2. alan said...

Shouldn't we raise interest rates now?

4. mrflibble said...

Based on the figures this month from Halifax & Nationwide I think it will now be October before we see both these indexes turn negative again.

If there is any good news to be drawn from these recent rises its that prices are heading back to silly highs. When the correction resumes I'm expecting the confidence to finally be kicked out of the market and the positive sentiment destroyed (for a long time).

The time to buy a house will be when everyone else is too afraid to touch one, just like the time to get out was when everyone thought the daft prices could only get dafter. We are still in the daft region if you ask me.

6. quiet guy said...

So much for our HPC. How many hundreds of thousands will read this article and conclude that there is no way they will lower their asking price now (I'm including reluctant landlords and other properties withdrawn from the market). I suspect that the market will be gridlocked for quite a while. My only criticism of the report is that I see no sign of a "stark shortage of property" in my local paper.

8. alan_540 said...

Go Gordon Go! How much higher can he pump up average house prices before the election? Has he over egged the cake? Will it go pop before the election next June? Tune in next quarter for the next exciting installment.

The guy's a fool. I hate to think how much longer he is going to drag this correction out for and the damage it will do to the wider economy. The likes of Germany must be looking at this with horror and amazement that a government could be so irresponsible.

10. alan_540 said...

@6 quite guy... Be patient. As long as you don't need to buy in the next couple of years, it will be well worth the wait.

12. house said...

I am rather sad to hear this news. I am a property owner but I wanted the prices to go down so that the cost of housing can be lower means more disposal income for other rising cost (like Energy, Food etc.). Also this in turn means that the increases in wages cost for businesses could be controlled and and it would make us more competitive in the home and world market. But alas that is not the consideration in the quarters of power. Shame really. The confidence in the property market is good for me and I might even get more for my property than I thought. Ideal when I decide to emigrate to the cheaper parts of the world.

14. titaniccaptain said...

As PB and Jack c said....

This thread is as good as any......Had good news yesterday...I do not have lymphatic cancer!!!!....

Also had bad news....I have BCC Skin Cancer on my face.

But hopefully it will be a matter of a simple op to remove and that will be the end of it.

16. charlie brooker said...

@titaniccaptain . . . get well soon dude.

18. growler said...

I know most of the EAs in your area: JW, WW, MD...

And remember the words of an employee of one of them when I sold in June 07. "You will be very glad you sold years from now. Don't buy". It's quite revealing to note the difference between what is written in magazines and what is inside the trade. The reality is more like this. "God I hope Marchs limp recovery lasts, if it doesn't, I'm scr**ed"

20. wanderinman said...

@19 bellweather ... So what's the better way to deposit savings into dollars?

22. mrflibble said...

@18. growler

Interesting comment about the reality of the situation. Our Estate Agent friends will come to the rescue once the crash resumes again, as if they don't they will be out of business. Having first hand experience of their guidance over the last ten months I can confirm the attitude at the start of this year was very different to the attitude once the Spring bounce took hold - talking of the order of 20% on the asking price here (no joke).

24. uncle tom said...

News like this is naturally irritating, as it prolongs the wait for the day of reckoning.

The cause of the current up-tick is not hard to see - a relatively small number of people are moving house, but without selling the property they are moving from, as they believe they can get more if they wait another year. This is starving the supply side of the market, with the result that the gap between asking prices and offer prices has narrowed.

This is of course, totally unsustainable; and when the market dips again, these double mortgaged people will be in a panic to sell - the more so if interest rates take off in the near term.

26. timmy t said...

Uncle Tom makes a very valid point. There is no money around, so the only people moving are those with lots of cash, and they tend to live in nice houses.

28. growler said...

@27, UT

And to add...

Those people who have accumulated such equity will therefore lose the money they thought they'd have for retirement. I think this factor - "If I buy in my 50s, will I see my money when I retire?" is not to be understated in all those who currently have equity. It's a helluva risk for them

30. stillthinking said...

What growler said, "I've saved so much when I sold in June 07 that I (and lots of people like me) can well afford to watch." is interesting, I usually tend to think that the continuous whittling down due to rent must be a psychological push element to getting back into the market, but I suppose there must be many that just plain don't care if they wait for 3 years or 8 years. Of necessity to turn the market around the cash buyers will need to enter first but they are the extremist element in the buyer community.

