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About Nstansbury

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  1. Time I think for some facts in terms of average LTV's, and assumptions we can make about UK banks mortgage books. Lets take one of the more conservative banks - Lloyds TSB. Here are the numbers: Average LTV 43% Max New LTV 95% Average New LTV 63% 95% LTV of book 1.70% Source: Annual Report/Company Website. Make of that what you will.
  2. When I looked into this I found some guidance that basically said the following : claims for damage beyond wear and tear are generally subject to the following process for valuation: 1) What is the replacement cost of the item? - call it "£X" 2) What is the item's expected useful life? - call it "n" 3) How old was the item when the tenancy ended? call it "t" Then the deductable sum is equal to £X * (n-t)/n (i.e. if the fridge was 8 years old, had a life time of 10 years and was worth £100 then the landlord could withold £20) So - the landlord would have to prove that the items were basically brand new when the tenant moved in. Unlikely... What's more - the above formula is generally then further reduced by reference to the size or scale of the damage - so for example if you'd damaged the floor of a house then, subject to the lifetime adjustment above, if you've only damaged 1/10th of the floor, then you only pay for 1/10th of the lifetime adjusted cost etc. etc. As far as I know the courts are really very strict with the wear and tear condition - I was amazed when my last landlady had a professional surveyor person round to do a checkout of the property - we'd left spilt lemon juice on the slate floor and stained it really quite badly - what did they say? "Well - lemon juice is a cooking ingredient - so if the floor was not resistant to ordinary cooking ingredients being spilt on it then damage to the floor resulting from such a spillage is clearly reasonable to expect from the normal use of the property - so falls under fair wear and tear" i was amazed Nick
  3. i'm a bit lost with this whole "delay" conspiracy - my bloomberg monitor has been telling me these figures were due between the 8th and the 11th for days - what's the big deal? they haven't been actually delayed yet have they?
  4. I'm not going to argue with you over the definition of a model - my view is you are making a number of future assumptions (if only about real interest rates) and that makes it a model. Not just that but to calculate true affordability of ownership housing costs you'd have to make some assumptions about personal discount rates. Quite probably. I think I may be making my point a little too complexly. Let me try again : real income growth (median not mean) has slowed in recent years. Income inequality has grown. Supply of property is limited. Our population has grown fast. Household sizes have falled. These things are arguable facts granted - but presume that they're true for a minute. These things may affect over the long-run the value of an house independent of real incomes. Real incomes could remain constant and the value of housing could shift dramatically. Presume, for example, that the UK suddenly decided to massively liberalise planning laws - wham - I bet that would knock right down the price: real income ration pretty dramatically - and that would genuinely impact upon the fundamental value of property as a whole. My point is that price to income is just one input into valuing property as an individual investment and as an asset class as a whole. I know it's the key driver - but if there are structural factors at work then this might depress or inflate this ratio - not as to the price that's paid but as to the value of the asset. Think of it in terms of a country of 1000 square feet of space and a hundred people valued at a price:income ratio of 4 and an median real income of £10,000 a year. If you add 10 square feet of property, 10 people and the median real income goes up by 1% - then the fundamental value of each house will shift accordingly - the price:income ratio will go up. What I'm trying to argue is that we've seen something like this go on in the UK recently - and so if that's true is it not possible that property may trade at an income ration of more than four sustainably in the future?
  5. This is, if I may say so, an excellent post. I don't agree with a lot of it but it's still excellent! I'm sorry - I just don't agree with you at all You're trying to argue that value and affordability are the same thing - that's the thrust of your post (the value of a house is based upon my willingness or ability to pay for it). I fundamentally disagree - the value of a house is absolute not relative - it's the present value of rent not paid. Whether or not I can *afford* that rent is irrelevant. Now - of course they are related the rent I expect to not pay is driven by what I expect incomes to do in the future because that determines the market rent (which is driven by what other people can afford) Now I know this seems like an arbitrary distinction - but I don't think it is : if supply of housing is limited and real incomes are depressed then the rental value of housing as a whole may go down - but for individual units it may not - what has to happen is the stock as a whole gets subdivided into smaller units. So what happens to compensate is that the more people live in the same number of metres squared of housing by squashing up - because housing generally does increase in terms of it's quality and quantity adjusted cost. I don't agree with you. The price the market pays for property is driven by the amount the market wants of property - but in the long run it's driven by funamental value - a square foot of property will have it's rent driven by some function of future Income, future Population Growth and future changes in Square Feet of Property Available. Thus, property does have some independent value that depends on (unknowable) levels of income, population and changes in stock. To this function you'd also have to apply some factor of real interest rates. Now I'm really going to nit-pick. I think it is a model - anything which makes simplified assumptions about complex financial realities, makes projections into the future (in this case real interest rates) and then presents you with some set of analysable results is surely a model? It's a ridiculous point to argue over though - so it's probably not worth the bytes of storage space on this forum's servers to argue it out! This is a brilliant summary - This is a great point made clearly. As importantly - we want to see low inflation and interest rates continue because that'll leave the correction having to manifest itself nominally - which may well help to kill of the housing obsession - meaning we don't have as many and as large bubbles in the future
  6. This is an excellent point to - I did some work on this a while ago (taking the nationwide real prices and then their regional series and deflating the regional series so that they're in line with the national prices). London is the scariest- in the 90's London got about 25% more overinflated and crashed even harder than the national - it was vicious. The really scary thing is that if you plot the moves in this decade in London onto the same chart - the scale of the London bubble is so big that you can barely notice the difference between national prices and the trend That really terrifies me...
