Two Housing Ladders

[sohpc]

Yeah, there are plenty of ladder 1 properties around north London - take the New River Village for instance, a high density cesspit...

[nohpc]

Yeah, there are plenty of ladder 1 properties around north London - take the New River Village for instance, a high density cesspit...

I used to live and own a property there and think it's really nice. If I moved back to London that's where I'd live again. The whole of London is a cesspit but at least there you get nice views of alexandra palace rather than the usual grime and the area as a whole (as long as you don't cross the railway line to the horrid side of hornsey) is pleasant.

[sohpc]

I used to live and own a property there and think it's really nice. If I moved back to London that's where I'd live again. The whole of London is a cesspit but at least there you get nice views of alexandra palace rather than the usual grime and the area as a whole (as long as you don't cross the railway line to the horrid side of hornsey) is pleasant.

No, it's a high density cesspit. It's blighted the views from Alexandra Palace. None of the flats have a liveable kitchen - just a few units along one wall - the service charges are high, too much noise etc.

You only have to read the posts in the residents association to see what a lovely place it is. They're currently selling off the flats in bulk.

Wouldn't live there if you paid me - the fact that you did says a lot about you.

[Misanthrope]

I used to live and own a property there and think it's really nice. If I moved back to London that's where I'd live again. The whole of London is a cesspit but at least there you get nice views of alexandra palace rather than the usual grime and the area as a whole (as long as you don't cross the railway line to the horrid side of hornsey) is pleasant.

Do you ever listen to yourself?

[MongerOfDoom]

Ladder 2: Detached houses in average areas - semidetached/detached in good areas. House prices in this group are extremely high and only affordable to the top 5% of earners in the country (i.e. you need to earn at least 60k per year). People who buy into ladder 1 as first time buyers were likely never get the hot air balloon needed to get them up the gap to ladder 2. Ladder 2 is therefor now unaffected by ladder 1. Many people who bought in this ladder are on tracker mortgages, with good salaries, and will probably never sell unless they can get close to their asking prices. Ladder 2 is likely to hold its price range well and possibly continue to increase.

A top 5% income across the country barely gets a decent flat in the SE. I am pretty sure your ladder 2 will be very much affected by ladder 1, except maybe those houses are not bought using earned money. Take a couple out of uni making £100k together. They certainly won't be able to buy a ladder 2 house (in the SE we are talking 500k-1M, and they likely live there is they earn that sort of money) straight off, especially if they want a family. If the ladder 1 flat they buy initially declines in value, they may not be even able to sell it, never mind afford a deposit on something much more expensive.

The difficulty with both arguments is that they are very simplistic. Was there any evidence of ladder-2 properties being unaffected in the last crash? If the crash is brought on by skyrocketing interest rates, just why would people in really expensive houses be spared?

[sohpc]

A top 5% income across the country barely gets a decent flat in the SE. I am pretty sure your ladder 2 will be very much affected by ladder 1, except maybe those houses are not bought using earned money. Take a couple out of uni making £100k together. They certainly won't be able to buy a ladder 2 house (in the SE we are talking 500k-1M, and they likely live there is they earn that sort of money) straight off, especially if they want a family. If the ladder 1 flat they buy initially declines in value, they may not be even able to sell it, never mind afford a deposit on something much more expensive.

The difficulty with both arguments is that they are very simplistic. Was there any evidence of ladder-2 properties being unaffected in the last crash? If the crash is brought on by skyrocketing interest rates, just why would people in really expensive houses be spared?

Prices drop across the board, his argument is too simplistic.

[cakehead]

Prices drop across the board, his argument is too simplistic.

They clearly drop across the board, but not evenly. Hardest hit are grotty terraces in bad areas, new build residential blocks, 'executive' homes from the usual corporate builders. Traditional semis and detached in nice areas are more in demand and generally have owners with least need to sell.

A 40% crash in the first category might see an 10% fall in the second. The two categories will never fall by the same percentage.

[sohpc]

They clearly drop across the board, but not evenly. Hardest hit are grotty terraces in bad areas, new build residential blocks, 'executive' homes from the usual corporate builders. Traditional semis and detached in nice areas are more in demand and generally have owners with least need to sell.

