WatchingFromTheHills
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Posts posted by WatchingFromTheHills
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You make a very good point. All the house price indices work to different criteria and are each in their own ways unsatisfactory.
But research like this adds to a general mood that the tide is turning.
The mainstream media rarely makes the running on a story. It's often behind the curve on public experience and sentiment, which is why it's been a cheerleader for HPI for so long. It thinks that's the story and it thinks that's what its audience wants to hear.
Once it realises the tide is turning, and once it realises the public no longer thinks HPI is - overall - a good thing, it will start running stories to that effect.
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Prime London market in 'serious trouble'.
“It’s clear that prime central London has been devastated where the property market is concerned. For a while now certain areas have seemed impervious to changes in the property market elsewhere in the country. However it is apparent that this is no longer the case as the capital has been brought to its knees.”
This is very strong language. For me, it marks a sea-change in attitudes. I've seen quite a lot of talk in recent days about London dragging down the rest of the country, which is obviously a complete reversal of the previous position.
I've also read a lot of discussion about how deep and far the crash is going to be in the capital - most of it on this forum and this thread.
For the record, I don't think there's going to be a "crash" in London, in the sense that people will panic and slash 40%, 50%, or 60% off the price of a house, as they would when selling stocks or shares in a hurry.
I say that because houses aren't like stocks or shares. It takes a long time to buy and sell a property, so instant, panic drops are unlikely. And although many people have been speculating on property in recent years, the majority are still owned by the people who live in them, which means it's difficult to just flog them in a rush, because they still have to live somewhere.
However ...
When I say there won't be a "crash", I do think there will be a significant correction - particularly in London where the market seems overheated and very ragged around the margins, with vendors asking daft prices because no-one really knows what constitutes true value any more.
No-one will call that correction a "crash" (well, maybe this forum will ... ) because we're all very polite and "crash" is a bit of a scary word and we don't want to upset anyone.
But even if the majority of people aren't selling houses in a frantic hurry, like they might shed Centrica stock today, some, at some point, will sell and will have to accept lower prices.
They'll have to do that because a number of factors will come into play.
Foreign buyers are thinner on the ground and the government (incredibly) has introduced legislation to make sure they don't have an unfair advantage over people who actually live here.
Shrinking returns and the possibility of greater rights for tenants will lessen the attraction of BTL (and I don't buy into the idea of using a pension pot to buy a house - most people's pension pots are nowhere big enough).
Tighter lending rules are already having an impact. The banks still retain a lot of political influence and are unlikely to defend mad house prices because, if lending is their bread and butter, a vibrant, active housing market, with lots of people taking out modest mortgages to buy reasonably-priced houses is much more to their advantage than a market that has seized up because no-one can afford to buy anymore.
Lastly, as I said at the start, there's a very different attitude to mad house prices now - particularly in London and immediate areas. House price inflation used to be seen as a good thing. Now it's beginning to be seen as a real and growing problem. There is a lot of talk about fairness and equality. There's no doubt the housing boom has been promoted and propped up by successive governments, but all parties now see it as something voters are concerned about and are prepared to do something about.
Obviously, they won't do the difficult thing and build lots of new homes, but they will place themselves firmly on the side of people who want to buy but can't.
So, we won't have a "crash". There won't be blood in the streets. Bank forbearance means that no-one is going to be thrown onto the street in front the TV cameras.
But prices will come down, because people move home, upsize, downsize, retire, get bored, die.
At the moment, London vendors are asking the moon on a stick for their homes. There's evidence to suggest they aren't getting it - either the moon or the stick. But it doesn't really matter for many of them. If they're selling their property "cheap", they'll be buying their next property "cheap".
If they've taken out a giant loan on super-bubble prices, probably in north-east London between January and July 2014, they've lost out. But I suspect that's actually only a few people and they'll just have to stay put.
In brief, if it's a "crash" we want, I don't think it's going to happen.
If it's markedly lower house prices, I think it will.
No alarms and no surprises. It's the English way.
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Unfortunately the ONS doesn't seasonally adjust the regional indices, so that statistic is somewhat misleading.
