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Ftb Trying To Make Sense Of Edinburgh

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Hi everyone,

I've been watching this forum for few months now. I'm also an FTB so probably extremely naive so please be nice.. :) I'm currently flat hunting around the city centre in the 110k-140k range but must admit this forum puts some doubts in my head about when is the right time to buy. There seems to be two schools of thought:

Bull: We've already seen the worst of this crash, and we are getting back into the boom again, referring to month on month figures.

Bear: We've had a 20% drop and we've another 20% to go, referring to year on year figures.

I want to believe the Bears, but there are a few things which maybe they can help explain:

1. I don't see why YoY figures are so important, as a buyer I am concerned about absolute prices and whether they are going up or down based on a week ago. If I see 3 or 4 months of continuous increases it suggests more than just a blip in the stats.

2. Banks are still lending at 5 * salary (I know because I've been offered this). For there to have been a larger crash surely the banking industry would have had to return to the good old days of no more than 3 * salary? The fact that the bank will still lend at 5 * just means FTBs can stretch themselves too far and artificially keep the price high. The huge Government debt has cut the crash short.

3. People, especially in Edinburgh seem to have an attitude of "My house/flat is worth more than that!!" and so are unwilling to set lower prices or even sell at all. Seems everyone is waiting for the media to make it ok to buy/sell again. I find flats I'm looking at sold at the peak at around £150k, and now are coming in at fixed price £140k.. and I know they will sell for less than 140k but even still this is by no means -20%. Could it be that repossessions and new builds have accounted for Edinburgh's downturn and not so much normal property which is a much smaller than usual percentage of the market?

Thanks,

Will

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Hi, and welcome.

The reason why year-on-year figures are regarded as important is that, in order for us to make informed decisions about house purchase in a volatile market, it would be wise for us to do whatever we can to identify the prevailing trend as best we can.

The volume of sales being completed in the housing market is highly seasonal:

Picture_4.png

As is the total money being discharged into the housing market:

Picture_3.png

If we break these figures into quarterly streams we can see this:

Picture_6.png

and this:

Picture_5.png

We might draw the conclusion that Q1 (Jan-Mar) is buy far the best time to buy a house in Edinburgh, while Q3 (Jul-Sept) is by far the best time to sell! There can be no doubt that the seasonality present in the market counts for a bit more than a few vested-interest-driven media headlines which, while correct in pointing out that there have been monthly rises, have totally failed to account for seasonal variations.

Furthermore, there's this:

bubble-lifecycle.gif

With reference to the above and to recent media reports, where do you think we are on the graph right now?

We're all in it together, but we've all got to work it out for ourselves.

post-14504-1252141052_thumb.png

post-14504-1252141111_thumb.png

post-14504-1252141193_thumb.png

post-14504-1252141222_thumb.png

Edited by The McGlashan

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In a volatile market YOY becomes worthless.

Look at the recent figures.

ESPC for JULY was -13.5% YOY. (Ouch).

Between July and August, house prices actually fell £6K.

Yet the EAs are singing and dancing about +2.2% YOY.

So your right, far better to have a generally awareness of the trends.

And indeed what may be effecting them.

The ESPC quarterly figures are most interesting as they show a break down of property types.

And just how much skew the "money no object 1/2 Million £ town houses" can have on the overall average.

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Hi everyone,

I've been watching this forum for few months now. I'm also an FTB so probably extremely naive so please be nice.. :) I'm currently flat hunting around the city centre in the 110k-140k range but must admit this forum puts some doubts in my head about when is the right time to buy. There seems to be two schools of thought:

Bull: We've already seen the worst of this crash, and we are getting back into the boom again, referring to month on month figures.

Bear: We've had a 20% drop and we've another 20% to go, referring to year on year figures.

I want to believe the Bears, but there are a few things which maybe they can help explain:

1. I don't see why YoY figures are so important, as a buyer I am concerned about absolute prices and whether they are going up or down based on a week ago. If I see 3 or 4 months of continuous increases it suggests more than just a blip in the stats.

