The Masked Tulip Posted June 5, 2011 Share Posted June 5, 2011 http://scotlandonsunday.scotsman.com/business/Colin-McLean-We39re-far-from.6779670.jp The UK still looks like the world's most inflated housing market. On the basis of historic measures of affordability, UK house prices could still be 20 per cent overvalued. A fall may not worry those who do not plan to sell, and may be good news ADVERTISEMENT for buyers or those moving up the ladder, but there will be a wider impact. It is likely to delay any rise in UK interest rates until after the summer, but that may not be enough to stabilise consumer confidence. Homeowners will react to the perceived loss of wealth by saving more, further denting consumption. It is also likely that new housing starts will weaken as well; one consequence of Britain's housing bubble has been an overblown housing industry. Real disposable income is unlikely to grow materially this year or next. With the UK being one of the most sluggish of Europe's major economies in the recovery, a further increase in unemployment is possible. Even though interest rates are lower than three years ago, required deposits on houses are much bigger and the availability of mortgages may not have much room to improve. Any further improvement in mortgage supply would require a recovery in the ability of banks to sell on packages of mortgages, bringing in fresh capital. This activity at least has picked up a little this year. There are also concerns for the broader stock market. Recognising the importance of the housing market for consumer and business confidence, the government has tried to boost the sector, but trying to stabilise the housing market at the wrong price level is doomed to failure. House prices are just 7 per cent below their peak in the UK, and are actually hitting new highs in prime central London locations. This contrasts with much bigger falls in some other countries, and even in UK secondary commercial property. The UK housing correction is not yet complete. Arguably, quantitative easing has mainly benefited prime commercial property and the most expensive London houses. It will take fresh government policies to help those in the North and first-time buyers - low interest rates are too blunt a weapon. Quote Link to comment Share on other sites More sharing options...
MrPin Posted June 5, 2011 Share Posted June 5, 2011 My instinct is that 20% overvalued is about right! The economic outlook is not good, and when the panic happens some places will fall by much more than that! There! I've made a prediction! Quote Link to comment Share on other sites More sharing options...
Mr 0.01% Posted June 5, 2011 Share Posted June 5, 2011 I like your prediction. Wish it would hurry up and materialise! There's so many of these bearish articles in the media at the mo but, 3 years later, still waiting for the wrecking ball to start rolling. Quote Link to comment Share on other sites More sharing options...
Scunnered Posted June 5, 2011 Share Posted June 5, 2011 Ah, but they also have Teresa Hunter: Increasing popularity of the interest-only mortgage is no reason to panic. ... Sensible folk caution that new borrowers should not be opting for an interest-only deal right now. The argument goes: if they can't afford the monthly bill of a repayment mortgage now with rates so low, they won't stand a chance when interest rates start to rise. Maybe. But I prefer to give the kids a break. A 25-year-old getting that first foot on the ladder has a further 45 years of work ahead. Why should we get hung up about them repaying their loan from day one? Let them enjoy their youth. ... But the first lesson of economics teaches us that the best way to pay off a debt is to let inflation do the heavy lifting. If you take out a £100,000 loan today, when you come to repay it in 25 years it would be like repaying less than £25,000 in today's money, if inflation averages 3 per cent annually. If you are lucky then the value of the property will have doubled too. ... Grrrr... But is she right? Quote Link to comment Share on other sites More sharing options...
Tired of Waiting Posted June 5, 2011 Share Posted June 5, 2011 http://scotlandonsunday.scotsman.com/business/Colin-McLean-We39re-far-from.6779670.jp The financial crisis was triggered by excesses in the US mortgage market, but UK house prices look like an even bigger bubble, particularly when compared with personal disposable income. This ratio in Britain climbed twice as high as that in the US in 2008 but, unlike the States, has not yet corrected itself. Quote Link to comment Share on other sites More sharing options...
Tired of Waiting Posted June 5, 2011 Share Posted June 5, 2011 Ah, but they also have Teresa Hunter: Increasing popularity of the interest-only mortgage is no reason to panic. Grrrr... But is she right? Misleading. It would still be much wiser to buy next year, for 10% less, or in the following year, for even less. Timing is crucial here. Besides, only buyers that are absolutely sure they won't have to move can risk negative equity. And who can be absolutely sure of anything in the future? Quote Link to comment Share on other sites More sharing options...
tahoma Posted June 5, 2011 Share Posted June 5, 2011 Grrrr... But is she right? I would rather not overpay for anything, thanks, regardless of what the real sum paid off is at the end of the mortgage. As long as general price inflation outstrips wage inflation (as it has for, oooh, about 35 years now) it's going to be a treadmill to pay off that mortgage. The only positive net result is that house prices will fall for the simple reason that barely anyone can bloody afford them. You only have to look at current transaction levels to see this happening. Incidentally, I got a 'hit' this week - I noticed a house on the market at a price I would consider paying. First time in 10 years... Quote Link to comment Share on other sites More sharing options...