A 40% crash in the first category might see an 10% fall in the second. The two categories will never fall by the same percentage.

Proof?

[cakehead]

Proof?

Put an offer in and see who's right.

As I said earlier, there were no bargains in the 90s in group 2 and I looked every week for six years. The first category had houses for half price if you were prepared to buy one. House types and areas do not fall by the same percentage because the competition for them is not the same.

[sohpc]

Put an offer in and see who's right.

As I said earlier, there were no bargains in the 90s in group 2 and I looked every week for six years. The first category had houses for half price if you were prepared to buy one. House types and areas do not fall by the same percentage because the competition for them is not the same.

5 bed 'ladder 2' reduced by 19%

http://www.zoopla.co.uk/for-sale/details/11363960?search_identifier=a45ecc6717b5e61730f183cb7ce6fbb5

That's the most reduced property in the Crouch End area....

Muswell Hill

1 bed flat reduced by 18% - 'ladder 1'

http://www.zoopla.co.uk/for-sale/details/3656371?search_identifier=506440b6e40d0c0bd463ccc42cfcf779

4 bed semi - reduced by 17% 'ladder 2'

http://www.zoopla.co.uk/for-sale/details/11487858?search_identifier=89cf8c1de52bce1f27468a95da74ca15

[cakehead]

Are we supposed to cut and paste anecdotes to see who wins? There will be exceptions to any rule and Crouch End is hardly middle england. The point still stands.

[sohpc]

Are we supposed to cut and paste anecdotes to see who wins? There will be exceptions to any rule and Crouch End is hardly middle england. The point still stands.

No it doesn't. I've provided evidence that properties fall at the same percentage rate. This is an incremental system.

I could go on finding similar falls across the country

Did like your 'well I looked for six years and didn't see any bargains' argument.

[picador]

This argument assumes that all properties in ladder two are excellent and all properties in ladder one are crappy. This is too simplistic. In reality there will be a sliding scale from crappy to excellent with many variations inbetween. So there will be substitutability. If I can't afford the detatched I want in my number one location of choice because the vendor is asking x% more than a detached house in a slightly less desirable neighbourhood, then I'm going to choose the later. Surely this will tend to drag down the price of the first overpriced house if people tend to give it a miss in favour of better value neighbourhoods.

[cakehead]

No it doesn't. I've provided evidence that properties fall at the same percentage rate. This is an incremental system.

It really isn't as you'd find out if you put a serious offer in on a house. You've provided one set of asking price comparisons in one area. I can guarantee that if I made three offers tomorrow in a grotty local area that were 25-30% below asking price at least one would be taken. If I put the same offer reduction in a middle / up market suburb I have in mind I wouldn't get a bite.

Desirable properties in desirable areas will sell for a lower % reduction, averaged across similar property types, than less desirable property/locations, in a falling market. It's a fact of (competitive) life.

[miko]

Put an offer in and see who's right.

As I said earlier, there were no bargains in the 90s in group 2 and I looked every week for six years. The first category had houses for half price if you were prepared to buy one. House types and areas do not fall by the same percentage because the competition for them is not the same.

I don't understand that , you looked for six years in the 90s and never saw a bargain, what do you mean by a bargain ? and where are the lines between the groups ?

My parents lived in a house on maybe the edges of group two and that house like the whole area dropped by about 40% in the 90's.

Their house

Mid 80's £70k

late 80's £130k

Mid 90's £80k

2007 £350k , this time around it has not dropped very much and maybe has regained all the losses of the last few years in 2010. But to say it never dropped last time is complete piffle.

[cakehead]

I had £60k to spend on a house between '91 and '97 so I was looking at property in the £80k bracket, which is a reasonable definition of bargain. Although cheaper (and much more expensive) houses were selling for 25% less than asking price there were none in my target market even though some had a sign out for years.

This was partly due to supply which meant competition for any new or interesting property that appeared. The market began to move upwards late '96 and the properties I liked sold for close to their asking price, as did the mass of others that appeared.

[Misanthrope]

What ladder?

[miko]

I had £60k to spend on a house between '91 and '97 so I was looking at property in the £80k bracket, which is a reasonable definition of bargain. Although cheaper (and much more expensive) houses were selling for 25% less than asking price there were none in my target market even though some had a sign out for years.

