Sunday, Feb 24, 2008
Another 'bad' news housing and mortgage market over load during the past week
Firstrung: Firstrung, first time buyers, the week in focus
In order to recover and to prevent a massive 'pipeline backlog' of new builds, developers need to find new markets. There is only one new market, the priced out first time buyer. With the average price of a newbuild at 230K and the average price an FTB can afford being approx. 150K, builders need to slash and burn prices by 30-35% to achieve the level of sales they need in order to operate profitably per unit sale. Sitting the market out and keeping a 'weather eye' on the window that is new home sales could prove to be fascinating. There is no under supply of housing, this has been the outstanding perpetual urban myth peddled by the ill informed or mischievous during the house price bubble.
Posted by converted lurker @ 02:23 PM (822 views) Add Comment
10 Comments
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1. afrobaggie said...
The Average price a FTB can afford is £150k?
Assuming that the FTB can only get a 90% mortgage, therefore they require a deposit of £15k, which leaves a mortgage of £135k. Assuming that the bank will only lend you 3.5 times your salary that means that you must be earning £38.5k per annum. Is this really the average wage of a FTB?
Let us add a little bit more to that 35% drop...
How about the average price of a newbuild of 100k...
2. Afrobaggie said...
How about a 55% drop...
3. afrobaggie said...
How about a 55% drop ...
4. converted lurker said...
average relates to CML figures. Average first time buyer purchase is in fact a joint mortgage with combined salary of approx 40k
5. jack c said...
40 year mortgage on interest only to meet the lenders affordability calculations should get the newbuild market moving again (LOL)
6. converted lurker said...
reckon they're some of the repos we're seeing get sold at auction for less than half original price jack
7. afrobaggie said...
Good point CL, but that means that the FTB must be in a stable enough relationship to buy with a significant other. So even after a 35% house price crash the days that a single person, or a family with a single 'average' wage can even buy a rabbit hutch starter home will be a distant memory.
GB's miracle economy...
8. afrobaggie said...
Jack C, the scary thing is that is probably close to the truth...
9. jack c said...
@afrobaggie - you are quite correct it is true - Standard Life Bank on int only x 40 year term and they will accept that the property is to be sold at the end of the term as the repayment vehicle !
@ converted - "reckon they're some of the repos we're seeing get sold at auction for less than half original price" - I agree some of the forced prices going through lately mean some people are having to stand huge losses.
10. voiceofreason said...
It always amazes me how long the VIs managed to keep the myths that high prices are due to "shortage of housing, overcrowded island, immigration, divorce, longer life expectancy etc etc " going.
Just like in the dotcom boom, people believe what they want to believe so long as prices keep going up and they keep making money.
The truth is that it was never any of these causing high house prices.
It has all been caused by oversupply of credit. Simple as that!
Just as happened to Japan (now that is an overcrowded island) in the 1980s whose property prices are still below their peak 27 or so years later. Same story has rolled out wherever excessive credit has been available.
And we are still a country mile away from anything like sensible FTBer affordable prices now that credit availability is reverting to normality.