profitofdoom Posted June 5, 2011 Share Posted June 5, 2011 I know that I keep banging on about this but factoring inflation into the equation is so critical to any study of house prices.Wages have stalled for many in the last year or so but look at the last ten years.Most people are taking home 30- 40% more than they did in 2001 and you need to take this into account. If you do that then house prices are at similar levels to 2002/3 on average. London may be higher but that only means that for those who don't live there they are a bit more affordable still.My feeling is that at the moment there is a 10% gap between asking and transaction pricesand that the latter will fal perhaps another 10% before we reach a base.If it's more than that then rents are going to need to take a big hit. Quote Link to comment Share on other sites More sharing options...
dances with sheeple Posted June 5, 2011 Share Posted June 5, 2011 (edited) Ah, but they also have Teresa Hunter: Increasing popularity of the interest-only mortgage is no reason to panic. Grrrr... But is she right? Her inflation scenario would work in the 70`s, not now? The best way to pay off debt is not to take on debt. She is either thick/bought the lies herself/or feels the need to use her limited scribbling powers to big up the bankers desired reality? Luckily the sheeple don`t have the bank tokens no more to act on her advice even if they wanted to, so she is just scribbling into the void really? Edited June 5, 2011 by dances with sheeple Quote Link to comment Share on other sites More sharing options...
Game_Over Posted June 5, 2011 Share Posted June 5, 2011 Misleading. It would still be much wiser to buy next year, for 10% less, or in the following year, for even less. Timing is crucial here. Besides, only buyers that are absolutely sure they won't have to move can risk negative equity. And who can be absolutely sure of anything in the future? Death and Taxes. Quote Link to comment Share on other sites More sharing options...
rantnrave Posted June 5, 2011 Share Posted June 5, 2011 My instinct is that 20% overvalued is about right! Going by the same calculation, a nominal average price of 140K by 2013 . Doesn't sound so far-fetched. Quote Link to comment Share on other sites More sharing options...
wonderpup Posted June 5, 2011 Share Posted June 5, 2011 Grrrr... But is she right? She makes a big assumption- that wages will rise with inflation- if that does not happen affordability will be worse, not better. Which begs the question- is most people's bargaining power in the labour market going up or going down. Based on the stagnation in wages over the last decade it looks as if for most people their ability to demand wages rises is not strong- too much competition from automation and outsourcing. Mapping the 1970's onto today is simplistic thinking- this woman believes that inflation= pay rises- that may no longer be true for a lot of people. Quote Link to comment Share on other sites More sharing options...
Game_Over Posted June 5, 2011 Share Posted June 5, 2011 She makes a big assumption- that wages will rise with inflation- if that does not happen affordability will be worse, not better. Which begs the question- is most people's bargaining power in the labour market going up or going down. Based on the stagnation in wages over the last decade it looks as if for most people their ability to demand wages rises is not strong- too much competition from automation and outsourcing. Mapping the 1970's onto today is simplistic thinking- this woman believes that inflation= pay rises- that may no longer be true for a lot of people. Mass immigration means most people have very little bargaining power that's why big business support it Quote Link to comment Share on other sites More sharing options...
nohpc Posted June 5, 2011 Share Posted June 5, 2011 It is correct to say that homeowners will respond to the loss in perceived wealth (caused by falling property values) by squirrling more money away into savings. I'm on a lifetime tracker mortgage and it is less than a third payment than a few years ago but every penny pretty much has been invested (maxing out wife and I's stocks and shares ISAs). Consequently, I've lost a chunk on shares (maybe a bit up overall) which has forced me into saving even more and now on top of maxing out the ISAs we are aiming to fill up the NSand I savings certificate (for safety!) Quote Link to comment Share on other sites More sharing options...
NEO72 Posted June 5, 2011 Share Posted June 5, 2011 Ah, but they also have Teresa Hunter: Increasing popularity of the interest-only mortgage is no reason to panic. Grrrr... But is she right? Yes I can imagine the case you would put to the bank manager*: "So I'd like a mortgage please - interest only if I may, as I can't afford to actually repay the loan". "Yes, I appreciate that house prices are falling and within a year I'll probably be in negative equity and wage stagnation coupled with inflation means I'll effectively be taking a pay cut over the next few years but according to Teresa Hunter, you should be giving people like me a break..." "Hello, hello, is anyone there..." (* I appreciate most BMs now have the authority of a three-year old) Quote Link to comment Share on other sites More sharing options...
OnlyMe Posted June 5, 2011 Share Posted June 5, 2011 (edited) I know that I keep banging on about this but factoring inflation into the equation is so critical to any study of house prices.Wages have stalled for many in the last year or so but look at the last ten years.Most people are taking home 30- 40% more than they did in 2001 and you need to take this into account. If you do that then house prices are at similar levels to 2002/3 on average. Wage differentials have ballooned - those average wages stats hide the devil in the detail. Most poeple are paying ore direct taxation. Most people are paying a lot more indirect taxation. Most people have suffered worse inflation in basics and essentials. More people are uable to save any money. More people now no longer have the secure pension ( or any pension provision at all). More people reliant on not paing their mortgage and going interst only. I know plenty who are self amployed and charge no more, if not less (overall) than in 2001. Moreover the longer the authorities keep pushing at the string the worse the eventual mess will be. Edited June 5, 2011 by OnlyMe Quote Link to comment Share on other sites More sharing options...
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