Where Next For Britain's Property Prices?

[tallguy]

Everything the Bank of England and the Labour and Conservative governments are doing is pointing to Stuart Law's unnatural outcome.

Yes, I would agree with this, depressingly

[okaycuckoo]

Everything the Bank of England and the Labour and Conservative governments are doing is pointing to Stuart Law's unnatural outcome.

Seems so, but the plan will come unstuck. At some point consent will be withdrawn, whether in the market or at the polls.

[sutemiwaza]

As an agent in central London the market has gone very quiet....people seem to be sitting on their hands. Volumes are well down and my boss says it spells trouble and says we should have higher interest rates as it would force people to sell leading to prices dropping and we would get some volume. Talking to the solicitors and mortgage brokers and it is pretty dire.

[red]

As an agent in central London the market has gone very quiet....people seem to be sitting on their hands. Volumes are well down and my boss says it spells trouble and says we should have higher interest rates as it would force people to sell leading to prices dropping and we would get some volume. Talking to the solicitors and mortgage brokers and it is pretty dire.

Eh? Are you for real? An EA who actually 'gets it'?

And your boss is suggesting higher IRs to generate forced sales to increase volumes? Wow.

Does he/she keep this opinion to him/herself or share it with other EAs? I'm sure Peter Rollings would puke at the idea of lower prices...

[WiseBear]

My predictions, for what they're worth:

1 year: minus 7%

5 years: plus 15%

Anyone whose 5 year predictions include decimal points is clearly talking the bovine equivalent of pig manure.

O good I like guessing games.

I'll go for:

1 year: minus 10%

5 years: minus 59.9%

[eric pebble]

As an agent in central London the market has gone very quiet....people seem to be sitting on their hands. Volumes are well down and my boss says it spells trouble and says we should have higher interest rates as it would force people to sell leading to prices dropping and we would get some volume. Talking to the solicitors and mortgage brokers and it is pretty dire.

Yup --- My informers tell me it is DIRE out there..... Whatever one reads in the Press/Media - most of it is planted there by PR firms hired by the Vested Interests......

AND - as Maxdiver says above:

"Read the article, these people didn't see anything wrong back in 2004-06 - so I don't pay much attention to what they say now.

Personally - how will house price be in the future?

They will be a bad-word - just like DotCom boom, Equitable Life and Timeshares."

I couldn't agree more!!! I mean - all those people who were in total denial before the Crisis of 2008+ -- Well!! What do they say now? They are STILL in denial -- this Stuart Law guy What a joke!!

[Oliver Sutton]

Stuart: Britain is a closed-shores market with limited supply.

Even he can't bring himself to say Britains is a small island. (as if that makes any difference)

[cakehead]

It's always shocking when people believe one of the main political parties will introduce some instinctive fairness the previous incumbent left out. The coalition will fight tooth and nail to maintain existing house values as far as possible, knowing their next term of office relies on an illusion of normality. For that reason I see a re-run of the early 90s with big drops in crap housing and targetted new builds and the rest of the market sitting on its hands.

There'll be a decline in values but averaged across the country as a whole and in all sectors, it'll take donkey's years to realise. The kind of crash where an FTB can expect 30 - 50% off their home of choice ain't gonna happen anytime soon.

[Redcellar]

It's always shocking when people believe one of the main political parties will introduce some instinctive fairness the previous incumbent left out. The coalition will fight tooth and nail to maintain existing house values as far as possible, knowing their next term of office relies on an illusion of normality. For that reason I see a re-run of the early 90s with big drops in crap housing and targetted new builds and the rest of the market sitting on its hands.

There'll be a decline in values but averaged across the country as a whole and in all sectors, it'll take donkey's years to realise. The kind of crash where an FTB can expect 30 - 50% off their home of choice ain't gonna happen anytime soon.

I would love to know which politics shows and news articles are informing you?

The coalition have made it clear that business and the economy are their priority and not property.

Back to the main thread. It wreaks of desperation. As if there will ever be enough landlords with cash to buy all the first time propery at its high price and rent it out. The lack of figures supporting this theory are evidence enough of people grasping at straws. Probably trying to ditch his portfolio and con'vince someone to buy the property at its current paper value.