2. Banks are still lending at 5 * salary (I know because I've been offered this). For there to have been a larger crash surely the banking industry would have had to return to the good old days of no more than 3 * salary? The fact that the bank will still lend at 5 * just means FTBs can stretch themselves too far and artificially keep the price high. The huge Government debt has cut the crash short.

3. People, especially in Edinburgh seem to have an attitude of "My house/flat is worth more than that!!" and so are unwilling to set lower prices or even sell at all. Seems everyone is waiting for the media to make it ok to buy/sell again. I find flats I'm looking at sold at the peak at around £150k, and now are coming in at fixed price £140k.. and I know they will sell for less than 140k but even still this is by no means -20%. Could it be that repossessions and new builds have accounted for Edinburgh's downturn and not so much normal property which is a much smaller than usual percentage of the market?

Thanks,

Will

Five times salary to you maybe,but not to everyone across the board? otherwise a lot of the Edinburgh flats that are just sitting there would be selling? If you believe that cheap credit drove the price rises, then you have to ask yourself, is cheap credit coming back in the way it flowed in the run up to 2007, yes or no? and what mechanisms will the banks use to make a supply of cheap credit available? if you believe high wages drove the Edinburgh boom you have to ask, are these wage levels there going forward? I personally believe free and easy credit drove the boom, especially in places seen to be "desirable", and I believe that this sort of credit avilability to the masses will not occur again. For these reasons I would not touch property in Edinburgh with a barge-pole just now as there are too many variables just getting ready to unravel such as higher interest rates, mortgage resets,public sector and financial sector job losses etc etc. I think even hardened bulls have to admit that without BTL and multiple ownership (even with them :lol: ) Edinburgh has no supply issues? the problem is supply of AFFORDABLE housing, and that is about to be addressed, I would wait and see if I were you.

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In a volatile market YOY becomes worthless.

Look at the recent figures.

ESPC for JULY was -13.5% YOY. (Ouch).

Between July and August, house prices actually fell £6K.

Yet the EAs are singing and dancing about +2.2% YOY.

So your right, far better to have a generally awareness of the trends.

And indeed what may be effecting them.

The ESPC quarterly figures are most interesting as they show a break down of property types.

And just how much skew the "money no object 1/2 Million £ town houses" can have on the overall average.

Indeed, as is now abundantly clear, volatility reigns in all markets, for all commodities and assets. When that volatility will end is inherently and by definition unknowable. Not a good environment in which to risk one's capital - particularly when that capital consists almost entirely of a promise to provide one's future labour into a market for that labour which is, itself, volatile.

In the light of that...

2. Banks are still lending at 5 * salary (I know because I've been offered this). For there to have been a larger crash surely the banking industry would have had to return to the good old days of no more than 3 * salary? The fact that the bank will still lend at 5 * just means FTBs can stretch themselves too far and artificially keep the price high.

The OP should ask himself - if he is comfortable borrowing 5x salary with current interest rates at their 300 year historic low of 0.5% - whether he will comfortably afford the interest payments when the base rate reverts to 2%? 5%? While it is true that the indications are that the BoEBR will remain very low in the short to near term, a mortgage for a FTB is a long term commitment. Truly, and with no hint of irony, "there is only one way for interest rates to go".

The huge Government debt has cut the crash short.

It is worth remembering that the unprecedented actions of QE, ZIRP and bank nationalisations were vital to prevent a rapid and comprehensive collapse of the worldwide banking system. It would be only the most dogmatic anarchist who would wish for the full implications of that crash to have played out across the world without government interventions to save public and business actors from the results of what might otherwise have played out.