This was partly due to supply which meant competition for any new or interesting property that appeared. The market began to move upwards late '96 and the properties I liked sold for close to their asking price, as did the mass of others that appeared.

Yes but that house you were looking at which was £80k between 91-97 would have been £125k+ in 1988. Might have been out of your price range but had dropped like everything else had dropped . They all dropped even most of London dropped . Remember reading about someone who bought a flat in Islington London in 88 and sold for a tiny bit more in 93 , it was in the paper as it was such an exception to the rule as maybe 98% of property dropped.

[cakehead]

Indeed but the asking price at the EA was 'only' 25% more than I had to offer and we're talking about particulars being sent regularly and over a period of some years. The media and dinner party chatter would suggest someone would have bitten at 1/4 less than asking, but I can assure you none did. Some properties that could be described as bargains did appear, but they were very rare and were snapped up immediately, even in a stagnant market.

It's also worth remembering that properties priced at peak are best described as notional, with only a very narrow window and limited number of sales representing that peak price, the working peak, i.e. the price at which property sold quickly and in numbers, is much less. The place we rented had been valued at £250k in '88 we were told, whereas the owner would have had to wait well into the noughties to have realised that price, probably about '05.

[miko]

It's also worth remembering that properties priced at peak are best described as notional, with only a very narrow window and limited number of sales representing that peak price, the working peak, i.e. the price at which property sold quickly and in numbers, is much less. The place we rented had been valued at £250k in '88 we were told, whereas the owner would have had to wait well into the noughties to have realised that price, probably about '05.

A house valued at £250k in 88 was well into group 2 and by what you have written above dropped in value like the rest of the market. They all dropped !!

[cakehead]

A house valued at £250k in 88 was well into group 2 and by what you have written above dropped in value like the rest of the market. They all dropped !!

Nobody's arguing prices dropped. The question is did they fall across all house types and locations by a similar percentage including asking and achieved values. Clearly they did not. As an example I bought a house at peak and sold it for 50% more in the trough three years later for having done a little remedial work and a lick of paint. You can't generalise.

Edited December 11, 2010 by cakehead

[miko]

Nobody's arguing prices dropped. The question is did they fall across all house types and locations by a similar percentage including asking and achieved values. Clearly they did not. As an example I bought a house at peak and sold it for 50% more in the trough three years later for having done a little remedial work and a lick of paint. You can't generalise.

Well basicaly you are generalising .

So I will as well, in the last crash down here in London and the South East property dropped about 40% from the peak of 88 to the bottom in 94/95, yes some dropped a bit less some more , but overall it was about 40% . Don't know much about the group 3 market back then , but the other two groups dropped by about the same.

[cakehead]

property dropped about 40% from the peak of 88 to the bottom in 94/95, yes some dropped a bit less some more , but overall it was about 40% .

Think it through and you'll realise that can't be the case. A desirable Edwardian 4 bed detached with original features on a leafy road in a high achieving school catchment falls the same percentage as ex-local authority house on a sink estate? They simply do not. Neither will defy market forces but the market dictates 100 people will be interested in the 4-bed detached maintaining a competitive element, whereas two or three might take a risk on the ex-council house.

I don't agree with the OP's figures but he is right in principal, which is the curve peaks in properties with the right mix of desirability and affordability. Neither grotty flats in rough areas (to take one extreme) or Jacobean mansions with country estates (to take another) will attract a large enough market to maintain sufficient competition to keep prices high, relative to other factors. Attractiveness and financial attainability meet in the middle of category two and slope away either side of that point.

Edited December 11, 2010 by cakehead

[19 year mortgage 8itch]

the darkest hour is just before the dawn.

[Timm]

What ladder?

The classic 1970s housing ladder relied on high wage inflation that eroded the debt on the first property bought and/or increased the price it could be sold for. This allowed people to sell their first property and use their increased equity as an increased deposit on a bigger/better house.

The current low levels of wage inflation, coupled with BTL increasing demand in the lower tranches of the market (and other factors), means that buying a small property and waiting five years is no longer a guaranteed route to a lovely family home.

Which may have been the point you were trying to make.