Saturday, Jan 24, 2009
Reality is beginning to dawn
timesonline: When is the right time to get back on the property ladder?
"Capital Economics, the consultancy, does not expect prices to recover to 2007 levels until 2032."....properly bearish.
Posted by bystander @ 07:57 PM (1194 views) Add Comment
24 Comments
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1. amjidk said...
im still considering next year as the time to jump in (unless persuaded otherwise)
2. james stephenson said...
Predictions about what's going to happen in 24 weeks are totally unreliable in the current climate. Predictions for 24 years down the road are meaningless.
3. James Stephenson said...
@ 1. amjidk
'I'm still considering next year as the time to jump in (unless persuaded otherwise)'
Have you really no idea of the size of the Tsunami that is soon to hit the UK?
I think buying houses will be the least of people's worries by then.
4. james stephenson said...
@ 1. amjidk
'im still considering next year as the time to jump in (unless persuaded otherwise)'
Have you really no idea of the size of the Tsunami that is going to hit the UK?
Buying houses will be the least of people's worries by then.
5. amjidk said...
@james, actually i do have a rough idea, but i suppose you cold enlighten me further...
6. james stephenson said...
Things could go a number of ways - none of them will be pretty.
This time the doom and gloom mongers are correct, and anyone who thinks we will be coming up out of this in 09 or 10 is burying their head in the sand.
7. little professor said...
"Capital Economics, the consultancy, does not expect prices to recover to 2007 levels until 2032.".
OUCH! his is the next battle to face. Now that everyone has finally admitted prices are crashing, the next lie to be taken on is all this guff about how prices will have recovered in 2-3 years tme.
8. tyrellcorporation said...
the argument has now finally shifted to 'what do we now do and make as an economy?' this was recently stated by jim rogers -and quickly rebuked by brown as the question is far too terrifying to even be considered. Another report out today in the times shows that in some areas of the uk 70% of the workforce are employed by the state. After the financial services have been hammered and house prices are in reverse where is the uk's wealth going to come from. I actually totally agree with rogers when he said the uk is finished - what do we sell? Think about it. We can't compete in manufacturing either and are saddled with vast debts and social security obligations. It's just inconcievable that house prices will start to rise again I'm the next 5 years as the uk population comes to terms with a significantly lower standard of living. It's all a bit doom and gloom but a fair assessment given the state labour have left us in after a decade long debt fuelled boom.
9. japanese uncle said...
IMHO (or guts huntch), 2013-14 will be the bottom (85% down from the peak in London, 75% in Edinburgh and other 'hot spots' and 65% elsewhere), to be followed by long spell of stagnation for say 10 - 15 years. Capital Economics' prediction looks fine.
10. J. Wilson said...
amjidk poses a good question.
For all you "don’t touch property" people- riddle me this; if all asset prices are to crash, and the value of the £ crashes, and staples get very expensive, and unemployment is rife, and wages go down... what should you do with your money?
It may be taken, frozen, lost or devalued if you just sit tight waiting for everything to be cheap (that may be the reason everything is cheap).
Property prices may not crash until after our money is locked into financial institutions for good.
Put it into property now? Property will go down in £ terms, but will it go down in utility terms? NO. But I think the cash might.
Take on debt? NO! You will lose the property and the cash, debt will be toxic.
Buying something that has some utility, with real money, may be a good option though.
Personally, I think there are problems with property, it is an illiquid asset and also a liability to own (there are costs associated with it). Just because it may go down further in price is a good reason to avoid it, but the risk of holding money is also going up.
It is unusual that our currency is devaluing so fast; this does not bode well for our money.
If it is going to be as bad as people here make out (and I agree), turning your stored wealth (money) into something of real value may be very prudent. We all need to consider how to employ what capital we have, if it is at growing risk.
I have one of those peril sensitive crystal balls, unfortunately last autumn it went black; not a peep out of it since... I hope it’s faulty?
Any ideas of what to buy and when?
11. titaniccaptain said...
JU im going even more bearish than you mate...............When the reality dawns next year that its cash only to buy a house and when the newspapers catch up on it being cash only because almost no one will meet the banks criteria to lend to................houses will exchange for cash..............was watching a program last night and house prices were mentioned from years ago..................in the 70s houses were exchanging for 3 thousand pounds....now im not saying it will be that bad but if deflation wins over inflation then average house price will be between 30 and 45 thousand pounds........and that is alot of cash to get together seeing as personal debt in the u.k. is sky high.........other than a small minority who is going to be able to buy a house without cash?......supply and demand are not the only thing that gives you a house price its credit aswell without which supply and demand are theoretical.......houses could become almost worthless.........another thing also is there are alot of people leaving the u.k. right now............
12. plato said...
Look on the bright side.......We may have a major war,after which growth will occur even if it's just plants......... Impossible to say what will happen. What will happen depends on what we do now and as our leaders are all running around like headless chickens, it's anybody's' guess.
titan....... I really hope that happens,it will cure stigma of the wealthy brick-owner,whose wealth is actually owned by banks.
13. titaniccaptain said...
@plato
Yep..........
If someone can give me a plausible argument to why my given statement will not happen then I am all ears...............
14. japanese uncle said...
tc:
You may well be right.
15. J. Wilson said...
amjidk poses a good question.
For all you "don’t touch property" people- riddle me this; if all asset prices are to crash, and the value of the £ crashes, and staples get very expensive, and unemployment is rife, and wages go down... what should you do with your money?
It may be taken, frozen, lost or devalued if you just sit tight waiting for everything to be cheap (that may be the reason everything is cheap).