Therefore, IMHO, the OP is partially correct to conclude (in the context of house prices) that Government borrowing has "cut the crash short". I would say that government intervention in the economy has helped to temporarily massage public sentiment - the overall economic picture is clearly much, much better than it would have been had their been no intervention. However, this massaging of sentiment is a collateral effect of what was (and remains) very much emergency intervention and we should remember the old economic adage that (in the context of record levels of peacetime govt. borrowing) "that which is not sustainable will not be sustained."

Edited by The McGlashan

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Hi everyone,

I've been watching this forum for few months now. I'm also an FTB so probably extremely naive so please be nice.. :) I'm currently flat hunting around the city centre in the 110k-140k range but must admit this forum puts some doubts in my head about when is the right time to buy. There seems to be two schools of thought:

Bull: We've already seen the worst of this crash, and we are getting back into the boom again, referring to month on month figures.

Bear: We've had a 20% drop and we've another 20% to go, referring to year on year figures.

I want to believe the Bears, but there are a few things which maybe they can help explain:

1. I don't see why YoY figures are so important, as a buyer I am concerned about absolute prices and whether they are going up or down based on a week ago. If I see 3 or 4 months of continuous increases it suggests more than just a blip in the stats.

2. Banks are still lending at 5 * salary (I know because I've been offered this). For there to have been a larger crash surely the banking industry would have had to return to the good old days of no more than 3 * salary? The fact that the bank will still lend at 5 * just means FTBs can stretch themselves too far and artificially keep the price high. The huge Government debt has cut the crash short.

3. People, especially in Edinburgh seem to have an attitude of "My house/flat is worth more than that!!" and so are unwilling to set lower prices or even sell at all. Seems everyone is waiting for the media to make it ok to buy/sell again. I find flats I'm looking at sold at the peak at around £150k, and now are coming in at fixed price £140k.. and I know they will sell for less than 140k but even still this is by no means -20%. Could it be that repossessions and new builds have accounted for Edinburgh's downturn and not so much normal property which is a much smaller than usual percentage of the market?

Thanks,

Will

Please hang on as long as you can. Don't catch a falling knife.

Anecdotal:

Friends of mine bought in nice street just outside City Centre August 2007. One of them is very much of the 'buy now or you'll get left behind' mindset. Told me last summer if I didn't buy, I'd 'never be able to afford a flat' and I'd be 'left behind'

Their flat - 2 bed, 1920s block. Cost £185k.

A few months ago, they told be their neighbour was selling up and maybe I should take a look at her flat. I did so - Fixed Price £130k and no offers.

Lots of delusional people in Edinburgh. This is going to be a tough winter IMO and the amount of FP and '£10k below valuation!!!' stuff on the ESPC website should give you an indication of where things are headed. Serious job losses haven't even started yet.

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Thanks everyone for the very useful comments, stats and advice.

Duly noted the comments on seasonal changes. I find McGlashan's graph very useful as it removes seasonal change but keeps monthly data and so suggests we are returning to a peak similar to those in 2007 and 2008.

On the topic of whether we are about to boom or crash further, I'd like to propose an alternative based on my points 2 and 3. I want to agree that we're heading for further steep drops, but I think more realistically things will flatten off for a few years.

Whilst banks are lending at 5* salary, no, I do not feel comfortable about this, especially since the best deal I can get is a fixed 6% for 2 or 3 years. Flats I'm looking at today are typically closer to 4*salary but this still means 6% and is still a drop in lifestyle standard from renting to achieve it.

Logical thinking like this should lead everyone in my position to not buy, and there is reduced demand so prices should fall. On the supply side, sellers with the "it's worth more than that!" attitude are causing the reduced supply, thus cancelling the effect of reduced demand. Also, people generally believe the media rather than research for themselves so as long as there is belief that property prices are going up, there will be increased demand and so the property prices WILL go up, but only as far as banks are willing to lend, so we end up with a flat line with some seasonal variation?

Surely this "conventional wisdom" about the true value of property being more than it is today means that any drop in value is going to be mopped up by pent up demand?