If the cash buyers don't re-enter -first- then the banks cannot allow mortgage buyers back, as a cash buyer against a mortgaged property has the effect of improving the banks financial exposure and a necessary step to freeing up funding for additional lending. There seems to be another issue now which is that some of the cash buyers see an advantage in distancing themselves from sterling altogether. So it would seem from that, that although sterling is affected by a number of things, sterling weakness is going to correlate with future housing falls. By sterling weakness I don't mean fluctuations by the dollar, I am talking about being below purchasing power parity in the euro area, which can only be due to ongoing attempts to fleece sterling escapists i.e. sterling is currently weak irrespective of improvements against the dollar and housing will continue to fall.
I think a kind of equilibrium has been reached, the market is essentially frozen and the figures are without meaning because they don't represent any normal kind of transaction volume, and the equilibrium will be broken when the government can't extend debt any further, and we don't know what the government response will be. Suppose they just issue a law giving a legal right to mortgage holders to switch to interest only? Suppose they override free market prices and set mortgage rates centrally? They could do any kind of stupid thing.

32. growler said...

Stillthinking: Exacty.

The issue with rent is that what I currently pay equals interest on capital - very roughly. The upshot for me (and I can't be alone) is not only have I avoided a loss of 20% from peak value June 07, I have no mortgage and due to having to pay rent, no investment income. So essentially a free house to live in where someone else sorts the things that need fixing. So very easy for me to watch Haliwide, interest rates (now growing for savings) and wait...

34. vacuouspolitician said...

What uncle tom said...
"It's not just the cash rich with nice houses.
Anyone with more than 50% equity can quite easily get a mortgage on the home they want to move to, plus a BTL mortgage on their old home. If they resisted the temptation to MEW, most people who entered the market before 2000 have that level of equity
What they will discover is that when the market dips another 25%, their accumulated wealth in property will have completely evaporated."

The big question that I just can't get my head around is why would anyone want to do this when HPs are quite clearly over-inflated. Surely anyone with half a brain cell can see they are still unaffordable and even with the small correction down (which has been doctored by this worthless government) they are still massively over-inflated. It just seems so strange why anyone would risk their position and happiness to pay people with a vested interest (EA, leech fees and greedy vendors etc) 10s and 100s of 1000s more than what some grotty place is worth. What I'd really like to know is what the age range are these people are? Surely they can't be young people...?

36. This comment has been removed as it was found to be in breach of our Blog Policies.

38. paranoia blue said...

The trouble is that people – even very intelligent ones – don’t think! They are very financially naïve, and they are totally influenced by the popular Press or the Beeb. Just one example - and I have numerous - many of my friends still think that renting is simply money down the drain. And quite frankly it is a waste of time, even attempting to explain, otherwise. Oh, well.

40. vacuouspolitician said...

paranoia blue

Yes I keep hearing the same thing..."money down the drain". It seems such a stupid thing to say. How can paying mortgage finance companies between 5-15% over the years be anything less than throwing money down the drain...
What makes me laugh is when I hear the word "owner"...unless the person owns outright they don't "own" the thing at all...its just a % of it if they're lucky. In this climate they probably "own" 5% of 150K which then carries huge burdens...
My problem with all of this is who does this merry-go-round really serve? I suspect it is a certain generation (50+) who have a vested interest that the status quo is maintained.

42. growler said...

@36 Paranoia

It's pretty easy to say to people that you have to look at "service", "investment" and "intangibles".
Service: Monthly rent versus Interest only payments + average monthly costs of ownership additional to renting.
Investment: Look at HP predictions over say 3-5 years versus equities and any other investment - or currency
Intangibles: The right to dig the garden, show friends around ?!

Multiply the above by a weighting - how important it is to you - and you have a formula

44. sold out said...

All the best Titanic Captain, wishing you a full recovery.