When the other price drops occured we didn't see landlords snatch huge masses of properties at their peak. What's so magically different now.

[cakehead]

I would love to know which politics shows and news articles are informing you?

None. Don't watch TV or take a newspaper and rarely listen to the radio (okay a little Radio 3). One doesn't need 24 hr news exposure to realise domestic party politics is built on a few shibboleths, one of which is house ownership as a barometer of inclusion. The only way house prices will crash - by which I mean an across the board return to the prices of a decade ago - is for the general public to lose interest in property ownership. If that background fizz goes flat there's the potential for prices to drop, till it does there are too many potential buyers hoping to step in long before a true pricing realignment.

I see no loss of interest in house price fluctuations and consequently little hope for an abandonment of market sentiment on property. The number seriously over-leveraged and the houses they inhabit are not substantial enough to outweigh those with sufficient equity to balls it out for five years, hence my cynicism towards political intervention having a meaningful impact. There's no doubt UK property is over-priced, the question is by how much and how long it'll take to find its level. No jam tomorrow, ten year's time, who knows?

[Constable]

What would the Bank of England do if the stockmarket was going to halve in price tomorrow? Absolutely nothing. And what would it do if housing was going to halve tomorrow? Absolutely anything in its power because it would kill the country if it happened.

I think he's a muppet but he's right about the this - except the last bit (I don't think it would kill the country at all if house prices fall significantly - that's just nonsense to justify QE/low rates etc. - prices need to fall if Britain is ever going to restructure its economy and have any real recovery.

Five years – down 30% in real terms. But as there won't be any inflation, real and nominal are the same thing.

Interesting that James Ferguson thinks that there will be no inflation. Shame that Merryn didn't push him on this.

[jammo]

O good I like guessing games.

I'll go for:

1 year: minus 10%

5 years: minus 59.9%

I'm of the opinion that it will be:

1 year: minus 15%

5 years: minus 51.23%

[sutemiwaza]

My boss says there are too many agents and keeps talking about the 80s and 90s. Most of the agents I know agree we need more volume and a slow increase in interest rates woiuld help.

I and my colleagues work on commission and need volume...in the last few weeks its gone quiet and deals are falling apart.

[Bootsox]

While this Stewart law chappie is clearly as on the lunatic fringe as some of the 50% HPC sheeple...

Unpalatable as it may sound, 50% is what is required to get back to "normality".

[Sibley's Love Child]

It's always shocking when people believe one of the main political parties will introduce some instinctive fairness the previous incumbent left out. The coalition will fight tooth and nail to maintain existing house values as far as possible, knowing their next term of office relies on an illusion of normality. For that reason I see a re-run of the early 90s with big drops in crap housing and targetted new builds and the rest of the market sitting on its hands.

There'll be a decline in values but averaged across the country as a whole and in all sectors, it'll take donkey's years to realise. The kind of crash where an FTB can expect 30 - 50% off their home of choice ain't gonna happen anytime soon.

Really? So what did you make of the hike in CGT? Or the cap in LHA? Or the reform of LHA calculations (50th percentile to 30th percentile)?

The only criticism of the govt would be the scrapping of house-building targets.

[Si1]

None. Don't watch TV or take a newspaper and rarely listen to the radio (okay a little Radio 3). One doesn't need 24 hr news exposure to realise domestic party politics is built on a few shibboleths, one of which is house ownership as a barometer of inclusion. The only way house prices will crash - by which I mean an across the board return to the prices of a decade ago - is for the general public to lose interest in property ownership. If that background fizz goes flat there's the potential for prices to drop, till it does there are too many potential buyers hoping to step in long before a true pricing realignment.

