Monday, Jul 30, 2007
Cliff D'Arcy calls top on property market.
Motley Fool: Five Dangerous Homebuying mistakes
I'm the Fool's property bear. I've been fretting about rising property prices since 2003, and I sold my house to move into rented accommodation two years ago.As you'd expect, I've taken a lot of stick from people who have seen their wealth rise thanks to UK property's long winning streak.
For the record, I strongly believe that now is a truly terrible time to buy property. My view is backed by two leading economic forecasters.
The Ernst & Young ITEM (Independent Treasury Economic Model) Club calculates that UK house prices are presently overvalued by up to a sixth.
Today, credit-rating agency Fitch warned that UK house prices are overvalued by at least a fifth (20%).
So brace yourselves, because I'm calling crash.
Posted by little professor @ 11:02 PM (889 views) Add Comment
19 Comments
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1. daft boy said...
But 20% only accounts for the last two years house price increase. You might be able to buy your old house back for what you sold it for on that basis. I think a drop of 50% is a lot more likely.
2. Johng said...
Actually, daft boy, in the last 'crash' (or Great Crash 1 as RB likes to call it) property prices only went back by one year. That was followed by by 6 or 7 years of stagnation. So the best you can hope for is about 10% nominal.
Sorry to be the messenger on this one.
3. planning4acrash said...
20% slump in real terms spread over three years would equal about 32% in nominal terms over three years, assuming 4% RPI, making a correction of 40% in nominal terms likely, Daft boy, is your prediction real or nominal?
4. Orwell said...
possibly the Evening Standard in London were correct: 65%?
5. Topdogpippin said...
Hi I don't disagree and we have been thinking about a downsize or rental ourselves for roughly the same two years. However, rental is diificult with two Springer spaniels, better behaved than most children but less acceptable it seems. Also by the time we take removal costs into account, roughly £40-45k assuming some kind of re-prurchase we are looking at buying what we don't want to live in. Subjectivity aside, the bottom end of the market say sub £175 is so well supported by first time buyers or buy-to-letters that are prepared to take 4-5% rental yields (ourselves included) for the sake of long term growth and the way the pension funds have taken the mickey over the last few years. And the top end seems to be supported by foreign buyers and those selling to them to take cash out and re-locate. Two auctions os substantial village properties that we were after recently went 50% more than their (realistic) guides. Property, both commercial and residential, is more of an asset class than it ever has been, and if you 'commodotise' anything it is bound to become volatile, that there is likely to be a move I don't doubt, what I don't know yet is what the catalyst will be....any thoughts anyone???
6. denzil said...
I like what D'Arcy has to say in the main but this must be the third time in the last couple of years that he has called the top of the market.
As an aside point but related:
I don't know whether it is just my area but it's interesting that amount of flyers coming through my door offering to buy my house and then rent it back to me. They go along the lines of:
--------------
In Debt, threat of repossession, need to get cash quick?
Look no further... We at <...> will buy your house now for cash and then rent it back to you so you can continue your life as normal with a nice little nest egg.
--------------
These people purchasing obviously have a great deal of faith in the property market. Of note is that the quality of the flyers is on a par with what you would receive from the local gardener touting to cut your lawn. Really scary stuff.
7. Still Waiting said...
I'm a newcomer so I could be wrong here. Surely its the other way around: a correction of 20% of the nominal value over 3 years equals a correction of 32% (with RPI = 4%) in real terms.
8. Rickyb said...
The Nationwide house price data shows that property prices are currently 35% above trend. Interestingly, at the peak of the last housing boom in 1989Q2, prices reached a maximum of 35% above trend before falling below trend in 1991Q1. Note that this is 35% above trend. By 1996Q1 house prices had dropped to 30% below trend.
9. chilli said...
I notice the phrase 'up to 15%'. I think they are all being optimistic. Just wait for negative growth. Once that sets in, the property crash is only going to pick up steam.
I think he is dead right about the timing. If you mortgage takes 20 years to pay off, what are the chances of it having a major correction during that time. A crash is inevitable. Especially now.
10. p. o. o. r said...
My first house purchased purchased with 36% deposit - My earnings were 13.5K, and required roughly 3 * sal Mortgage. Today the same house is on the market - to buy this property on the same % terms as I did in 1989 I would need £70K deposit - and to be earning 41.5K pa. Now the difference between now and then is that then I was only 19 years old - I wonder how many 19 year olds have £70K and earn more than 40K, whilst living in the South West today..
A comarible salary today would be around £25K (this is generous), so to make this house affordable in the same way as it was (note I bought at the height of the last boom - the market then crashed) The same house I bought in 1989 would have to drop in price by a whopping 40%.
It should be noted that I sold my first house in 1994 for the same price as I paid for it in 1989. So I also had 5 years of property prices not increasing.
11. John Squire said...
Taking that affordability is the number one factor when deciding house prices.The interest rate is about the same as 1997 ,house prices have trebled since then,but average pay has increased by about 60%.So a typical southampton council flat which cost 40,000 pounds in 1997 and now costs 120,000 pounds should cost 64,000 pounds.Done overnight it works out at 45% decrease required
The figures might not be 100% acurate but their better than the so called experts
12. Booboo said...
Purchased our first house, 2 bed cottage in 1982 for £13,500 sold in 1987 for £28.500. Purchased a three bed semi 1987 for £41.500, sold in 1988 for £78.500. Purchased a new build link detached house in 1988 for £108.000, sold in 1995 for £110,000.
.
13. Orwell said...
Thanks for the informative recollection POOR,
14. dobber said...
@ p.o.o.r
Good points, I like the personal figures from the last crash and the living reality of it all.
Is it any different this time?
Yes, it looks worse from where I am sitting, 40% drop why not?
15. Sadfsd said...
Cliff D'Arcy calls top on property market.
Again?
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