House Prices Wobble And Have A Long Way To Fall: Ft In June 2005

[eric pebble]

House prices wobble and have a long way to fall: Andrew Farlow -A VERY GOOD ECONOMIST - Worth reading & taking note - even though was June 2005

- NB - This needs to be posted on host page - i.e. update A Farlow's section !!! PLEASE

http://www.economics.ox.ac.uk/members/andr...FT30Aug2005.mht

Note also at - http://www.economics.ox.ac.uk/members/andrew.farlow/ -

"Part Four: Risk Premia and House Prices (This paper is complete but needs some checking before posting)

Part Five: Mortgage Banks and House Prices Forthcoming.

A further short paper: The UK House Price Bubble

Forthcoming book, Spring 2006: The UK Housing Market: A Tail of Two Booms Publisher: Constable Robinson.

i.e. - more to come from Mr Farlow

Edited November 5, 2005 by eric pebble

[eric pebble]

House prices wobble and have a long way to fall: Andrew Farlow -A VERY GOOD ECONOMIST - Worth reading & taking note - even though was June 2005

- NB - This needs to be posted on host page - i.e. update A Farlow's section !!! PLEASE

http://www.economics.ox.ac.uk/members/andr...FT30Aug2005.mht

Note also at - http://www.economics.ox.ac.uk/members/andrew.farlow/ -

"Part Four: Risk Premia and House Prices (This paper is complete but needs some checking before posting)

Part Five: Mortgage Banks and House Prices Forthcoming.

A further short paper: The UK House Price Bubble

Forthcoming book, Spring 2006: The UK Housing Market: A Tail of Two Booms Publisher: Constable Robinson.

i.e. - more to come from Mr Farlow

More good sense here - and considering latest news on UK banruptcies and debt [November 2005] - very relevant....

House of cards or the domino effect?

Financial risks, debt and the property bubble

http://theinternetforum.co.uk/t/debtbubble1.html

Edited November 5, 2005 by eric pebble

[I don't believe you]

Oh well, had to take the plunge one day.

That article is well worth a read. I think it is pretty even-handed.

Maybe homes are a bit out of whack right now, but only by a small amount. An amount surely not worth waiting five years for ?

Suppose houses are overvalued by 15%

A house that is 'really' worth £150k is actually priced at £172.5k. It is not beyond the realms of possibility that the prices actually paid are hovering in the middle anyway and so nothing truly outrageous is occuring.

Okay, £22.5k is a lot of money in everyday terms but over 25 years, in relation to the actual size of the investment... it is hardly worth all this fuss is it?

I mean, you have to RENT for five years just to save a poultry £22.5k on £172.5k is it REALLY worth it ?

I think most people will decide not and just go for it, negotiate a bit here and there. Stagnation is a certainty from my point of view. What matters is affordability. This is key and most measures show that houses are even less overvalued than above, if at all. There is little reason to believe interest rates are going to cause a real problem as they have now peaked and are headed downwards again.

I think many on here just can't see the wood for the trees. I can't see the arguments for a 40% crash. I really cannot (40% crash would mean something in the region of a 66% overvaluation... not even the most pessimistic bears have thrown around numbers like that!

[AteMoose]

Oh well, had to take the plunge one day.

That article is well worth a read. I think it is pretty even-handed.

Maybe homes are a bit out of whack right now, but only by a small amount. An amount surely not worth waiting five years for ?

Suppose houses are overvalued by 15%

A house that is 'really' worth £150k is actually priced at £172.5k. It is not beyond the realms of possibility that the prices actually paid are hovering in the middle anyway and so nothing truly outrageous is occuring.

Okay, £22.5k is a lot of money in everyday terms but over 25 years, in relation to the actual size of the investment... it is hardly worth all this fuss is it?

I mean, you have to RENT for five years just to save a poultry £22.5k on £172.5k is it REALLY worth it ?

I think most people will decide not and just go for it, negotiate a bit here and there. Stagnation is a certainty from my point of view. What matters is affordability. This is key and most measures show that houses are even less overvalued than above, if at all. There is little reason to believe interest rates are going to cause a real problem as they have now peaked and are headed downwards again.