I see no loss of interest in house price fluctuations and consequently little hope for an abandonment of market sentiment on property. The number seriously over-leveraged and the houses they inhabit are not substantial enough to outweigh those with sufficient equity to balls it out for five years, hence my cynicism towards political intervention having a meaningful impact. There's no doubt UK property is over-priced, the question is by how much and how long it'll take to find its level. No jam tomorrow, ten year's time, who knows?

your argument is intrinsically limited because you ignore the money supply

[cakehead]

your argument is intrinsically limited because you ignore the money supply

That may well be so, the question is will my prediction be correct? I'm no economist, not even an amateur but I need to see an engine of change that will precipitate a crash and I'm not currently doing so. For it to occur I believe the pain would have to move beyond the me-too buyers (sheeple as you guys call them) of the noughties who are over leveraged and into the pockets of those with equity in their property. There'll be victims in the current shake out, but the public sector will see those nearing retirement getting the push (mortgages paid years ago), staff moving on not being replaced and lack of new graduate jobs. Then you have to factor in inflation which will rise in the next few years.

Stagnation is the likeliest scenario. I bought a house in '88 and sold in '91 because everyone said there'd be bargains. I looked hard for six years but better properties hung the same sign with the same price tags until the market began to move. People hunkered down and they'll do it again. I just think the stagnant period will be longer and things won't swing either way (across national averages) to see a full on crash. In ten years we'll be having a similar discussion.

[James Wyatt]

"Markets can stay irrational longer than you can stay solvent" Keynes (one of my favourite quotes)

Whether looking at the price to earnings ratio or affordability, house prices are above long term fundamental values and have been for a number of years. As many of my colleagues will testify I have been of the belief we have been in a credit bubble for many years (probably since 1997/1998 after I was gazumped twice); however, property prices continued to soar.

The deleveraging which must take place is highly deflationary and this is why many economists, including Mervyn King and James Ferguson (my fellow panel member), believe deflation is a very real danger. Whilst RPI is running at 4.6% and food prices at a much higher rate this on the surface suggests inflation is the threat to the economy. However, if you consider we have had depreciation of sterling on a trade weighted basis of circa 25% and doubling of the monetary base (QE1 of £200bn) it is a wonder why we have not experienced much higher inflation. The answer lies in Irving Fisher's identity equation of MV=PT, where very simply M=quantity of money, V=velocity, P=prices and T=transactions. Whilst M has increased the fall in velocity has almost offset it, which is no surprise as people worried about falling house prices and loss of their job have started to save and pay down their debts rather than spend. The deleveraging, which is only just beginning, creates strong deflationary pressure as asset prices will tumble leading to a further collapse in the velocity of money, hence the belief another round of QE will occur next year.

There have been studies on the "stickiness of prices" and owners tend to be "sticky" around the original cost of their property (allowing for renovation costs and in nominal terms). Prices could return to the long term fundamental average, but history tends to suggest they "over correct" by the amount they over extend. Whilst it is possible inflation will continue to erode the nominal prices and lead to real drops, if the deleveraging deflationary camp is correct, then the falls will be in nominal terms.

The reality is no one really knows and whilst the current trend is downwards in property prices, it will not take much to let the inflation genie out of the bubble. If that happens the Bank of England will be forced to act and raise rates (19.5% of all gilt issuance is indexed linked), as the international bond market will exact a very high price if they believe there is a deliberate attempt to debase the currency either through benign neglect or excessive QE.

Suggested reading list:

Dimson, Marsh and Staunton in “Triumph of the Optimists”

Important note: This analysis is the most authoritative on asset returns as it examines 101 years of data from 1900-2000 and therefore has periods of deflation, inflation, stagflation, recession, booms and depressions as well as covering social changes due to pandemics, wars and technological and demographic growth.

Debt Management Office

http://www.dmo.gov.uk/documentview.aspx?docname=publications/quarterly/jul-sep10.pdf&page=Quarterly_Review

Dr Steve Gibbons of the London School of Economics research note on standard deviation of Prime Central London property using John D Wood & Co. indices.

