The London Bubble

[TheCountOfNowhere]

I'm still amazed that after 5 years of falling house prices ( in real terms ) the loonies in london are still bumping up prices and people are buying before they 'miss out'

I look at some of the asking prices round where my wife sold 2 years ago and it's insane, and with that insanity surely follows collapse.

The question is how and when ?

Will the banks deliberate collapse the bubble to cash in ?

Will people simply stop buying ( not many can be buying in reality ) ?

I don't see how it can go any higher and their will be some BIG losers at some point. it would seem London is different, it's got more idiots per square foot than anywhere else in the world.

Bubbles spell Troubles,

Edited May 9, 2013 by TheCountOfNowhere

[kzb]

I agree it's insane. But if London property crashed, the banks would be shown up to be even more bankrupt than they are already. So too important to fail.

They are certainly pulling out all the stops to keep it pumped up. Massive subsidies to BTL so they can buy the property to let out at taxpayers' expense to the next wave of mass immigration.

[Gigantic Purple Slug]

I'm still amazed that after 5 years of falling house prices ( in real terms ) the loonies in london are still bumping up prices and people are buying before they 'miss out'

I look at some of the asking prices round where my wife sold 2 years ago and it's insane, and with that insanity surely follows collapse.

The question is how and when ?

Will the banks deliberate collapse the bubble to cash in ?

Will people simply stop buying ( not many can be buying in reality ) ?

I don't see how it can go any higher and their will be some BIG losers at some point. it would seem London is different, it's got more idiots per square foot than anywhere else in the world.

Bubbles spell Troubles,

The pool of money driving it is much bigger than it has been in the past.

It's different this time. In fact it's different every time.

[Unexpected]

I'm still amazed that after 5 years of falling house prices ( in real terms ) the loonies in london are still bumping up prices and people are buying before they 'miss out'

I look at some of the asking prices round where my wife sold 2 years ago and it's insane, and with that insanity surely follows collapse.

The question is how and when ?

Will the banks deliberate collapse the bubble to cash in ?

Will people simply stop buying ( not many can be buying in reality ) ?

I don't see how it can go any higher and their will be some BIG losers at some point. it would seem London is different, it's got more idiots per square foot than anywhere else in the world.

Bubbles spell Troubles,

In theory you are right of course but at some point its a case of joining the idiots because you know they will never see sense.

Its like the stock market in that people buy on sentiment rather than value. The electronic numbers on the screen are worth nothing to me but as long as others think there is value then I'm safe enough.

Unfortunately rent and needing somewhere to live means they have us all by the short and curlys.

[TheCountOfNowhere]

In theory you are right of course but at some point its a case of joining the idiots because you know they will never see sense.

Its like the stock market in that people buy on sentiment rather than value. The electronic numbers on the screen are worth nothing to me but as long as others think there is value then I'm safe enough.

Unfortunately rent and needing somewhere to live means they have us all by the short and curlys.

Fortunately, having to buy food and get to work means peoples stupidity has bounds.

[gimble]

I'm still amazed that after 5 years of falling house prices ( in real terms ) the loonies in london are still bumping up prices and people are buying before they 'miss out'

I look at some of the asking prices round where my wife sold 2 years ago and it's insane, and with that insanity surely follows collapse.

The question is how and when ?

Will the banks deliberate collapse the bubble to cash in ?

Will people simply stop buying ( not many can be buying in reality ) ?

I don't see how it can go any higher and their will be some BIG losers at some point. it would seem London is different, it's got more idiots per square foot than anywhere else in the world.

Bubbles spell Troubles,

What staggers me is that The City has laid off about 100,000 people since 2008 and the annual bonus pool the last couple of years has been less than £2 billion where it was generally more than £7 billion in the years leading up to the crash. Check this out:

http://www.cityam.com/article/bonuses-slashed-again-city-london-set-collapse-third-place-financial-league-table

London’s bonus pool for 2013 is set to come in at £1.585bn, down 64 per cent on the £4.402bn for 2012 and 86 per cent below its £11.38bn peak in 2008, the CEBR estimates

I was always convinced that funny money from the City was what made London house prices insane. I guess I was wrong. I just don't understand where all the money is coming from to keep houses going up and up now. Prices in my area are going nuts and houses seem to be selling quickly too.

[SHERWICK]

What staggers me is that The City has laid off about 100,000 people since 2008 and the annual bonus pool the last couple of years has been less than £2 billion where it was generally more than £7 billion in the years leading up to the crash. Check this out:

http://www.cityam.com/article/bonuses-slashed-again-city-london-set-collapse-third-place-financial-league-table

I was always convinced that funny money from the City was what made London house prices insane. I guess I was wrong. I just don't understand where all the money is coming from to keep houses going up and up now. Prices in my area are going nuts and houses seem to be selling quickly too.

