1. mrflibble said...

HPI is dead Jim... May it rest in peace...

3. Yogisfriend said...

Splendid bear food!

5. mark wadsworth said...

Smug, we're now at the first part of the "fear" stage.

7. Crunchy said...

Far too late, however, one senses it is finally over. You can bet your house on it now.

A new era indeed, said with some reluctance, because the scales of justice are weighted at both ends and equalibrium is

rarely achieved.

9. gone-to-colombia said...

Love that headline, could this be the moment when the market really turned, called by Arabian Money.
Took them to tell us what we knew to be true all along.

11. str 2007 said...

Six times gross rent !

That doesn't sound like much.

That would value the house I'm renting at about 1/3 (yes66% less) of it's current supposed value.

13. str 2007 said...

Smugdog

That would be the best time in my opinion. Unlike the last recession the general public are alot more clues up & will be waiting to buy the right time rather than having lost interest altogether as in the early 90's.

Having said that, if they're unable to raise funds then it won't help much.

I think alot of this dip/crash in prices will have alot to do with credit availability. If they really do cut the banks back to sensible lending, then that is where prices will eventually head.

Currently I think you can still get about 4 times joint salary if you have a decent deposit.

15. greenmind said...

I think the article's advise to forieign buyers is about right: 2-3 years from now should be the optimum time to buy. Most posters on here could have written that article.

17. rumble said...

"Perhaps it may be wise to look to purchase in the fear stage (perhaps not this exact moment in time)
and demand greater discounts, rather than wait till hope returns and discount turns to premium?"

-- Assuming what sort of environment?

19. notyethomeless said...

STR2007 and SD @10 - the problem with everyone waiting on the wings for the right time to buy is that each small blip upwards traps a few more bulls, who are then caught by the next downswing. Over time, all the bulls are caught by buying in before it bottoms, or all are scared off because they saw the trend is still down - which means no-one buys in, and you get to "Capitulation" when people just give up (lose interest).

So although we might be in "Fear" at the moment, there will be a lot of buying on the way down as people try to time the market.

STR@9 - just did my back-of-envelop calculations, based on my rent, and the house opposite which is on the market at £550k (just down from £589k in the last 3 weeks - it looks more and more like 2008 all over again).

Rent = £1450 pm, 6 x annual rent = £104,400 >> 20% of current asking price (i.e. a fall of 80%!).

To be fair, another house in the street sold for £425k (tho in worse condition) so maybe only 75% overpriced...

21. mark wadsworth said...

NYH 16, let's make it easy and value homes at a hundred months rent (as in mid to late 1990s).

Therefore value of house across road = 100 x £1,450 = £145,000. So the 'bubble value' or 'land value' is about £500,000. Our whole economy is based on a total of about £2 trillion of such bubble values. Brilliant. Keep up the good work, Lib-Cons!!

23. Crunchy said...

8. mark wadsworth said''

SD, buying is easy.

"In the late 1990s when I got into BTL, I asked the letting agent (and a very reliable one at that) how much rent I could get each month and compared that with the purchase price. If the purchase price was a hundred months' rent or less (i.e. gross yield ignoring voids and costs > 12%), I snapped it up, else not. If and when those days ever return (i'd give it five to ten years), I shall be rushing round like a mad man buying again."

I can't believe you wrote that thinking nobody would notice, or were you unaware of the contradiction to a great many of your...

...ranting posts from the past. Please feel free to explain a different kind of Multi-home-owner-ism.

I await your reply with interest.

25. alan_540 said...

27. drewster said...

mark wadsworth,

In the early 1990s when your gross yield on property was 12%, the Bank of England's interest rate was also a lot higher, and mortgage rates were higher too. Would it not make more sense to express the yield as a multiple of the base rate (or of average mortage rates)?

For example, in 1993 the base rate was 5.50% - 6.00% (don't know what the mortgage rate was); so your 12% yields were double that. Today you can get a fixed-rate long-term mortgage for around 3.5%, so if your yield is 7% then it's not a bad deal. Having said that, 7% yields are quite rare at the moment!

29. clockslinger said...

