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NEO72

Can't See Any Reasons To Be Bullish About Hpi

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I've tried to keep a relatively open mind about the HPC and listened to both sides of the arguement but can't see any reason why anyone would be bullish about house prices now. The way I see it, 2007 level prices were propped up by banks lending excessive amounts eg 100%+ LTVs, 10X salary, liar loans (in 2007 almost half of all mortgages didn't need proof of income) etc.

Now, there are 3 reasons why prices have risen:

1. Mortgages have been relatively cheap (with a large deposit)

2. Lack of supply

3. Cash-rich buyers perceiving prices as being bargains and being worried they may 'miss the boat'

Given that the cost of servicing mortgages has been steadily rising and 'bargains' are no longer to be had then this will take out many of the cash-rich buyers - this in turn will reduce demand causing prices to level out/drop thus taking away the 'miss the boat' mentality. Anecdotally, I've also noticed a 20% increase in supply of family homes in my area (somerset) over the past month or so too.

And if you notice I haven't even got into the effects of unemployment, repos and increased base rates.

Is this a fair summary and if so how does this bode well for further HPI?

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I've tried to keep a relatively open mind about the HPC and listened to both sides of the arguement but can't see any reason why anyone would be bullish about house prices now. The way I see it, 2007 level prices were propped up by banks lending excessive amounts eg 100%+ LTVs, 10X salary, liar loans (in 2007 almost half of all mortgages didn't need proof of income) etc.

Now, there are 3 reasons why prices have risen:

1. Mortgages have been relatively cheap (with a large deposit)

2. Lack of supply

3. Cash-rich buyers perceiving prices as being bargains and being worried they may 'miss the boat'

Given that the cost of servicing mortgages has been steadily rising and 'bargains' are no longer to be had then this will take out many of the cash-rich buyers - this in turn will reduce demand causing prices to level out/drop thus taking away the 'miss the boat' mentality. Anecdotally, I've also noticed a 20% increase in supply of family homes in my area (somerset) over the past month or so too.

And if you notice I haven't even got into the effects of unemployment, repos and increased base rates.

Is this a fair summary and if so how does this bode well for further HPI?

You are right. the market will now stagnate. nobody is willing to sell lower and nobody is wanting to comitt at these prices. We will trundle around here for the forceable with little peaks and troughs. It will be boring tbh.

2012....we will be back with HPI modest to small mom gains imo.

Edited by Jister1

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Now, there are 3 reasons why prices have risen:

1. Mortgages have been relatively cheap (with a large deposit)

2. Lack of supply

3. Cash-rich buyers perceiving prices as being bargains and being worried they may 'miss the boat'

Here are 3 reasons why prices can be maintained:

1. No-one is selling, repos are few and far between

2. Interest rates are pathetically low, probably for a few more years

3. Trust will be lost in money/cash

I'm seriously considering buying a place for cash to go neutral rather than being 1-short at the moment. Some place that is small/cheap but with a decent plot but can be extended if things hold together. (there are such places)

I hate risk and holding cash is looking riskier by the day. Nothing the politicians are saying gives me any confidence that the money printing will stop.

VMR.

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When interest rates rise then forced sales will result. This may happen sooner than we think.

And with rising unemployment and mass debt, I can't see the mortgage interest relief being as generous as it is now.

Something's got to give, and we are just limping to the next election (if we can get that far).

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Here are 3 reasons why prices can be maintained:

1. No-one is selling, repos are few and far between

2. Interest rates are pathetically low, probably for a few more years

3. Trust will be lost in money/cash

I'm seriously considering buying a place for cash to go neutral rather than being 1-short at the moment. Some place that is small/cheap but with a decent plot but can be extended if things hold together. (there are such places)

I hate risk and holding cash is looking riskier by the day. Nothing the politicians are saying gives me any confidence that the money printing will stop.

VMR.

Appreciate that and their may be some others who think like you but my point is that this pool of buyers (who are supporting the market at the mo) is extemely limited - what % of buyers need no mortgage/a small mortgage as a proprtion of all FTBs?

These limited numbers can provide support for low volumes as currently but when volumes increase/the perception of bargains is no more then that support goes. Also, for more people to loose trust in cash wouldn't that mean interest rates are increasing thus bringing in forced sales? Seems to me like a no-win situation for HPI. Perhaps you see cash being riskier but given that even the most vested intests are airing caution about another leg of price drops I would say buying now is a greater risk.

