House Price Bubble

[bubble]

Dear ALL, this is my first post and I just wanted to thank the website creator and all of your enjoyable positings. I'm a potential FTB, but have steered clear of the housing market for a number of years now on the view that I believed it to be overvalued. Indeed I still do! As each year goes by, and with my wife nagging me to buy, the pain gets harder. I've researched for a long-time the potential turning points. but all this has taught me that while I still conclude today we are observing a highly overvalued market on a HISTORICAL basis, the timeline to a significant fall is unpredictable and so will the extent of the fall. If you bought in London in 2001 or before, I now believe that it is likely that even with a significant fall you're unlikely to be hit with significant negative equity. While the housing market has all the signs of a bubble (easy money, dinner conversations, too many tv programmes, millionaire seminars etc.), bubbles have a way of sucking in everyone. I wonder if any of you have thought about:

1. The impact of being able to hold property in a SIPP as of 2006 - I see this as a further stimulus to the housing market.

2. Is there any database or record of the actual number of estate agents in the UK over time - I'm sure this would be as good an indicator of how frenzied the market is (there seem to be more than Starbucks!).

3. Does anyone know what the average un-letted time for BTLs has changed over the last three years. While rents have clearly come down, I just wonder whether letting times have increased.

For a FTB, remember the first step on to the ladder is where you are essentially locking in - any move after that is generally relative - getting your timing wrong as an FTB will have negative consequences for you for potentially decades to come.

Also a way to think about purchasing is this: you want to buy a Ferrari, and I tell you that its going to cost you £250k, but you can pay me by monthly installments of a £100? Yes I know its simple, but people too frequently focus on affordability as opposed to value when it comes to housing.

If I was a younger gun I would be seriously renting for the next three years...

Cheers Bubble

[needle]

My opinion, nothing else,

1 - SIPPs are not relevant. Most people know nothing about them. IF they peaked at 5% of the market I'd be very surprised.

2 - dont know.

3 - I am an LL. Average unlet time (per annum) is about 6 weeks. I havent found rents coming down, thats not to say they havent, mind. Length of lets has increased. I have some great tenants, young uns looking for a break. I dont rip em off - I was there once.

While I believe there should be a drop in property prices, and I also see it happening it will not be all that severe without outside an outside trigger.

That trigger will be oil.

[oracle]

Nope!!

there are 2 triggers!!...this one's double barrelled!

1)rising equity markets,mainly due to commodity price rises....most of the sheep haven't figured out how to do mercantile trading yet but they will see the index as a whole rising and want a piece of it,giving support to equities at these levels......some of the BLT's will be actively looking to do this(or already have)=GREED

2)the substantial risk of losing a very large chunk of money or being caught short when your tenants default,leaving the LL to carry the can and the bank to come-a-calling=FEAR

USUALLY THE MARKET ONLY REQUIRES ONE OF THESE TO DRIVE IT,BUT THIS ONE IS A DOUBLE WHAMMY

...or just another bubble in the making???????

[bubble]

I have to say, I'm just not convinced that we're going to be able to identify a catalyst - if one is right in believing that the market peaked last June - why then? What changed in July from an economic perspective to burst the bubble? If one trys to relate the housing bubble to the IT bubble in equities, no one can really explain what caused the reversal for IT stocks. In both cases, there was an understanding the markets were exhibiting "irrational exuberance", but I beileve one of the features of bubbles is simply the inability to predict when they will reverse.

I think we have an interesting dynamic developing between inflation and a consumer slow down. If Merv is right in that in appears that consumer spending is more linked to the housing market than orginally anticipated, it does suggest that the MPC may move rates down (especially as taxes look almost certain to rise over the next 12 months), but with oil rising one has to expect that inflation should start to pick up in which case they are in a difficult position. I have no doubt that if we are at an inflexion point, then a 0.5% on the current base rate would certainly accelerate the reversal.

PS Dr Bubb, I love the graph, but it's so depressing to note that even in the bearish case, if I wait till next year, I'm still looking at price levels back to 02 only!

[doommonger]

If the housing market (UK and most other English speaking markets) has a speculative element (BTL, FTBers stretching themselves, home owners trading up to larger places than they would otherwise buy) then the catalyst for prices to fall is flat capital growth.

There was no catalyst for the end of the dot com bubble, apart from share prices not going up anymore.

All the stuff about interest rates etc misses the point.

[homedaq]

if one is right in believing that the market peaked last June - why then?

Perhaps that was just the point when confidence of greater gains was replaced by fear of losses.