I think many on here just can't see the wood for the trees. I can't see the arguments for a 40% crash. I really cannot (40% crash would mean something in the region of a 66% overvaluation... not even the most pessimistic bears have thrown around numbers like that!

you not read the main page of HPC?

American Express

John Calverley

30% crash

Invesco Perpetual

Neil Woodford

30-40% Down

Within next

4 years

Durlacher

David Pannell

Up to 45% Down

Next 2 years

Observer interview

Jim Mellon

Up to

50% Down

[I don't believe you]

you not read the main page of HPC?

American Express

John Calverley

30% crash

Invesco Perpetual

Neil Woodford

30-40% Down

Within next

4 years

Durlacher

David Pannell

Up to 45% Down

Next 2 years

Observer interview

Jim Mellon

Up to

50% Down

I stand corrected I suppose but I have a blind-spot regarding people who have a VI in selling material such as the book 'Wake Up! Survive and Prosper in the Coming Economic Turmoil' (See main page of HPC forum)

[AgeingBabyBoomer]

If you calculate it out, you repay around 2.5x what you borrowed,

100% of the capital, plus 150% total interest.

i.e. every £1000 on the mortgage costs £2500 over the life

of the mortgage.

So 22.5k costs £56.25k to 'rent' over 25 years.

£22.5k is not a paltry sum to me, £56.25k is even less paltry.

ABB

Edited November 6, 2005 by AgeingBabyBoomer

[I don't believe you]

If you borrow £22,500, to make up the shortfall of the £22,500 you fritterred away, it will cost you about £450 a month, every month, for five years to pay it back.

Is that a paltry amount of money for most people? Get real.

I'll ignore the swipe at the end and contunue in earnest if that's okay with you.

Which ever way you spin it, compared to the actual size of the investment it is tiny. For illustration, £22.5k compared to a £50k investment is enormous, but compared to 150k it is barely an issue beyond, "well, I paid a bit more than I would have liked but what the hell, she's a great motor"

Interest repayment on £150k @ 5% is ~ £625 a month.

Interest repayment on £22.5k @ 5% is ~ £93 a month.

So an extra £93 on top of £625. It's relative peanuts.

The difference is simply not enough to put off owning your own home for five years. Five years is such a LONG TIME when you are young.

Over five years wages will inflate (@4%) ~ 21%. The case for a crash is very weak from where I'm sitting. It is of course just my view.

Edited November 6, 2005 by I don't believe you

[ILikeBigBoobs]

Maybe homes are a bit out of whack right now, but only by a small amount. An amount surely not worth waiting five years for ?

You're right, it's not. I STRed in July after owning for thirty years and rented what appeared to be a super house but it's turned out a disaster! The place was filthy when I actually got round to moving in (his girlfriend had left after I'd first viewed and he'd never cleaned it since). The garage door falls down when opened (the washer/dryer etc is in there), the built in fridge is buggered and the downstairs bedroom is damp. The owner's abroad and doesn't answer emails! I've paid the pillock 12 months rent up front for a special deal but sod it I intend to walk away and leave his crappy place behind and empty. Quality of life is far more important than a few quid in the back pocket! To that end I've just bought a superb grade II listed cottage and barn from a builder (whose taken it in P/E) at a 30% discount to what it was originally on the market for (he only wanted a cash buyer ). Clouds and silver linings I guess

[the_duke_of_hazzard]

You're right, it's not. I STRed in July after owning for thirty years and rented what appeared to be a super house but it's turned out a disaster! The place was filthy when I actually got round to moving in (his girlfriend had left after I'd first viewed and he'd never cleaned it since). The garage door falls down when opened (the washer/dryer etc is in there), the built in fridge is buggered and the downstairs bedroom is damp. The owner's abroad and doesn't answer emails! I've paid the pillock 12 months rent up front for a special deal but sod it I intend to walk away and leave his crappy place behind and empty. Quality of life is far more important than a few quid in the back pocket! To that end I've just bought a superb grade II listed cottage and barn from a builder (whose taken it in P/E) at a 30% discount to what it was originally on the market for (he only wanted a cash buyer ). Clouds and silver linings I guess

And the moral is... check out the property before you move in, whether buying or renting. Sounds like you got a good deal on your cottage tho. Does it have a view?

