always keep in my head is the following - you lose about 33% of your salary in direct taxation and NI each year. If a bank lends you 6x salary, then on a 5% interest only deal you have 37% of your salary left to pay council tax, transport, insurance...oh and food. At 10% interest, you have 7% of your salary left.
5. inbreda said...
if it's all the same with you David20040_0 I'll keep deluding myself. I've been expecting a crash for years, and rather than give up I'm even more convinced that it will happen. Fundamentally, the reasons I thought it would crash years ago still exist. In fact they have become ever more exaggerated.
George - keep your pecker up, and things will work out fine.
6. Spbkaizo said...
It's all a game.
Unfortuately the way it works is that if you don't know the rules, you've already lost.
However, once you slowly do learn the rules you tend to realise how you can make it work in your interest, so have no conviction to change things.
Ipso Facto.
7. bingo said...
How do the spinners put it? 'the fundamentals are still in place for continued growth in the housing sector'. The reality is; 'the fundamentals are now in place for a massive correction in the housing sector'. Don't get sucked in by the spin, it's over, they know it's over, I know it's over and looking a the most recent data, statistics prove that it is over. Take London out of the equation and prices are falling... Look at the nasty flats they have all (BTL's) been investing in for the last 4-5 years and imagine what slums they will be in about 7-8 years time, when their trendy kitchens and bathrooms are no longer trendy and require updating. Don't get emotional about it, be rational, think with your brain, not your heart... it's bricks and mortar not bread and water...
8. 3cheers For The Crash said...
Look, the BBC used to report warnings. See link. Perhaps after this lovely news item from Ja 7th 2000, they stopped hightlighting the dangers. Some nice statistics and look at those wonderful IR's and that fabulous graph. Surely only a matter of time. To think some of the 20 somethings were only teenagers when it all really went up the creek back in the '80's . Gulp.
http://news.bbc.co.uk/1/hi/business/593477.stm
www.news.bbc.co.uk/1/hi/business/593477.stm
www.news.bbc.co.uk/1/hi/business/593477.stm
9. Davros said...
Maybe David2004 can explain to those of us who are deluding ourselves, how house prices can continue to increase at a greater rate than incomes indefinately? Forgive my poor grasp of economics, but that's impossible.
So we've deduced that prices cannot rise indefinately, which means at some point property as an investment no longer exists.
Remove investors, or more importantly, investors sell their properties which are costing them mortgage payments each month and what happens to supply?
10. nearly30 said...
Take heart - this cult / dillusional economy is a classic Abilene paradox - a great theory (I love theories and patterns!!).
The Abilene paradox is a paradox in which the limits of a particular situation force a group of people to act in a way that is directly the opposite of their actual preferences. It is a phenomenon that occurs when groups continue with misguided activities which no group member desires because no member is willing to raise objections.
This current Housing Abilene paradox is continuing as a result of the Greater Fool theory - which in turn is being supported by lax lending practices and a reallocation of credit and disposable income by participants (ever decreasing circles).
The greater fool's theory explains the behavior of a perennially optimistic market participant (the fool) who buys an overvalued asset in anticipation of selling it to another rapacious speculator (the greater fool) at a much higher price. The bubble continues as long as the fool can find another (greater) fool to pay up for the overvalued asset. The bubble will end only when the greater fool becomes the greatest fool who pays the top price for the overvalued asset and can no longer find another buyer to pay for it at a higher price.
Basically - wait for the 'Can't Pay & Won't Pay" moment - coupled with low rates of return, risk aversity and some nice higher IRs - and bingo - a good old fashioned CRASH!!!!!
11. enuii said...
I'm with you George because Age=Wisdom, the trouble is that the younger you are the more inclined you are to ignore experience and go with the herd. Just remember there are more Grumpy Wise Old Men out there than you realise, the Mrs calls me Victor Mildew, yet all she watches on television is Soap Opera's, Reality TV and Housey Housey programmes.
Sadly, just like the Mrs, the vast majority of the UK population are also brainwashed.
12. d'oh said...
What I think Glorious Sunshine should be made to do, and anyone else who believes in unrestrained growth at any non-trvial percentage, is to sit down and have an hour lecture on exponential functions and resource usage.
The following lecture from a physics professor from Colorado would do fine:
http://video.google.com/videoplay?docid=2376190597731898896
13. C'mon Correctiob said...
David - it is no delusion. Prices in my area are lower than two years ago - fact. Oh and more interest rate rises, unemployment, repossessions, credit tightening etc,etc on the way.
No Sir - we're not deluded at all.
14. nearly30 said...
d'oh - genius vid - cheers - love it - I find patterns fascinating!!!
Haven't finished watching it yet (so next comment may be redundant) - what about the Kuznet curve - fluctuations over time - that may also reflect booms and busts? That is exponential - peaking then reversing expontially! Classic bubble?!!
15. glorious sunshine said...
Oh dear you lot never learn...
Up, up and away!!!
Over the city in an airplane
I can see everything below
The houses they look so tiny
The cars look like dots
We've only got fifteen minutes to go
The clouds in the sky caress my mind so tenderly
The sun shines down on the great big beautiful scene
The sound of the engine fills my ears up
I'm hopin' this rainy weather clears up
My lover is waiting at the airport
Soon she'll be kissing me hello
The woman sitting next to me tells me 'bout her guy
And I tell her all about you and I
Airplane, airplane
Carry me back to her side
Airplane, airplane
I need God as my guide
Down, down on the ground
Can't wait to see her face
(a-1, a-2, a-1, 2, 3)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
I can't wait (can't wait)
To see (her face)
16. paul said...
