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Everything posted by Van

  1. Aye, Sledgey. The last bears are turning bullish...
  2. Still abysmal FTB figures, then. The market just cannot work without FTBs (BTL has dried up). How are all those chains going to complete without somebody to buy at the base? FTBs only make up 10% - let's just take into account what that means. 90% of sales are reliant on another link in the chain. A typical chain in a "normal" market might be 2-3 properties long (I have no figures for this, but it seems reasonable). Even increasing this average by one or two extra properties makes it exponentially more difficult for the chain to move, as the number of different permutations increases, and the probabilities of complication doubles for every extra house added onto the chain. Even accounting for STRs, 2nd properties, the few remaining BTLs, the market is probably at its most inefficient stage in the whole cycle. Transactions are dropping. Wiley Coyote has run off the cliff edge but doesn't yet realise it..
  3. Yeah, I figured that yield too. To be honest, the condition of the place matters much more to me than how much it is actually worth and what the rent is in terms of yield. I wonder how many landlords actually take pride in their investments and would be happy to live in their own properties in the conditions that I have seen (not too many, I'll wager). I'm not very sure of my £380k figure either; that could well be a conservative estimate, as I'm by no means an expert on the local market. What I find quite galling is a lot of shabby properties (unless they are *really* bad) still rent at the same market rate as the nicer places. There doesn't seem a good correlation of price/condition. Ah.. imperfect markets.
  4. Glad you asked! Actually, it is pretty tough going at the moment. I have seen a LOT of places. 80% of them just don't cut the mustard, ranging from total dumps to just a bit scruffy. I'm looking for something I actually want to live in. The nice places attract a lot of interest, so there's a lot of competition and the existing housemates get to hold a beauty contest. A few places I've seen have had the lounge converted into an extra bedroom - I can't tell you how much that pi***s me off - who wants to live in a bedsit? I'm being picky, yes, but I didn't sell my flat to go and live in a dump. I have been looking in quite a few different areas: Hampstead, Golders Green, Finchley, Hammersmith, Shepherds Bush, Parsons Green, Wandsworth, Putney, Archway, Highgate etc. I think that I have picked pretty much the busiest time of the year to be doing this because of the influx of students. Actually saw something I really liked last night. Good rent, too - £490/month (share with 3 others) on a property valued at, I reckon, £380k-ish, so paper-thin yields for the landlord. Fingers crossed. I feel just about ready to write a book on the subject - "Renting for Dummies" or something.
  5. I think that 20 or 30 years from now we are all going to be working a lot longer. People are living longer, which might add another 5-10 years on to the working life of a typical person, but also we are simply not saving enough and investing enough in our futures. I'm afraid that our society has become ever more myopic, with patience and prudence rejected in favour of the "must have everything now" culture. A lot of my friends are in their 30s with no savings and no pension. They seem to think that they'll get by on a state pension, and are going to find themselves working into their 70's.
  6. I think immigration would have b*gger all effect on short term house prices, but I do think that it would help support rents. Seriously, how many of us know any immigrants who are looking to buy a house? That rents are falling despite the increase in immigration is a good reflection of how absurd the market has become!
  7. Gal Bear, Was thinking about this some more, in conjunture with some investment psychology that I have been reading on. Your friend's house was first marketed at £330k. Let's assume she really thought she would get that (or close), and let's say that it ends up going for, say, £250k. To many people, that is a notional loss of £80k. Psycologists measuring the effect of profit/loss conclude that loss weights more heavily that profit, by a factor of about 2.5. A loss will decrease your "happiness level" by 2.5 times more than an equal sized profit will increase it by. That is why most people are risk adverse - protecting against big loss is more important to them than increasing profit. I don't know how much equity she has in in the house, but it is possible if we follow this "2.5 rule", she would have to have £200k in equity (£80k x 2.5) to compensate her for her £80k "loss". Missing the top of the market by a few months and losing a few % from peak value could, in the eyes of investors and homeowners, weight much more heavily than the amounts of equity the have built up. It's easy using this model to explain how sentiment could effectivly vanish overnight. What is your friend planning to do - STR, or trade up/down?