The housing market imho will commence its downward spiral this Autumn i am sure.
The upturn is being driven by a shortage of properties,due partly to the developers stopping any new builds, but also i reckon that many people who couldn't sell last year have rented out their properties for a year. Once they start to flood back onto the market the supply issue will be allieviated, and then it will be business as usual, Downwards.
Also How long can the loss making banks Llyods (HBOS) and Northern Crock keep holding off mass repo's? not long methinks.

46. mystie010 said...

(Post 17) andrew - I totally agree, I think that there is definitely something afoot in this country that is going on behind the scenes, because all common sense has gone out of the window with houseprices. Taxpayers are being taken for a complete ride we are being totally screwed! I would love to know just exactly who is pulling the strings?

48. nathan said...

@31 wrote: "I can see the problems on the demand side with FTBs and lending restrictions but I can't see anything that is going to put pressure on sellers. Unemployment will have a small effect but not enough to influence the vast majority of sellers. Forced sales through death and divorce are fairly constant - not gonna change. Developers aren't going to start building large numbers anytime soon. I can't see anything changing."

But according to http://news.bbc.co.uk/1/hi/business/8047383.stm: "At a conference on the future of the industry, a senior FSA official pointed out that by 2007, at the height of the lending boom, 45% of all mortgages were being granted without the lenders checking if the borrower's stated income was correct."

50. uncle tom said...

nathan,

A slowdown on the construction front may be offset by reverse migration - during the last recesion, an estimated 200,000 left these shores, and that was long before we had half of Poland working here..

Not so very long ago it was pretty much the norm for graduates to set up home on their own as soon as their studies were completed - now that is becoming the exception. If kids leave home a year later than before, over 300,000 houses are effectively liberated.

My broad impression is that young people are looking at the property market with bemusement, and few are making any serious plans to buy. If FTB's remain inactive, the market will soon head south again.

52. Nathan said...

UT@50, I think you meant to direct your comments to luckyjim@31, to whom I was replying (see the second paragraph of my post).

The market is heading south as soon as people on liar loans are forced to sell -- if not much sooner.

54. paranoia blue said...

Re: Liar loans.
Yes, very interesting point!
I don’t think that this whole “liar loan” outrage, is anywhere close to revealing its “iceberg potential,” - or better - “hideous underbelly.”
Within the circles that I move – albeit anecdotal – this practice was rife, in fact, it was the rule rather than the exception!
It was forcibly encouraged by the “middle financial guys!” on the more naïve! These sad, financial wreckages are slowly lining up outside the breaker’s yard!

56. Eternal Sceptic said...

I suspect the guvmint is doing everything possible to delay reality until after the election. After the election the poor unfortunates that inherit the government will be forced to do many of the dastardly deeds that should have already been done. Heading south for property prices is a done deed for autumn 2010.

58. uncle tom said...

Strictly speaking, the maths for comparing renting with buying requires the consideration of mortgage interest less inflation, to which needs to be added the cost of maintenance and insurance that would otherwise be paid by the landlord if one was renting.

The trend line on the house price graphs suggests real house price growth over and above inflation. I believe this is mostly an illusion borne of the fifty year underlying price bubble. Houses have become better appointed over the years, but as that would be an expense borne by the home owner along with maintenance costs, it does not enter into the comparison equation.

Landlords in recent years have accepted uneconomic rents on the expectation of capital growth; an obviously unsustainable agenda.

Investment cash has to work for its living - there is no point in being a landlord if you can better investment returns with a similar degree of risk. For a landlord owning a property outright, a return of 4% (nett of all expenses) would be expected; which equates to a gross yield of around 6.5% (although for low cost/low rent properties, the greater burden of admin can raise this considerably)

A landlord borrowing money might be able to secure a good deal on that part of the finance that is borrowed, and quite possibly for a little less than inflation + 4%; but as his own investment would be subject to much greater risk, that would demand a higher return. ultimately the landlord working on finance needs a slightly higher gross return - around 7% - to be viable.

But for two factors, the economics of renting vs buying would be quite closely balanced; those factors being the void periods and management costs that weigh on the economics of renting.

The bottom line is that in a stable market, buying makes more sense, unless you expect to have to move frequently.

In the long term, renting does not present a significantly cheaper solution for those priced out of the market. It follows that prices must fall to a level where all save those who qualify for housing benefit could afford to buy, if they chose to do so.