So when I try to make a conclusion, I can't see any way in which Edinburgh prices can keep going up past their 2007/2008 peak by enough to make property (and therefore an expensive mortgage) a sound investment for the next 2/3 years... and there is a significant risk that they will decrease so I have to stick to renting for now. So I'm left with the question... what do I do with my saved up deposit? A savings account will only give me 3%, which isn't a great alternative.

Thanks,

Will

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We're still in the see who blinks first phase.

When the emergency base rates inevitably creep up, theres going to be a bunch of people rushing to sell at the same time.

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So I'm left with the question... what do I do with my saved up deposit? A savings account will only give me 3%, which isn't a great alternative.

Thanks,

Will

Hi again Will,

A common question. One way to look at it is like this....

Your savings get 3%, and you've hypothecated them for house purchase in a market with negative growth of -5.5% pa (at present).

=> Your savings are getting 8.5% return at the moment in the exchange value which you have chosen for them.

Brilliant.

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What are you actually looking for, beyond price?

For £140k, you can be a 6-min train ride away from Edinburgh Waverley, and get yourself a 2-bed quarter villa or mid-terraced house (in some areas) .... look around the commuter stations on the East Coast line.

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What are you actually looking for, beyond price?

For £140k, you can be a 6-min train ride away from Edinburgh Waverley, and get yourself a 2-bed quarter villa or mid-terraced house (in some areas) .... look around the commuter stations on the East Coast line.

I work in Corstorphine, and even though I own a car I would like to be mid-way between work and the city centre so I can walk/cycle to both. I don't want to live outside the bypass just yet. Been looking at Gorgie, Dalry, Tollcross, Morningside and a few places in Edinburgh North. I'm not living with my partner so I am looking at a 1 bed or 2 bed flat with the potential to have a lodger. Generally looking at places <20 yrs old so that they have a parking space and a factor to keep things clean.

Must admit this forum has got me thinking more clearly about property, although I might still put in offers in the coming months, but at least 20% below asking price. I'm slightly worried that if another crash does happen then there'll be next to no flats actually on sale. At least today it feels like there are some, and I don't have much competition for them.

What do people on this forum think will happen with mortgages? Today I can get 5*salary @ 6% fixed 2 yrs 85% LTV. What will happen in 6 months / 12 months?

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What do people on this forum think will happen with mortgages? Today I can get 5*salary @ 6% fixed 2 yrs 85% LTV. What will happen in 6 months / 12 months?

You'll find disucssions about savings, investments, mortgages and all this sort of thing here:

http://www.housepricecrash.co.uk/forum/ind...hp?showforum=27

and here

http://www.housepricecrash.co.uk/forum/ind...hp?showforum=43

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Logical thinking like this should lead everyone in my position to not buy,

A savings account will only give me 3%, which isn't a great alternative.

I'm in the same boat as you i.e. could 'afford' to buy the kind of place I want, but not willing to at what I consider to be silly prices. I am going to start looking toward the end of next year, but am really not in any kind of a rush. I am interested to see how all this plays out and 3% tax free in an ISA may not be fantastic, but its a better return than I'd be getting if my money was tied up in property AND I have the extra cash from my 'renting' lifestyle.

What I've decided to do is put aside in savings the difference each month between what my rent is and what my mortagage would be. This way I am investing the same amount of money as I would were I a property owner, but I am going to keep this money in cash ISAs. This means that I am getting a net benefit in a falling market, and as this money mounts up; one day it will make more financial sense to buy than to rent.

SelfDoIt

ED: I don't think interest rates are a problem. If they stay low, it is because we are in a deflationary environment and it will be good to be a saver not a debtor. If they go up, it will be due to the economy 'recovering' but will bring about more forced sales due to continuing redundancies which will force house prices to drop. i.e. to my eyes staying out of the property market for another year or 3 is a win-win situation.

Edited by SelfDoIt

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