[AgeingBabyBoomer]

not so sure - I think even redecorating in a Grade II

listed needs permission from English Heritage.

Maybe the builder dumped at a discount because he

couldn't get PP for the barn conversion?

Anyhow 30% off doesn't look like a bull market anymore

ABB

[I don't believe you]

Sorry for swiping you with 'get real'.

By making it over 25 years, you make the total cash cost of the £22,500 folly worse.

Why are you not interested in accounting for actually repaying the £22,500 at any point? Your '£93 every month for 25 years' is just the cost of renting out your impatience. At some point you actually have to come up with £22,500 of hard-earned, after-tax savings (roughly two years at median wage saving 100% of your salary) which you will then exchange for ... nothing.

I hear what you say.

For simplicity I was just comparing like with like (I used IO on the 'big' amount also)

Repayment 25 yrs then at say 5% is the same argument,

£150k ~ £886.90 per month

£172.5k ~ £1019.94 per month

£132 extra to find each month. Again, considerable but on that size mortgage in the first place, I do think it will likely be seen as the 'luxury premium'. After all, owning your own home can be very rewarding (I don't mean financially)

I do appreciate the substantial 'cost of impatience' as you put it. I just think that it would need to be more pronounced to change most peoples' actions.

[ILikeBigBoobs]

And the moral is... check out the property before you move in, whether buying or renting. Sounds like you got a good deal on your cottage tho. Does it have a view?

Honestly I did check it but three weeks went by before I moved in and he out. In that time his girlfriend or sex slave (she's lady from a foreign land who is almost 40 years his junior ) had returned home and he had slowly trashed the place. Amazingly it seems, some of these very well spoken and public school educated chaps have little concept of cleanliness or hygine!

Yes, the cottage is a bit special. 500 years old, nice rural village and excellent views (especially of the village pub ) I think prices will have to fall around at least 20 to 25% before I'm losing money but in that time I'll have the enjoyment of it. I guess STRing did work because my offer wouldn't have been considered if I'd been in a chain.

"not so sure - I think even redecorating in a Grade II

listed needs permission from English Heritage."

Thanks for your concern but I'm well aware of what I can and can't do! I've been buying and doing up the odd property since 1972.

Maybe the builder dumped at a discount because he

couldn't get PP for the barn conversion?

The barn is converted already and the builder P/E'd it to enable the fast sale of his own large property.

Edited November 6, 2005 by ILikeBigBoobs

[I don't believe you]

Honestly I did check it but three weeks went by before I moved in and he out. In that time his girlfriend or sex slave (she's lady from a foreign land who is almost 40 years his junior ) had returned home and he had slowly trashed the place. Amazingly it seems, some of these very well spoken and public school educated chaps have little concept of cleanliness or hygine!

Yes, the cottage is a bit special. 500 years old, nice rural village and excellent views (especially of the village pub ) I think prices will have to fall around at least 20 to 25% before I'm losing money but in that time I'll have the enjoyment of it. I guess STRing did work because my offer wouldn't have been considered if I'd been in a chain.

"not so sure - I think even redecorating in a Grade II

listed needs permission from English Heritage."

Thanks for your concern but I'm well aware of what I can and can't do! I've been buying and doing up the odd property since 1972.

Maybe the builder dumped at a discount because he

couldn't get PP for the barn conversion?

The barn is converted already and the builder P/E'd it to enable the fast sale of his own large property.

Sounds like you had some real bad luck there, but things turned out incredibly well for you in the long run.

I don't see as you have any worries really. If you got a 30% discount (genuine) then a steep drop wouldn't harm you. And, since you paid in cash, you have no fear of NE.

The cottage sounds amazing !

I want to add to this actually. You say STR did you well in the end because the property was only 'cash buy'. I think this is an aspect of STR that is probably overlooked and actually far more important than the 'market short' type of STR that some folk on here have done (successfully ?)