Does that matter? This is about price, not volume of sales. Would you pay more for a house in the summer than you would in the winter? Or have I misunderstood the purpose of seasonally adjusting?
Quite possibly.
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Thanks - has anyone seen the original research? Can't find it and would like to see if there's a borough-by-borough breakdown.
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I, on the other hand, like London, especially Pearly Kings and Queens.
Which is why I'm encouraged by the piece in the Guardian on the latest research from Haart which shows an actual drop in prices in the capital.
However, I can't find the original research anywhere online, which is a shame because I'd like to memorise the stats and quote them back to various estate agents.
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How come (asking) prices have gone up 2.1% in February when February is only half-way through. And presuming RM didn't compile these figures this morning, I wonder how much of February they've actually analysed in order to come up with that conclusion.
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Damn. Only a 60% drop.
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Well ... that's pretty significant, isn't it?
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Talking to an agent (the one final, decent, reasonable agent) in the part of SW London I monitor, I got a sense of where we might be with the London market.
He's routinely asked to market properties at 10% or more above what he thinks he could ever hope to sell them for.
Vendors see what similar properties have been sold for, add in a percentage according to how long ago the sale took place, and come up with a new "high" for the area.
Because he wants the business (it's his livelihood, after all) he agrees and on it goes.
It doesn't sell. It often doesn't attract any interest at all. So the vendor has to reduce the price.
However, they do this so incrementally that the property still doesn't attract any interest.
Finally, they drop the price by a significant amount, they get an offer for slightly less, and the sale goes through.
This sets a new "low" for the market. But because LR figures take so long to come through, it's a while before the new price becomes the benchmark and a degree of sanity returns.
Of course, other agents perpetuate the myth of ever-rising prices, adding to the time it will take for reality to hit home.
Some vendors don't need to sell quickly, or sell at all, so they don't, which means their asking price feeds through to the Rightmove index, encouraging others to go "high".
But what often happens is that a vendor wants to buy somewhere else, so either settles for a realistic price on their property and takes the hit, or bargains down on whatever he or she or they is or are buying elsewhere.
Which is how a market corrects itself, I think - quietly, privately, but tangibly.
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This is the strongest indication yet that something is afoot. Thanks for posting it.
In general, I detect a sea-change in attitudes towards rising house prices.
A couple of years ago, rising prices were considered to be a good thing.
Now, there's a sense that they are actually very damaging to individuals and the wider economy.
I can't remember the last time I heard a politician or commentator rejoicing over accelerating prices (I was about to say "values" ... )
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What happened in Leeds?
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It's still Wapping ...
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OK. This is proof either of the continuing madness of the current economic climate, or that everyone on this forum is, has been and always will be wrong now and forever ...
This is a half-decent terraced house in a part of SW19 I monitor regularly. This is how it's being marketed right now on Rightmove. For £1.25m.
http://www.rightmove.co.uk/property-for-sale/property-49306169.html
And here it is as it was sold last May - for £500k.
As far as I can make out it's the same house!!!
Unless I've got completely the wrong end of the stick, nothing has happened to it - nothing - but in the space of a year, it's grown £750k in value!!
Even vendors bought it very cheap, for some reason, and even if they spent £300k doing it up, and even if £1.25m is wildly overpitching it, this is still madness!!
Of course, the vendors may not get £1.25m, but if it is what it appears to be, it's a depressing example of people's expectations.
For the record, the house overlooks a relatively busy road, on the other side of which is the main Wimbledon to Waterloo overland and District Line rail tracks.
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http://www.rightmove.co.uk/new-homes-for-sale/property-30984741.html
Not quite as many steps... but a quarter off 1.6 million is a lot of money. I wonder how the neighbours who bought at original price are feeling (looking at the building there's 6 other identical flats.
This is in Wapping ... I mean ... Wapping?
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14 years supply.
Interesting business strategy.
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A fair point back.
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I definitely agree that all properties in London have gone up in price, but I'd argue that this actually makes some people poorer rather than richer.