Glorious Sunshine!
This is where you've been hiding. On the upbeat threads - no wonder I don't see you that often - there aren't many upbeat new stories on housing any more!
Have a look at what home.co.uk says about tailspinning prices.
Sleep well, on your negative equity timebomb ...
17. C'mon Correctiob said...
I agree Paul.
GS - Less and less for you to sing about lately isn't there old chap !!!!!!
18. David20040_0 said...
House prices go up, parents take equity from their house to help their kids further fuelling rises. Banks keep giving ever higher multiple lendings. That is why house prices will keep going up.
19. autopilotengage said...
David20040_0, the market continues to be fueled by just that sentiment. You're just joking, right?
20. george monsoon said...
Looks like there are still a lot of Fools out there to keep us in this Abilene paradox for a couple of months yet.
21. nearly30 said...
d'oh - many thanks for the vid link - a very enjoyable link - loved the arithmetic angle or politics of sustainability.
Goes to show how much lying politicians, industry and other policy influencing groups do - even though the figures are right in front of your eyes!!!
As the bloke in the vid says - people are ignorant to simple maths and the 'Expontential Function' - good work fella!
But - he is a maths guy - would still put in a case for non-catastrophic correction - or a 'Wise-Up Sucker' moment - I think this may be happening now - esp. in our media with all The Global Warming/Climate Change [rubbish] - personally I think it's a ruse to get us more sustainable and energy efficient - the science is weak but the sentiment is sound!
22. d'oh said...
The problem is, and he makes this point with his 1 minute to 12 examples, is that, if you aren't proactive and change your mindset, by the time you wake up to the problem it is too late to easily turn the ship.
So, for example, what will happen when peak oil really hits home, is that there will be a balance between dropping consumption and rising prices (in real terms whatever that means - as proportion of average income I suppose). Problem is, our lives are dependent on this sort of energy. How many people live in the burbs and have to drive to work, to the shops etc.? Our whole infrastructure is based on cheap energy, and when the crunch comes we won't have the economic resources to fix it as by definition energy will no longer be cheap. The world is fed by the agricultural efficiencies made possible by the use of fossil fuels - not just in running the tractors, but also in fertilizers. We don't have a closed nutient cycle - fertilizers are made from oil.
The other relevant point he makes is that our financial systems are based on continuous growth of consumption. This will perforce (have to) change.
I'm sure we will come out of the other side, but not without some serious misery and brutishness and a potential environmental catastrophe, because all this "green stuff" will go out the window when polities are in competition struggling to survive.
The sad thing is that all this could have been avoided if people had listened to Thomas Malthus when the world's population was one billion, instead of rubbishing the self evident truth he pointed out. The number of supposedly intelligent economists I have heard\read who suggest that non-linear human capital effects solve the Malthusian problem beggars belief. The world population increases by 100 million every year at present. Each one of those people has hopes and desires and wants to consume.
I worked in the oil industry a few years back, and most insiders thought that peak oil would be 2007, even the most bullish optimists suggest no later than 2020. These time frames are short relative to the period of a mortgage. If the earlier figure is correct, then over the next ten years the energy markets are going to change drastically. What people don't seem to understand is the effect of even a 10% drop in oil production relative to demand. This does not equate to a 10% price increase, but potentially a doubling or tripling of energy prices. We went from $20 a barrel to $100 a barrel in a couple of years (though it has now dropped, but it won't stay at $50 for long). The interesting thing was is that although the people I worked with in oil (which included the CFO of a large American company) understood about peak oil, they had employed me to help with the problem of maintaining their business at $24 per barrel as their wells dried up.
Some interesting times are ahead in the life time of some of the IO mortgages. Wish I had a crystal ball so I could work out what to do wrt borrowing.
23. David20040_0 said...
No I am not joking.
Parents in general have houses, they help their kids by taking money from these houses and help their kids to buy their own. Thereby further in flating prices.
Banks make it worse by also offering higher and higher multiples of your salary. I would not be surprised to see 10* soon.
All of these factors mean that house prices will keep on rising.
200k is absolutely crazy.
However, people now expect house prices to rise at 10k a year at least. I cannot save that every year.
This mentality is engrained so it will continue for a long period of time.
Interest rates will not go any higher, seen all the news reports that inflation has now "peaked". If people believe this then rates won't rise. 5.25% won't make any difference to prices. We need interest rates of at least 7%.
And yes you lot are delluding yourself thinking there will be a crash. You guys are just clutching to straws.
I want there to be a house price crash so I can buy a house and build a future for myself in the UK, but I have relaised that I never will be able to.
I save £500 a month every month hoping to be able to get a deposit, but if prices keep going up like this. I never will.
24. d'oh said...
David,
People said what you are saying now 18 years ago before the last crash. Hold onto that. I personally know people (in London) who got seriously burned because they gave up in despair just before the crash. London may be a different place if the financial services industry slows down from its current exuberance.
Simple math suggest that banks will not loan at 10x multiples of earnings, as at mortgage rates of 6%, this plus income tax and NI would eat up 93% of one's salary. It is an impossibility unless there is high inflation, but then 6% interest rates will not exist when there is high inflation.