  8. It's always difficult to judge what the market price of a house should be. For me, I simply go by what similar properties in the area have recently been going for, and then factor in what the local market has done since then. For homogenous flats or terraced houses, this is usually works pretty well. For larger houses and character homes, of course, an accurate valuation is much more difficult. Then again, the old cliche of a house only being worth what someone will pay still rings true. I think your friend's house may end up going for less than £250k. Buyers are clearly not keen on it at £280k - a price where they are effectively paying an additional £5,900 of stamp duty for £30,000 extra of house. If the EA is telling her that she *must* drop the asking price, you can easily see it losing another 10-12% to bring it below the 3% stamp duty threshold.
  9. Sledgey, yes, I think some of the MEW lag is to do with the denial phase. "Price falls couldn't possibly happen to my house because I've spent 10k doing it up, or I've built an extension" etc. To a lot of people, it is only when they actually try to sell their house that it hits home that maybe, just maybe, they won't be able to get as much for it as the neighbour who sold up a couple of years ago. Price falls are what happens to the market as a whole, or someone else's house, but never to my house - my house is unique, because it's mine! For this to sink in, of course, simply takes time. The average length of tenure for a property is about 4 years, I think, so it is reasonable to assume that a year or two past the peak, and there will be a fair percentage of people will want to move just through natural turnover. It's at this point when they realise that the market has fallen that they either sit tight, or take the price hit. Regardless, it usually signals that it is time to stop MEWing.
  10. B B Bear, To be fair though, there are some *very* specific situations where MEW might make sense, and one of these might be the fund the purchase of a car. For instance, I have just finished paying off a 2 year £5k personal loan on my car, which I secured at 7.9% APR, which at the time was the best deal available. I also sold my house earlier this year. It would have been cheaper to for me to MEW to pay for the car, and then to have sold off my house, paying the extra 5k at mortgage rates for two years. If you have the intention of selling of your property at a later date, MEWing might make sense as the cheapest way of borrowing for a short term period. If people actually realise what they are doing with MEW - securing a long term debt - then that is okay. What MEW certainly *isn't* is "free cash because the value of your house has risen." I realise what I am saying is playing devils advocate, but as someone important once said, if you know and understand the rules, you know when it is okay to break them.
  11. I was looking at the MEW figures from the BoE - http://www.bankofengland.co.uk/mfsd/mew/040706.xls and having a think about what this means, and also at UK interest rates history - http://www.moneyextra.com/glossary/gl00003.htm MEW for the last 4 quarters has been at a record high, averaging 7.8% of post tax income for the last year. The previous peak was in Q3 1988, where it was averaging at 6.8%. What's quite interesting is that although equity release dropped off after this peak, it still didn't reach zero or go negative until half way through 1992. To explain this, I think that even though prices had peaked around 1989-1990, people were still using MEW to pay the bills, especially since interest rates were so high from 1989-1992 - MEWing to pay the mortgage - increasing long term debt to pay for short term debt; circular money, if you like. It is interesting that from mid 1992, MEW all but stopped, and interest rates at the same time fell significantly. This must surely be because by this time a lot of people had fallen into negative equity and had nothing left with which to MEW, and also because there was less pressure to keep up with mortgage repayments now that mortgage rates had fallen from 13-14% back to a more manageable 8-9% or so. MEW really did not really rear it's ugly head again until about 1999, but since then has reached stratospheric heights. This suggests to me that as long as people have equity in their houses, they will MEW, even if prices have stopped rising and begun falling. MEW has a been a massive factor for the last few years. It is currently running at 8% of post tax income. Even if this is halves to a more modest 4% as house prices begin to fall back, this will have serious repercussions on the economy. It is a fair assumption that most of a household's net income goes on everyday expenditure - paying the mortgage/rent, bills, food, clothes, travel, haircuts etc. Only a fraction of net income is left over for goods consumption each month. An 8% increase of net income in the form of MEW translates into a 40 or 50% increase in high street spending power once everyday living costs have been paid. Once MEW dries up, the market for new cars, Plasma TVs, luxury holidays, MFI kitchen etc will all suffer a MAJOR slump.