I think the extra leverage that being 'ready to go' affords you makes it a useful tool to have at your disposal regardless of market conditions. If you can offset the agent, legal and 6 - 12 month rental costs involved then I think there is a real incentive for a short time as a STR WHENEVER you relocate.

Edited November 6, 2005 by I don't believe you

[boom_and_bust]

For the government and the Bank of England, the dream scenario on the housing market is a soft landing: a period of stable prices during which affordability improves as earnings catch up. As residential property values come off the boil, experts are turning to historical and international comparisons in search of clues to what the future holds.

Charlie Bean, the Bank’s chief economist, said last year: “A soft landing is entirely possible if the economic conjuncture remains benign. That was exactly how the adjustment occurred during the second half of the 1950s.” Then, inflation was low and stable, as now. Aggressive rises in interest rates were unnecessary and also seem a remote possibility now – unlike in the late 1980s, when higher mortgage rates helped choke off the housing market.

But in other ways, Britain today is very different from that of the 1950s. Then, food rationing had just ended and the economy was in its infamous “stop-go” mode. Fewer people owned homes, access to credit was difficult and, as a result, debt levels per person were much lower than today.

Hi,

So there we have it. Charlie Bean, the BoE's chief economist, wants to keep a lid on economic conjecture within the media and the masses. Nothing to do with fundementals, the economy, just keep the masses up to their a3se in debt and maybe, just maybe, the stagnation can be propped up. Nice one Charlie, you are a complete clown.

Boomer

Edited November 6, 2005 by boom_and_bust

[I don't believe you]

Hi,

So there we have it. Charlie Bean, the BoE's chief economist, wants to keep a lid on economic conjecture within the media and the masses. Nothing to do with fundementals, the economy, just keep the masses up to their a3se in debt and maybe, just maybe, the stagnation can be propped up. Nice one Charlie, you are a complete clown.

Boomer

I can see how the soft-landing (prolobged moderate general inflation) scenario would come as a terrific blow to those who have tried to keep sensible about all this and squirreled away savings.

I think, the best way to look at this is that, people who have been saving rather than spending, will 'suffer less' rather than 'make a killing'.

There is something of a debt issue in the uk (and further afield too) but I am rather sorry to say that I think, to a certain extent, it will be the savers who pay for the folly of the big spenders. It's not really fair but I reckon that's the situation, after all, the big spenders are in the majority and that is the section that the government serve.

Expect moderate inflation and the housing market to continue as it is doing right now (flat) - this of course does mean some kind of a fall in 'real' terms.

[Pensive]

You're right, it's not. I STRed in July after owning for thirty years and rented what appeared to be a super house but it's turned out a disaster! The place was filthy when I actually got round to moving in (his girlfriend had left after I'd first viewed and he'd never cleaned it since). The garage door falls down when opened (the washer/dryer etc is in there), the built in fridge is buggered and the downstairs bedroom is damp. The owner's abroad and doesn't answer emails! I've paid the pillock 12 months rent up front for a special deal but sod it I intend to walk away and leave his crappy place behind and empty. Quality of life is far more important than a few quid in the back pocket! To that end I've just bought a superb grade II listed cottage and barn from a builder (whose taken it in P/E) at a 30% discount to what it was originally on the market for (he only wanted a cash buyer ). Clouds and silver linings I guess

Can you give a few more details. I'd love to know how you negociated 30% down

[E Powell]

I don't believe you

Are you an economist ?

[E Powell]

Hello All

There are too many fools who think they are economists on this website.

If you write an article please reference.

Retired Lecturer (Materials Science & Metallurgy)

[oracle]

Hello All

There are too many fools who think they are economists on this website.

If you write an article please reference.

Retired Lecturer (Materials Science & Metallurgy)

with all due respect the economics part of the equation doesn't really count for much now.

psychology might get you a better starting point.After all,we are pretty much agreed that this has been a media-fuelled spending binge...we just don't really know the full extent of the binge because the VI's tell us all kinds of crap.

most of us here suspect it's bigger than we're being told....and the consequences when it stops will be larger....but because we can't get hold of reliable raw data we can't make an accurate prediction,just an educated guess.