Thursday, Nov 08, 2007
London to remain unscathed! Cor blimey, who'd have 'thunk' it?
Firstrung: House prices in the South West and Midlands will see steepest price correction - Experian
Report predicts that Greater London will remain unscathed and indeed out perform the rest of the UK when the evidence from, for example, primelocation.com who are arguably better placed to report on such matters, proves otherwise. The Experian report predicts a modest 'tail off' in house price growth for London to finish in 2009 with 6% growth, this is completely contrary to the primelocation report and in that context alone the Experian report lacks credibility. Average 'Greater' London prices are currently eight times average London household income, that marks London and its boroughs as not only the epicentre of the credit crunch but ironically, given the reach of global markets, the epicentre of a potential severe house price correction.
11 Comments
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1. dohousescrashinthewoods said...
I get the impression the various indices do tend to zig-zag up and down, but the trend is curving down.
Each low plumbs new depths and each high fails to scale previous heights.
Interesting anecdotal: we are looking for a new place to rent in Guildford and Hamptons, MSE and Bellvoir have all said that the both the sales and rental markets are dead. The rationale given for rentals is that either a) no one is moving, b) landlords have sold their properties or c) that people just aren't offering property for rent.
We have had a hard time finding anywhere suitable to move to so there seems to be some validity to this. I can see the rental market behaving oddly for a few months. The question is, where it will go from there? Will Assezzz and their boyzz in the landlordz brigade be proved right? Or will rentals fillip and then crash?
(reposted from thread that has dropped off)
2. benedict said...
But then average london income is dragged down by the 20% of london households that are totally economically inactive and living in social housing who don't give a damn about prices isn't it? And London probably has a way higher proportion of young professionals living several to a house while renting, so 8x average income isn't such a big deal when you're renting to e.g. two couples. In terms of family homes you've got to be pretty affluent to afford anything nice, but realistically unless you're pretty affluent you move out of London to the commuter belt to breed.
3. tyrellcorporation said...
I see rental prices rising a bit as landlords costs rise and they start trying to pass on those costs. Rental properties will also dwindle as shamateur landlords sell-up. A smallish spike in prices will be followed by a fall as more and more people start to either go back to live in their old bedrooms at mum and dad's half million pound semi and also get more creative, move abroad, live 4 deep in a room ,etc, etc.
4. drewster said...
Rents have remained broadly static for a number of years now in most areas outside London so they could be due for a rise. London rents have been rising recently. The old adage says London moves first and the rest of the country follows later.
Rents are heavily dependent on employment and the economy. In normal times rents grow with income growth; and there is a constant churn of new people entering the rental market and others leaving. Typical reasons for entering the market include going to university, moving for a new job, immigration from Eastern Europe, divorce, and not being able to cope with parents any more.
As the economy softens, people are more likely to hang on to their existing jobs than take a bold leap into the unknown. This means fewer people moving house for a new job. The Poles might return home where they can live cheaply while they consider their next move. Offspring and partners who can't cope with parents or spouses are a highly elastic group: I know of one couple who were on the brink of divorce until they discovered that rising property prices meant they could barely afford a bedsit each. Not surprisingly they've chosen to stay together for the sake of the house. Kids too get along much better with their parents when they realise jobs are hard to find and food prices are skyrocketing.
Existing renters in the market are something of an unknown quantity. Working-class tenants will probably turn to housing benefit* rather than move back home to mum and dad's tiny working class house. Middle-class tenants mightn't qualify for housing benefit** and could be more tempted to move back to mum and dad's larger house.
The BTL landlords are another unknown factor. Historically, all landlords have been in it for the long term. Recently the BTL group have pushed up prices but also depressed rents, and many of them are more short-term investors. If they sell en-masse then rents could rise, despite wider economic softening.
Ultimately the housing market is imbalanced. Prices have risen so much that it's now cheaper to rent than to buy, but over the next few years this will eventually reverse. Yields will rise again, and the whole cycle will recommence. It's hard to know whether the imbalance will be fixed through falling prices or rising rents; or both falling rents and even faster falling prices.
--
* Housing Benefit basically pays your rent if you're unemployed.
** The cut-off point for Housing Benefit is savings greater than £16k, but anything above £6k affects the amount you receive.
*** Home-owners can apply for Income Support which covers the interest-only portion of their mortgage, but only up to a loan value of £100k. Also they have to be unemployed for 39 weeks before they can apply.
**** Buy-To-Let landlords get no benefits at all.
5. paul said...
Well, London house prices emerged unscathed from the last house price crash
... NOT
6. david20040_0 said...
BRILLIANT NEWS! RATES ON HOLD AND FALLING PRICES :)
7. paul said...
Haha, David.
So you're saying it's really fortunate for us that rates are on hold? Rates are on hold because of the inflation outlook.
8. Ill_handle_it said...
Oh David ! Everything is more expensive because of the irresponsible management of interest rates. I know they should go up,you know they should go up,yet they don't.
9. eyeoftheweasel said...
Of course there are other factors that come into this. For example, if BTL landlords are all trying to offload their overvalued properties then they'll end up losing tennants, but if they can't actually find any buyers then they'll end up having to fund their mortgage payments out of their own pockets. Potentially there could actually be downward pressure on both property prices and rents (even in London). In addition, the fact that typically salaries haven't been rising much over the last few years means that it would be difficult for landlords to increase rents by much.
10. uncle chris said...
Hopefully HIPS will get rid of those time wasters who put their houses on the market at aspirational prices to see whether any mugs will take the bait. Before HIPS they had nothing to lose, but with the higher costs involved in selling these days, we'll hopefully be left with genuine sellers - which you thought EAs would be pleased about. We just need vendors and EAs to accept the fact that houses are only worth what people are prepared to pay for them. Many will be very reluctant to lower prices, and as with the last crash, will be left chasing the market down. Only people who competitively price now will be able to get out quickly.
11. uncle chris said...
Ooops - should have posted this as a response to the previous thread - sorry.