  12. The next 2-3 months will be crucial. The market is going sideways right now. The froth has blown off. Good houses are still selling, but a lot of stuff has been stuck for months and vendors aren't yet cutting their prices significantly. We need to wait for August's IR rise to start feeding through and for the traditionally slower Q4 to add to the impending gloom. Another IR hike in November would do nicely, although the effects of this won't filter through until early next year (about the same time that we start paying back the credit cards for Christmas expenditure!). One thing I have noticed is that supply is definitely on the increase. Looking around different areas in London in the last few weeks, areas like Barons Court & Fulham have a heck of a lot of "To Let/For Sale" boards up. Obviously in these expensive boroughs prices have peaked and a lot of investors are looking to cash in.
  13. The era of 15% interest rates were dark days for this country, and the property market in particular. It is probably the single statistic that most people identify with and take comfort from, and why average Joes who aren't clued up think that a crash is unlikely this time around. Here on HPC we know that the "15% argument" is easily discredited to a greater or lesser extent, because interest rates are only one of a number of macroeconomic factors which we need to take into account, and it is important to recognise that we are not comparing like with like because of the abolition of MIRAS. Currently, the typical FTB has to spend slightly less of his net income to get on the property ladder than in 1989, but this is more than offset by the lower debt erosion which will cost him a far, far greater chunk of his future earnings than 15 years ago.
  14. It would take inflation to start running away for rates to rise substantially out of line with what futures are predicting. That's not to say it can't happen of course - futures markets don't have a good history of accurately predicting IRs, history shows us. Of course, if inflation does begin to run away, it's likely that we'll see rate rises in 0.5% chunks. Predicting rates is a such a fickle game, anyway. Only last week every Tom, Dick & Harry were half-convinced that rates would peak at 5% throughout 2005. Now with the latest report that core inflation has risen, I bet they've all gone back to 5.5%. Another month or two of similar reports and it could easily nudge up to 6%...
  15. Yep. The high street retailers are getting desperate, and anticipate sluggish sales. Apparently Woolies has already rolled out its Christmas stock, and other retailers are clearing space on their shelves right as you are read this..
  16. I have researched some figures on this from the NSO website. It's not quite as bad as that. Average salary is £26k, but two thirds of us earn below this. The median (50% point) is £22k. So probably about 40-45% earn less than £20k.
  17. I've been looking for a houseshare in the last couple of weeks. Have seen lots of places, but most of them are awful. I have no experience of renting whatsoever, but the market seems unusually busy here in London. Today I went to see a house, the owner told me that the rental market is usually very busy at this time of year, especially in London, because of all the students about to being the academic year. Is this true? Properties for rent on Gumtree, Loot & Moveflat websites don't seem as plentiful as they were earlier in the year. Can I expect more choice in a couple of months when winter is beginning to set in and many people depart the country for sunnier climates?
  18. More propaganda from Spackman: What a complete load of rubbish. If I wasn't such a laid back chap I'd actually be in a Kirsty-style tantrum over that one paragraph. "This news has been greeted with relief by professionals in the industry." - RELIEF?! They are all cacking their pants, more like. Turnover falls when prices fall. Transactions drop through the floor (DrBubb has explained this very well - http://www.housepricecrash.co.uk/forum/ind...?showtopic=686). No transactions = no commission. They need the bubble to continue in order to bring the dough in. It's really that simple!
  19. The "feeding frenzy" already happened - when rates started to rise from their 3.5% last Nov-Feb, much contributing to the frenzy that peaked about Easter (Land Reg stats confirms this). I think this is likely to happen. Rates traditionally stay on hold in Dec/Jan, so November would be a good option. I can see rates staying at 5% for a while - 6 hikes in one year is enough for anyone. As a bear I'd like to see this - hit 'em hard and fast while they're still reeling! 5% is still low, even in real terms. That it is likely to cause hardship to so many is just an indication of how screwed the economy really is!