Drewster @ 22, if "clued up" (as we allegedly now are) many people (Smugdog amongst them) must have worked this out already. In all honesty, I don't reckon things are not going to be anything like as bad for house prices as many hope.
Plenty of people appear to be comfortably awash with cash: kids in expensive schools, two foreign holidays with kids per year, second houses, investments, couples with a six figure income each. I meet such folk at work quite daily. They won't be streched to pay their mortages down whatever interest rates rise to as a small percentage increase in their salary is actually quite a lot of cash. They are well educated and will certainly be fly to a chance for a decent return from any source, particlarly property, and it doesn't have to be fantastic to beat the savings account now, does it?

31. Crunchy said...

25. techieman

At least you are honest. There is nothing childlike about seeing a massive contradiction and asking for clarification.

I know you have the childlike ability to ignore 'major events' that make no sense, but that's a different matter.

33. techieman said...

novice pete - since the government has (successively) abandoned house building as a priority (starting with Maggies "right to buy" / "home ownership democracy"), like it or not the way to house people has been by (since the mid 80s) encouraging us to become a nation of landlords rather than shopkeepers.

BTL has itself been a bubble. There is nothing wrong with BTL per se, its just that rents were not controlled, (perversely housing benefit is linked to rents from BTL in effect). Given that rents are not controlled you get a pyramid where people join the party late all looking for capital gain (based on previous people's experience, itself based on previous greater fool therory). At some point the yield means that BTL doesnt work.

Of course when that is and how it manifests is difficult to know in advance the ah ha moment should have been the runs on NR - which co-incided with the bursting of the bubble. What then happens is that there are no "greater fools" and therefore no prospect of capital gain. Debt servicing remains constant so now the equation changes to debt servicing v. rent.

Over-leverage creates a real problem then as market rents (and remember this is a function of wage growth) do not support loans taken out by current players (historic players are different because they have paid less for the properties). The only salvation for the BTLrs has been the reduction in rates and those reductions being passed on to the BTLrs. Therefore once the rates revert (and i am talking about SVRs regardless of base), then the BTLrs are either forced to or voluntarily give up the game.

This results in prices falling and yields rising. But then yields have to compensate for either real or perceived capital falls. That doesnt happen until the gap becomes quite big, at the same time rents should stagnate or reduce slightly.

Personally i see no problem with BTL because at the end of the day the private sector is fulfilling a need not satisfied by the public sector (rightly or wrongly - i mean re the public sector lack of supply).

Now the real question then is should they be paid for this? Of course the answer is yes. Should they have spiv profiteering? Of course the answer is no.

The free market eventually purges those "amateur" johhny come lately LLs from the game. So the "parasites" dont have enough to feed on and die. Those that remain are the good bacteria, who provide the real support for people that want to rent.

You are right though inasmuch as the system encourages bubbles and speculative froth - so i agree rent controls but only once there has been a purge of the amateur BTLrs. Especially the ones who have used capital gains as the basis for deposits on other properties, if you keep doing that it only ever ends one way.

35. techieman said...

pete - remember generally we are all on the same side, we do all want HPs to fall. Yes in part i think it helps the next generation and is unsustainable at these levels unless we see a leap in incomes.

But i cant be a hypocrite and argue that i dont want that for my own personal gain. i would wish for stability at the lower affordable levels to be honest, and maybe that will happen (but its unlikely unless there is a shift in how we run our lives).


Good luck mate.

37. Ubear said...

novice pete, free market Capitalism, is not the problem; naive amateurs, the greedy fools you smear as "parasites", always naively buy in at the "mania" top stage of a boom, when the smart money is selling!

The problem is not the investors, but rather the distortion of normal market signals by government interference in the financial markets e.g. non-market rate interest rates, more legislation, higher effective taxation in other sectors of the economy, and bailouts; this discourages saving and sensible investment, and encourages subsequent mal-investment; this results in booms and busts, flowed by a periods of economic stagnation e.g, the Housing market boom, which was probably triggered by too low BoE/World interest rates, uneven taxation, and the earlier pillage of Pension funds.

This is nothing new and will keep happening while, governments abuse the markets, government allow Bankers to routinely commit fraud (e.g. the fractional reserve banking system and other phantoms), and governments keep bailing out insolvent banks with taxpayers money.

Austrian Economics predicts this, and why, because it describes, both how the whole economic cycle work normally, and what happens when it is messed with; it doesn't leave out stuff which is inconvenient for vested interests e.g. Bankers and Banker sponsored crooks like Maynard Keynes and the Chicago School.