  7. Yes, that's true. One caveat - It's an arguable point as to whether this change on borrowing is permanent or not though don't you think? I'm not arguing that things haven't gone too far - clearly they have, but my point is more that the structural arguments that housing bulls make are valid to a certain extent - there is an issue with sticky supply, decreasing household size, increased population and deflated real earnings. Don't you think that long run that might structurally impact upon the Price:Earnings ratio that the housing market eventually stabilises at?
  8. This thread has moved a good deal away from the issue I initially raised - but it's very interesting none-the-less. The issue of Price:Income is tricky because it's essentially an affordability driven metric rather than a value driven metric, and behind the scenes what's going on in terms of affordability is a lot more complicated than just x times someone's salary. Everyone knows (and all the bears will shoot me for even raising it) that interest rates are lower than last time around. So on an interest cover measure things look not too awful. Capital Economics have done some good work on this subject - trying to analyse the total cost of ownership (because of course every mortgage has to be repaid - so even if the interest part is relatively low the total cost of ownership is quite high. They've got a model whereby they add back this total cost and spread it out over the life of a loan and on this measure affordability is actually worse than the 1990's. Ok - here's a nice little bull point to tear to bits though - if, as we've seen in the last 10 years, average incomes become very depressed (by amongst other things competition from emerging markets, the arrival of eastern european immigrants etc.) and at the same time the number of people (and households) has increased, doesn't that mean that the average price : income ratio for housing in the UK should have gone up nearly as substantially as we've seen?
  9. That is a fantastic website. I ran off a series from 1970 - UK real GDP growth is about 2.4% - suggesting the trend is skewed upwards by about 30-40 bps Plug the new trend into the model I've suggested and you get a nominal price fall of 35%. That's a much more attractive number Nick
  10. Wow - I went out to the pub and when I get back to my desk this morning this thread's doubled in size. I've been fairly attacked for this rushed comment: So I guess I need to both moderate and defend it. Of course it's very difficult to asses the "fundamental value" of property - but I do think you can do it. You derive it by looking at a rental arbitrage model (if you can call it something that sophisticated). What that means is by looking at long term rental trends you can establish the net-of-tax financial utility of a house. Once you've factored in rental income growth then that's all there is to it - any comments about supply or demand of jobs, houses, money or anything else are just irrelevant - the price of a home will be the tax-adjusted net present value of it's financial utility (i.e. rent not paid) which will be driven by some expectation of future earnings growth - average earnings. This is of course driven by the growth of the UK economy in real terms. So, question - is the rate of growth that you apply supposed to change as short term changes in the predicted rate of growth change? Well no I think it shouldn't. A better mathmatician than I could prove I'm sure that the mathmatics show that short term changes to the underlying growth rate have such a small impact on the value that you can ignore them. The key number is the *long term* rate of growth. That's right - but it's important to note that the 1990's only looks bigger relative to this "trend". if this trend has skewed the numbers upwards (which it probably has) then on an adjusted trend line we might look much closer. Nick
  11. yes yes yes - i know. yawn. I'm talking long-run valuation drivers. You're talking short run supply demand re-balancing. In the short run prices are determined by supply and demand, of property, of money, of jobs etc. In the long run - it's a function of fundamental value - which should be unrelated to short term changes in the economic environment.
  12. 2.4% is the long term average real GDP growth I think is what she was arguing. The trend line is just that - a smoothed trend - a growth of 1% this year roughly equates to a catch up growth of 3.4% in a few years time anyway. Well that's the argument.
  13. I see your point - but I predictably don't agree. There is a *limited* supply of property in the UK, so as the economy grows, so the price per square metre of land must go up - that's the key argument really. It's why in, say, the Midwest of the US it would be unrealistic to price in any growth long term at all.
  14. Thank you for this - this is exactly the argument I was trying to make. She puts it much better than I do. nick
  15. It's simply what you get from regressing the annualised change in price. Thankfully Nationwide do it for you. I think the accurate figure is 2.8%. Of course, that opens up a whole new discussion about whether that figure is too high and how much it's been skewed by our bubbles. MarketOracle - the link given above my another poster does a correlation vs. GDP growth - that's interesting too nick
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