  20. Being able to say "I told you so - I was right. I'm always right, even when I'm wrong."
  21. I've thought about this a lot, and don't really have a conclusion. Trade isn't a new thing, but it is now the norm. Even housing is now traded, insofar as we have Brits buying properties abroad, and foreign investors who have bought whole developments in docklands, etc. Trade and exchange rates is probably the area of economics that in my own mind I understand least. I think what it will boil down to, like much data we are fed these days, is that the official inflation statistics become more and more meaningless. What is inflation? It's a basket of good that the typical household purchases. It half those goods are experiencing inflation, while the other half is experiencing deflation, the overall figure becomes more meaningless. Statistical distribution showing mean and variance figures are really what is called for.
  22. Great piece, RJG. Moneytarism and Friedman's helicopters are alive and kicking, except now the cash is dropped purely on housing in the form of mortgages. Inflation is caused by an increase in the money supply, chasing a finite amount of goods in the economy, hence the purchasing power of money is decreased. The really funny thing is that none of this money is real - it's all securitisation created by the banks who have systematically increased the wider money supply year on year since the 50's. So we are all working harder, chasing illusionary money that doesn't exists, only for the banks to further print more money and decrease the purchasing power of our wages.. a vicious cycle. The BoE really have very limited scope in how they can restrict the commercial banks from creating their own money through the mechanism of cash deposits. IRs simply determine the cost of borrowing. Rate rises bring future consumption forward when the economy is sluggish - favouring borrowers over savers, and vice versa. What is funny is that most people don't have a clue about what is really important - the real rate of interest, taking inflation into account, hence money illusion abounds. IMVHO, using IRs as the main tool to control the economy simply doesn't work. It's a one-size-fits-all tool that in reality doesn't cater at all well for anyone. When rates are dropped, the vast majority of consumption brought forward goes on house price inflation, expensive holiday (an import), and other superfluous goods that do nothing to increase the country's wealth and it's ability to pay back that consumption in future years. Again, the BoE can set the base rate of interest, but they are then powerless as to how the resultant extra borrowing is actually spent. What we really need is less economic red tape and government policies that actually promote real investment in wealth generating businesses.
  23. Haha, Dom, you're so right. Capitalism just doesn't lend itself to the "everyone can be rich" salespitch. To have winners, you have to have the losers. The trickle-down theory is a load of BS which we are taught in schools but actually has been disproven time and again. When there's a niche in the market, it's quickly exploited by so many that the advantages quickly disappear: if one store installs air conditioning, they gain an advantage over others. If all stores install air con, no one has gained an advantage, all they have done is increase their costs. Warren Buffett describes it as the equivilent of everone in a crowd standing on tiptoe to get a better view...
  24. Several studies in bahavourial science linked to the stock market patterns suggest that significant events have a residual effect on sentiment and stock price for a period of about 3.5 - 4 years, after which they just become events in history. It's easy to see how this can shape our views on the housing market, amongst many other things, ie "Negative equity is something that happened a generation ago", and that "Property is safer than equities" etc, considering what has happened to both in the last few years. Predictions of the future are always based on an extrapolation of the recent past. Those cabbies make a bl***y fortune. If they can't afford a plush 1 bed flat then it's a fair bet 95% of the rest of us can't, either!
  25. I tend to agree, Hedi. The FSA regulations IMO are going to have a massive dampening effect on the whole lenders' market, yet the average Joe doesn't even know about the new regulations - a stealth trigger, if you like. I don't actually think the market needs a trigger to crash. People may blame the FSA, higher IRs, Merv, or whatever else, but what will really cause the crash will be the the pyramid base collapsing when everyone has been priced out, and the psychological effects of a falling market. A trigger is always identified in the aftermath, but really it is just lazy economics.
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