John D Wood & Co. graph and indices use actual pounds per square foot achieved on the date of exchange (methodology by Professor Muellbauer and Dr Gibbons)

http://www.johndwood.co.uk/surveyors/research-publications

The Governor of the Bank of England, Mervyn King, in his Buttonwood speech (http://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdf)

Jesus Huerta de Soto ‘Money, Bank Credit and Economic Cycles’

Carmen Reinhart and Kenneth Rogoff “This Time is Different: Eight Centuries of Financial Folly”

Irving Fisher, “Debt Deflation Theory” in 1933 (Econometrica (1(4), pp. 337-357/)

http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

Bank of International Settlements working paper 300

http://www.bis.org/publ/work300.pdf

Carmen Reinhart and Kenneth Rogoff “Growth in a Time of Debt”

http://www.economics.harvard.edu/faculty/rogoff/files/Growth_in_Time_Debt.pdf

and

Carmen Reinhart and Kenneth Rogoff “From Financial Crash to Debt Crisis”

http://www.economics.harvard.edu/faculty/rogoff/files/RRFinancial%20crash_February_241.pdf

Japanese land prices: http://tochi.mlit.go.jp/english/6-05.pdf

Case-Shiller US property indices

http://www.standardandpoors.com/indices/sp-case-shiller-home-price indices/en/us/?indexId=spusa-cashpidff--p-us----

Would also recommend Eammon Butlers excellent primer on "Austrian Economics" and Steve Keen's work on modelling Minsky on his debtwatch website.

James Wyatt FRICS

[sutemiwaza]

Interesting....reading between the lines it is quite negative.....what are your thoughts on central London?

[Tired of Waiting]

Hmm... So, less HB around, more unemployed, more (or same) taxes, higher prices for basics (thanks, Merv), but, no worries, higher rents can be paid for by holding off on a handbag purchase...

[Tired of Waiting]

(...) we will certainly see a situation where rental demand pretty much can only go upwards.... (...)

Edit: OK, I'll explain. Even if the size of the rental sector were to increase, you are ignoring that this people going into rented housing are also coming from somewhere.

Edited November 15, 2010 by Tired of Waiting

[Blue Nose Bear]

That may well be so, the question is will my prediction be correct? I'm no economist, not even an amateur but I need to see an engine of change that will precipitate a crash and I'm not currently doing so. For it to occur I believe the pain would have to move beyond the me-too buyers (sheeple as you guys call them) of the noughties who are over leveraged and into the pockets of those with equity in their property. There'll be victims in the current shake out, but the public sector will see those nearing retirement getting the push (mortgages paid years ago), staff moving on not being replaced and lack of new graduate jobs. Then you have to factor in inflation which will rise in the next few years.

Stagnation is the likeliest scenario. I bought a house in '88 and sold in '91 because everyone said there'd be bargains. I looked hard for six years but better properties hung the same sign with the same price tags until the market began to move. People hunkered down and they'll do it again. I just think the stagnant period will be longer and things won't swing either way (across national averages) to see a full on crash. In ten years we'll be having a similar discussion.

Oh please try and keep up the VI's did stagnation months ago, the hip VI stance is now 1-3% falls over so long you'll be dead before you can benefit.

[Tired of Waiting]

I doubt house prices will increase at all over the next few years, however they will not fall by any substantial amount either. Everything has been done to support house prices/banks since 2007 and so shall this continue. Any significant HPC in the UK would cause carnage.

Live with it people. You cant change anything.

You are misinformed. Last years stress test showed that banks could already cope with a 15% fall.

The coalition gov. wants to see some 20% real prices fall in the next few years. It may be 10% real and 10% masked by inflation. I think it will fall by more than that, overshooting a little. Perhaps up to 10% further. Timing? best guess today: Bottom in 2012 or 13. Then some recovery in time for the G. Election. they control many banks, remember.

Edited November 15, 2010 by Tired of Waiting

[cakehead]

Oh please try and keep up the VI's did stagnation months ago, the hip VI stance is now 1-3% falls over so long you'll be dead before you can benefit.

If VI means someone looking to buy at present, that'll be me. I couldn't give a hoot for bull and bear sentimentalists when I'm about to spend my own cash. I want to know what the market's really doing and IMHO and pretty please, the sector I want into isn't tumbling as promised.

[Dorkins]

Really? So what did you make of the hike in CGT? Or the cap in LHA? Or the reform of LHA calculations (50th percentile to 30th percentile)?

The only criticism of the govt would be the scrapping of house-building targets.

The continuation of perpetual SMI is not that impressive either, even if they did slightly reduce the rate for some people. If you can't afford to pay your mortgage, you should have to sell your house. Otherwise what is the point of ever paying?

Edited November 15, 2010 by Dorkins