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Appreciate that and their may be some others who think like you but my point is that this pool of buyers (who are supporting the market at the mo) is extemely limited - what % of buyers need no mortgage/a small mortgage as a proprtion of all FTBs?

These limited numbers can provide support for low volumes as currently but when volumes increase/the perception of bargains is no more then that support goes. Also, for more people to loose trust in cash wouldn't that mean interest rates are increasing thus bringing in forced sales? Seems to me like a no-win situation for HPI. Perhaps you see cash being riskier but given that even the most vested intests are airing caution about another leg of price drops I would say buying now is a greater risk.

+1

I like your understated, reasonable style. It's an approach we need more as it speaks volumes. Cool, calm, collected rational appraisal.

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Good post I agree. The only real debate is whether things can improve or interest rates can stay low for long enough to help out those who otherwise might become forced sellers and push the market down again. I expect a long period of stagnation.

[e] That said, I am becoming worried about inflation being allowed to run a bit ahead of target in order to deflate the Government's debt away - just like 4-5% per year maybe, and thinking that if I can effectively borrow at 0% real rates, owning more property might be a reasonable hedge. I don't really buy the idea that getting into gold at these levels is sensible.

Edited by RandomBear

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Appreciate that and their may be some others who think like you but my point is that this pool of buyers (who are supporting the market at the mo) is extemely limited - what % of buyers need no mortgage/a small mortgage as a proprtion of all FTBs?

I've sold (SSTC) two probate properties recently. There was no shortage of no mortgage/a small mortgage buyers. Both houses went SSTC in under a month. A third property isnt for sale but we were getting people desperate (their words) to buy that as well.

There is so little for sale that the small number of buyers are fighting over what's left. I have been to one property at random times to have a look (it's empty) and there have been interested parties there every time.

These limited numbers can provide support for low volumes as currently but when volumes increase/the perception of bargains is no more then that support goes. Also, for more people to loose trust in cash wouldn't that mean interest rates are increasing thus bringing in forced sales? Seems to me like a no-win situation for HPI. Perhaps you see cash being riskier but given that even the most vested intests are airing caution about another leg of price drops I would say buying now is a greater risk.

I had expected forced sale volumes to be increasing by now. There is usually an 18 month lag from unemployment to forced sales but it just isn't happening this time round. Banks and govt are letting nonpaying mortgagees stay in their homes to pretent the loans are really worth something. The game is rigged.

I've talked to some recruiters recently (not for me) and the market is getting back to normal albeit at much lower wage levels. With interest rates so low (for now), people can hold on to their houses. All the evidence I have is that the govt has propped this econmy up at great risk, but propped up, it is.

You only need a 40% deposit to get a mortgage under 3%. I would have thought most buyers since 2002/3 have more than 40% equity (big generalisation but you get the point).

My lowering of trust in cash is based on my view that the BoE/Gordon are going to take this one to the wire, printing until there is a crisis so obvious, they will have to give up and cut public spending by 20%+ and hike interest rates well above 5%.

I expect nominal drops at Japan style rates from now on for a very long time. If buying, I would expect a further 15% downside. If holding lots of cash, the downside is looking much greater.

VMR.

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Good post I agree. The only real debate is whether things can improve or interest rates can stay low for long enough to help out those who otherwise might become forced sellers and push the market down again. I expect a long period of stagnation.

That sounds like those who would have sold will now try to pay down the debt. And if the banks are still trying to de-leverage.

Deflation ?

As for the prices of stuff well I'm trying to see it as a standard of living adjustment.

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+1

I like your understated, reasonable style. It's an approach we need more as it speaks volumes. Cool, calm, collected rational appraisal.

Thanks, there is no point in being too bombastic as the truth is no one really knows what is going to happen next and similarly, it is why I am only concerned with the more objective fundamental factors (as opposed to arguments concerning how overpriced houses are, prices relative to gold, effects of unemployment, price of fish etc etc.) as these are too subjective and just serve to provide bulls with ammunition - hence the lack of bull's responses to this thread I guess ;)

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snip what % of buyers need no mortgage?

snip

thats easy....bankers need no mortgage.

they are buying their own repos through shells.

the next step is to buy all houses.

it keeps values up.....keeps them solvent. shame its like the government borrowing from itself......reduces the value of the currency.

