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Smell the Fear

Got A Shock Today....

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I was close to buying a house recently, at about 10% above RV which I thought was bordering on reasonable. In the end I just wasn't happy with it (believing we have significant falls to come). I found out today that this house sold for the same price I offered. When? At the peak of the boom!

WTF? I think the current owner may have spent 15-20k on work when he bought it, but how can this be explained? The price I was going to pay looked like reasonable value compared to everything else on the market. Did the boom really happen? How many houses actually sold at crazy prices? I'm beginning to think it was a short frenzy with perhaps only a few hundred transaction taking place at or near peak values.

However, what this may show is that even pre 2005 prices were crazy. The best rational analysis is perhaps rental values. The house in question could maybe rent for £900 per month, £10800 per year. A landlord must surely want at least 7% to cover his mortgage interest +costs (insurance, maintenance, letting costs, voids). That makes a fair value for the house £154k on a good day. On a not so good day an investor might want 9%+, valuing the house at £120k.

The question is, can we really get to these valuations? Can things really turn this sour? On the one hand to think we have additional falls of 40-50% to come from where we are now seems crazy. On the other hand logic dictates that it must happen either through inflation or deflation.

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The question is, can we really get to these valuations? Can things really turn this sour? On the one hand to think we have additional falls of 40-50% to come from where we are now seems crazy. On the other hand logic dictates that it must happen either through inflation or deflation.

Might come as a bit of a shock when the surveyor values the property for less than the sale agreed price.

I would say this property will be back to 'for sale' within a 10 week period.

Keep us updated <_<

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yeah keep an eye on this one with Bee....be interesting to see what happens in a few months...Sophia's right ;)

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Somehow it's still levitating. Very few transactions, EAs have made massive layoffs, 90% of vendors can't get a buyer.

But if you want a house you actually have to pay close to boom prices!

I think only a lethal combination of rising interest rates and rising unemployment will crack this nut. So far most people are unscathed by this recession, life is continuing almost as normal except that people feel they should be a little cautious.

When will the shtf? I can wait a few years easily.

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However, what this may show is that even pre 2005 prices were crazy. The best rational analysis is perhaps rental values. The house in question could maybe rent for £900 per month, £10800 per year. A landlord must surely want at least 7% to cover his mortgage interest +costs (insurance, maintenance, letting costs, voids). That makes a fair value for the house £154k on a good day. On a not so good day an investor might want 9%+, valuing the house at £120k.

I don't agree with the rental estimation, £900/month incl rates will rent a £650K property (boom price). Renting is very non-linear, for every £100 you spend above £500 per month, you get something like another £100K worth of house.

Rental prices are not set by BTLs and their yield calculations, they are set by renters wages and demand. Banks will not give you (renter) endless credit to pay rent, unlike mortgages, therefore the money has to come from the current economy and so is linked closer to it.

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