Property prices may not crash until after our money is locked into financial institutions for good.
Put it into property now? Property will go down in £ terms, but will it go down in utility terms? NO. But I think the cash might.
Take on debt? NO! You will lose the property and the cash, debt will be toxic.
Buying something that has some utility, with real money, may be a good option though.
Personally, I think there are problems with property, it is an illiquid asset and also a liability to own (there are costs associated with it). Just because it may go down further in price is a good reason to avoid it, but the risk of holding money is also going up.
It is unusual that our currency is devaluing so fast; this does not bode well for our money.
If it is going to be as bad as people here make out (and I agree), turning your stored wealth (money) into something of real value may be very prudent. We all need to consider how to employ what capital we have, if it is at growing risk.
I have one of those peril sensitive crystal balls, unfortunately last autumn it went black; not a peep out of it since... I hope it’s faulty?
Any ideas of what to buy and when?
16. Downhill said...
titanic - another thing also is there are a lot of people leaving the u.k. right now............
A lot of ex-pats, whose wealth/salary has been cut by a third by the drop in the pound, will also be coming back to the U.K. Watch house prices in France, Greece and Spain nosedive.
This govmint will not cease to interfere, do anything to help the non prudent and do everything to shaft savers and get banks lending again.
In normal circumstances I would say HPC down to 70,000 pounds levels as was before the boom, but with this nasty shafty party who knows what they will come up with next?
In the course of getting us to spend they will ensure that our savings become worthless (after the mega rich exchange theirs of course).
17. Crunchy said...
12. titaniccaptain
Divine intervention.
18. martin said...
tc:
In a morbid sort of way, I hope you're right.
19. str 2007 said...
tc
Full of the joys of spring then !
Just to be Devils advocate for a second. If unemployment rose to 30% employed people would still number 70%.
For houses to fall by as much as you say wouldn't banks have to stop lending completely and or interest rates rise to 15% or more to make any money leant very expensive to obtain.
I guess as things get worse those 70% employed would have their own mortgages that would run close to if not negative and would then make them unable to borrow for further purchases.
I also assume that any BTLers/Investors would be well under water by then aswell and unable to take advantage of cheap houses as again unable to fund purchases.
One thing though doesn't the amount the government pay out to unemployed people for housing benefit in some way underpin house prices.
I can see that house prices may fall by a large % in relation to say another currency or commodity but in actual terms surely what the government pay in housing benefit will underpin prices that can be calculated against which a loan to purchase said property by an investor could be made. If that makes sense.
20. str 2007 said...
In fact let me elaborate on theory slightly and that is in simple terms to calculate the value of a 3 bed semi based on the lowest figure (being unemployment housing allowance)
I don't know the exact figure but
housing allowance/ 130% (the marging for BTL Loan) = amount available to landlord on which to secure a loan + landlords 25% deposit.
The landlord probably needs to allow slightly more for maintenance based on DSS tenants.
But lets say the allowance was £1000 per month (I don't know the figure - please let us know if anyone does) divided by 130% =£769 per month.
£100,000 mortgage Interesst Only at 5% = £5000 per annum or £416 per month.
The difference between £769 and £416 per month = £353 per month being the Lanlords margin for putting up £25k deposit and covering maintenance etc. (plus of course the difference between £1000 and £769 = £231 (the margin required by lender).
So possibly a total of £584 per month out of which must come maitenance and voids etc.
Doesn't the above calculation then put a minimum value of £125k on a 3 bed semi ?
Clearly this would change if the £1000 per month housing allowance is wrong. But if it's right or close a very healthy profit for a £25k down payment.
Got to pop out now but look forward to reading all your comments on my devils advocate scenario.
21. titaniccaptain said...
Well put STR2007 you devil you......but if there is 30% unemployment and job security is non existent then who will take the jump into a mortgage requiring a large deposit?......if you have saved for that deposit and have been a sensible saver then your not going to blow it on a house in a falling market...........also you made a good point about the banks and lending...........well as the market hits new lows I believ new criteria will be issued by the banks..............i.e. (Yes ive said it 1million times before) two and a half times a single income with decent sized deposit.........
@Martin
Dont worry mate its not morbid to want your children to be free of a millstone around their necks like alot of people have today.......infact its optimistic.............I want houses to be worth next to nothing because when we measure our worth by our mortgage we cease to be members of the human race and turn into greed driven robots keeping up with the neighbours......and my predictions are not based on pure wishfull thinking but on the reality that sooner or later people WILL WAKE UP to the reality about house prices and that we have all been part of a bad con
22. str 2007 said...
TC
two and a half times a single income with decent sized deposit
Lets see 2.5 x £30k = £75k
£125k x 40% deposit = £50k
Therefore 3 bed ave. semi price =£125k
We seem to get to the same number of £125k whether using my fag packet BTL supported by housing benefit route or your family man route.
Ave price now is £160kish therefore our figures suggest another 25% or so fall to the bottom (based on Halifax) which will take us back to 2002 prices (they rose from 100k to 120k in 2002).
There could be some overshoot, but I'll be surprised if we go back any further than 2002 (depends largely on interest rates.)
Not sure how you're calculating an ave. house price of £30-£45k.
23. titaniccaptain said...
@str2007........
30k is nowhere near the real average income mate.......more like 14k.....and how many people can get 50 grand deposit together when the average household in the u.k. is 30 grand in debt?
24. Dantheman said...
I have one stipulation when talking to Estate Agents.
I am only interested in properties that are presently priced, at what they were sold for at the beginning of 2000.
If everyone sticks to that mantra, they will have to come back down to that level. The only question is when?