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I've sold (SSTC) two probate properties recently. There was no shortage of no mortgage/a small mortgage buyers. Both houses went SSTC in under a month. A third property isnt for sale but we were getting people desperate (their words) to buy that as well.

There is so little for sale that the small number of buyers are fighting over what's left. I have been to one property at random times to have a look (it's empty) and there have been interested parties there every time.

I had expected forced sale volumes to be increasing by now. There is usually an 18 month lag from unemployment to forced sales but it just isn't happening this time round. Banks and govt are letting nonpaying mortgagees stay in their homes to pretent the loans are really worth something. The game is rigged.

I've talked to some recruiters recently (not for me) and the market is getting back to normal albeit at much lower wage levels. With interest rates so low (for now), people can hold on to their houses. All the evidence I have is that the govt has propped this econmy up at great risk, but propped up, it is.

You only need a 40% deposit to get a mortgage under 3%. I would have thought most buyers since 2002/3 have more than 40% equity (big generalisation but you get the point).

My lowering of trust in cash is based on my view that the BoE/Gordon are going to take this one to the wire, printing until there is a crisis so obvious, they will have to give up and cut public spending by 20%+ and hike interest rates well above 5%.

I expect nominal drops at Japan style rates from now on for a very long time. If buying, I would expect a further 15% downside. If holding lots of cash, the downside is looking much greater.

VMR.

care to explain ?

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I've sold (SSTC) two probate properties recently. There was no shortage of no mortgage/a small mortgage buyers. Both houses went SSTC in under a month. A third property isnt for sale but we were getting people desperate (their words) to buy that as well.

There is so little for sale that the small number of buyers are fighting over what's left. I have been to one property at random times to have a look (it's empty) and there have been interested parties there every time.

I had expected forced sale volumes to be increasing by now. There is usually an 18 month lag from unemployment to forced sales but it just isn't happening this time round. Banks and govt are letting nonpaying mortgagees stay in their homes to pretent the loans are really worth something. The game is rigged.

I've talked to some recruiters recently (not for me) and the market is getting back to normal albeit at much lower wage levels. With interest rates so low (for now), people can hold on to their houses. All the evidence I have is that the govt has propped this econmy up at great risk, but propped up, it is.

You only need a 40% deposit to get a mortgage under 3%. I would have thought most buyers since 2002/3 have more than 40% equity (big generalisation but you get the point).

My lowering of trust in cash is based on my view that the BoE/Gordon are going to take this one to the wire, printing until there is a crisis so obvious, they will have to give up and cut public spending by 20%+ and hike interest rates well above 5%.

I expect nominal drops at Japan style rates from now on for a very long time. If buying, I would expect a further 15% downside. If holding lots of cash, the downside is looking much greater.

VMR.

20 million mortgages. only 35,000 new ones every month....and most are for house purchase.

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Appreciate that and their may be some others who think like you but my point is that this pool of buyers (who are supporting the market at the mo) is extemely limited - what % of buyers need no mortgage/a small mortgage as a proprtion of all FTBs?

These limited numbers can provide support for low volumes as currently but when volumes increase/the perception of bargains is no more then that support goes. Also, for more people to loose trust in cash wouldn't that mean interest rates are increasing thus bringing in forced sales? Seems to me like a no-win situation for HPI. Perhaps you see cash being riskier but given that even the most vested intests are airing caution about another leg of price drops I would say buying now is a greater risk.

Exactly. I did some calculations based on my sisters FTB purchase at the peak in 2007 and the affordability now is worse than then, much worse.

She got a 95% LTV fixed rate for 10yrs at 5.5%

Now the best FTB mortgage is 6.49% fixed for just 5 yrs and 90% LTV max (reported in Guardian at the w/e).

The property has recently been valued higher than when they bought it. (Bought for £190k and valued now at £225k)

So an FTBer today needs a much larger deposit and will still be paying much higher monthly mortgage payments. How the hell can that be the case in the middle of a recession!?

The housing market it currently feeding on itself, people with cash and large equity trading on low volumes. It's not sustainable.

The other thing that has saved people is low SVRs - people that found themselves in negative equity just fell onto really low SVRs when their mortgage deals ended. These SVRs are far lower than any new mortgages that can be obtained and normally this isnt' the case, SVRs traditionally are higher. If people coming to the end of fixed/tracker deals and finding themselves in NE were reverting to SVRs more like the 6.5% FTB deal above and at the same time they were losing their jobs there would be far more forced sales. This has been avoided with low SVR rates.

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