If I had bought a £250k flat a few years ago that is now worth £500k that is a nice profit, but if I now want to upgrade to a house that was £500k then and £1m now, I am actually £250k worse off overall.
I realise that not everyone wants to buy somewhere bigger, but the view of a housing ladder where people buy bigger properties as their families and careers grow was always a strong one in the UK. It is outdated now when the entry price in London is 8 times (or more) the average salary, but people will still feel a bit cheated, and rightly so.
Well that is the key question, isn't it? We have got into a situation now in the UK where property rules everything especially in London. With property prices so far above incomes, and 20% increases each year, it is not really worth working for, say, £100k a year if you can get a BtL mortgage on a £500k property and watch it earn more than that (tax free) while you sit at home.
Severe interest rate rises would stop this, but I can't see that happening soon (or ever?). If price rises start to slow, I think that will send a message to the investors. 3% return might not be enough on it's own, but who cares when you are getting 20% growth for doing nothing. If that 20% comes down to nothing for a couple of years perhaps the 3% on it's own starts looking low.
I definitely see your view, though. The government have allowed this to go on for so long, do they have the ability or will to stop it now. Taxing foreign investors and UK BtLs properly would do it as would reducing the housing benefits given to UK benefits claimants that artificially raise rental value and therefore house prices. I can't see either of these two happening in the near future.
Maybe all three of the last points are already happening in a sense.
HMRC has clamped down on higher end properties bought by foreign investors
http://www.propertywire.com/news/europe/uk-stamp-duty-foreigners-201203216328.html
UK BTL mortgages face tighter restrictions (thanks to the EU - huzzah!)
http://www.thetimes.co.uk/tto/money/article4332672.ece
And the government has capped benefits, including housing
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OK. This is my final, economically illiterate stab at assessing the effects of Eurozone QE on the London housing market.
In theory ...
The ECB buys up debt from Eurozone banks.
Eurozone banks are flush with cash which they lend to Eurozone people at the super low interest rates produced by QE.
Eurozone people use those loans to buy property in London because even if it isn't growing at 20% a year any more, it's unlikely to fall in value.
In reality ...
The ECB buys up debt, Eurozone banks are flush with cash, Eurozone people are offered cheap loans at low interest rates.
But interest rates are already more or less negative so there's nothing any more attractive about them now than there has been for the past seven years.
The banks, being banks, use a lot of the cash to make their balance sheets look respectable, boost their profits and pay big bonuses.
They're cautious about lending large amounts to businesses and individuals because they're worried about getting it back - the Eurozone economy is on its knees, after all.
A gazillion Euros of stimulus has the effect of devaluing the Euro against Sterling, making holidays in Magaluf marginally cheaper for Brits, but British goods, services and property significantly more expensive for peopel in the Eurozone.
So an enterprising Frenchman wanting to invest in London property may not get a loan in the first place. If he does, it probably won't be any cheaper than it already is, and if he wants to use it to buy a duplex apartment in Battersea power station with panoramic views of the Wandsworth waste recycling plant, he'll find it will cost him significantly more than it would have done before QE because the Euro dans sa poche has fallen in value against the pound the duplex apartment is valued in.
On the other hand ...
No-one is buying duplex apartments in Battersea power station with panoramic views of the Wandsworth waste recycling plant, so when our enterprising Frenchman shows up with a loan from his Eurobank and offers 10% less than the asking price because that's all he's got, the developers bite his hand off because, yes, he may be offering 10% less than they want, but at least he's offering something, which is more than the Russians and Chinese right now.
That 10% discount feeds into the next set of LR figures (ignore Rightmove, because that will just reflect the pre-discount price, and ignore Nationwide and Halifax because he won't have used them to raise the loan), which helps drive down property prices in SW8.
When the drop in prices becomes apparent, everyone else starts demanding 10% discounts, which leads to a downward spiral in prime London values.
Maybe ...
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These people are property consultants. They make money from property. Unsurprisingly, they like the idea of property prices going up. A few days ago, they issued "research" pointing to huge price rises in certain areas of London as a result of Crossrail 2.
Personally, I trust them implicitly.
Best get in now before prices go through the roof.
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As an economic novice, can someone explain how Euro QE translates to higher property prices in London?
I get the idea of London property as a safe place for dubious money from Russia or China, even if capital gains are less and less likely.
But how does the ECB buying Eurozone bonds, freeing up banks to lend more to homes and businesses (if I've even got that right) equate to another push on prices in London?
Why would business and people in the Eurozone use that credit to buy in London? Are they even allowed to under the terms of their loan?
Apologies for the simplistic questions.
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I suspect they'll watch events closely so they look they're on the right side of the debate when it happens.
If the market starts sliding, I think they'll look at ways of propping it up.
But the point about running out of tools to do that is a very valid one, and I suspect they'll end up having to let it go, but presenting it as a common-sense solution to a problem facing lots of potential voters, which will be amusing.
The benefits of rising house prices are a chimera in many ways. You have to live somewhere, so people who sell one day often buy the next, meaning one sale is relative to another.
There's definitely a sense of entitlement about prices right now - the idea that no-one wants to sell for less than their neighbours. It feeds into the idea of house prices as a competitive sport. We all want to "win".
At some point - maybe - the evidence of a slowdown will be so ubiquitous that people will have to accept it.
At that stage, like the politicians, people who clung to sky-high prices as their right will find ways of accepting the new reality. Instead of perpetuating the madness, they'll nobly step away from him and assume the higher moral ground. "A house is just a house," they'll say. "As long as I've got somewhere nice to live, I really couldn't care less how much it's supposed to be worth."
Then they'll strike up a conversation about how their children are learning Mandarin at primary school and taking Grade 8 oboe before they can walk.
The mania of ever-rising house prices will become a taboo subject - something no-one likes to talk about. It never really happened.
Unless you paid top, top dollar and raised a huge mortgage at the height of the panic.
In which case, you're ****ed.
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I don't have much faith in Rightmove as an indicator of what's happening in the market.
By their own admission, their figures represent asking prices. Vendors and agents can ask what they want for a property. It doesn't mean they're going to get it.
Also, as others have pointed out on this thread, the prices quoted are what vendors start with, not what they end up reducing to.
I'm not fooled by their bullish quote about record hits on their website in January. Property is the UK's abiding economic obsession. I look at Rightmove about eight times a day. So does my wife. Who knows, maybe my children do too. But that doesn't mean we're going to buy anything.
What's apparently happening in Merton is a good indication of the basic flaw in these stats.
I monitor a specific area in the borough and noticed a glut of new properties coming onto the market in January. They're all marketed a good 20% above similar properties nearby which came onto the market last year. The majority of those older listings are still for sale. I know at least two or three which have gone under offer then come back again, either because the deal fell through, or the buyer thought better of jumping into a falling market.
My sense is that a new realism has entered the market - not just in Merton but in other parts of London. The fear of missing out - a hugely powerful driver in the middle of last year - has gone and with it a lot of the froth and frenzy that EAs and portals love.
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It's probably the case that oligarchs and other wealthy foreigners saw what 0.5% interest rates, FLS, HTB and media ramping was doing to house prices and saw an opportunity to make money. That was their motivation, not the opportunity to live in Hackney (vibrant though it is ... ).
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There's a lot of truth in the original post, however I think the big danger to the London market is the incessant speculation going on there.
Using a property as a way of making or even storing money requires that property to either grow in value, or at least not fall too dramatically.
It also means that market is in competition with other markets around the world.
If a rich person from Russia or China or Greece or Malaysia puts their money into London property, they can put it into Monaco property, or New York property, or Dubai property, or Berlin property - wherever it will make or save money.
If they think their money can do better elsewhere, they'll move it. It's not as easy as buying or selling shares, for example, but it's possible.
So London is different, but not necessarily in a good way for investors.
Is Prime London Crashing? - Merged Threads
in House prices and the economy
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But would someone tie up £1m plus in a property if they didn't think it was going to appreciate in value? Some people might be happy just to have their money in a safe place, but if it can earn more in stocks and shares and still be safe, why lock it into bricks and mortar (which is significantly more difficult to liquidate in a hurry).