Rich foreigners who have LOADS more €€¥$₩ than City bankers.

[drunkincharge]

A bubble in asset prices occurs when prices overshoot what they would be based purely on fundamentals.

But what if the funamentals change? What if interest rates are low for a couple of decades a la Japan, thereby making the yields attractive.

What if London property becomes an aspirational global asset for the numerous Asian million and billionaires.

Although I don't like, I have to say when the facts are changing I have to change my mind.

London, especially (but not excluding)prime has a whole world of greater fools after it. It will pop when a major country defaults or its debt or a currency collapses not before me thinks.

[worried1]

I was always convinced that funny money from the City was what made London house prices insane. I guess I was wrong. I just don't understand where all the money is coming from to keep houses going up and up now. Prices in my area are going nuts and houses seem to be selling quickly too.

I think it was originally, but now people just seem to have got used to the idea that prices are high and don't seem frightened by them anymore. In past bubbles this has been the time when everything crashed, but this time I am not so sure. People seem to be really bouyed by the government's 'Help To Buy' scheme and I think the message that this has sent out has had a much more 'positive' effect on the housing market than it should have done.

I was flicking through the property section of the Evening Standard yesterday and was amused by an article about a 2 bed terraced house in Peckham that was in need of complete renovation but was being trumpeted as an unbelievable bargain at 'only' £305k. So by the time you have bought that, paid the fees and done a basic renovation, you'd have paid over A THIRD OF A MILLION POUNDS for a small house in Peckham!

The problem is that seems so cheap now because everywhere halfway decent is so much more than that! Those houses can go for twice that in my part of zone 6 and a lot more still in the rare London areas that combine being both central and nice.

Back in Peckham, there are presumably many couples earning twice the average wage EACH and with a £50k deposit ready waiting to snap up this opportunity! In reality it is probably people earning much less than that with 10x income mortgages and a borrowed deposit, but that doesn't seem to matter any more.

[AvoidDebt]

http://www.standard.co.uk/comment/comment/richard-godwin-you-screw-or-get-screwed-in-the-property-hunt-8607435.html

[The Masked Tulip]

London, especially (but not excluding)prime has a whole world of greater fools after it. It will pop when a major country defaults or its debt or a currency collapses not before me thinks.

Things seem to have gone very quiet on the possibility of a defaulting country or a currency collapse. Perhaps it is all the central bank money printing.

The unemployed, the homeless and the hungry in various countries are being conveniently ignored - a blind eye seems to have been turned to them by politicians and journos. If we pretend there is not a problem then there is not a problem.

The surges in the stock markets seem to be riding rough-shod over everything else.

[worried1]

A bubble in asset prices occurs when prices overshoot what they would be based purely on fundamentals.

But what if the funamentals change? What if interest rates are low for a couple of decades a la Japan, thereby making the yields attractive.

What if London property becomes an aspirational global asset for the numerous Asian million and billionaires.

Yep, that is the other factor. Apart for attractive yields, these low interest rates make it very tempting for non-investors to jump in. Who cares that you have borrowed £500k on a £30k income when the IO monthly payment on your 2% mortgage is only £800?

Hardly anyone seems to think about the amount of money borrowed and what would happen even if interest rates just edged up a few %. I agree it seems very unlikely to happen and this current debt boom makes it even less likely, but surely there are still some global factors which mean we might have to raise our rates off the floor at some point within the next 25 years?

[TheCountOfNowhere]

The thing is, this is a London madness. The rest of the country has had dropping ( in real terms ) for 5 years. To think london can defy logic for much longer is naive.

Even the dead cat bounce is plain for all to see and it looks like the downward path will last another decade!!! Plenty time to snap up that bargain.

I dont think the london bubble will last more than 25 weeks never mind 25 years.

Edited May 9, 2013 by TheCountOfNowhere

[Stop The Ride]

The thing is, this is a London madness. The rest of the country has had dropping ( in real terms ) for 5 years. To think london can defy logic for much longer is naive.

Even the dead cat bounce is plain for all to see and it looks like the downward path will last another decade!!! Plenty time to snap up that bargain.

I dont think the london bubble will last more than 25 weeks never mind 25 years.

It's like fusion power - always 25 weeks away from collapse.

[zugzwang]

Things seem to have gone very quiet on the possibility of a defaulting country or a currency collapse. Perhaps it is all the central bank money printing.

The unemployed, the homeless and the hungry in various countries are being conveniently ignored - a blind eye seems to have been turned to them by politicians and journos. If we pretend there is not a problem then there is not a problem.

The surges in the stock markets seem to be riding rough-shod over everything else.

The Japanese have spent twenty years pretending there isn't a problem but it's still there, bigger and more menacing than ever.

[TheCountOfNowhere]

It's like fusion power - always 25 weeks away from collapse.

Fusion power already exists in abundance, pretending otherwise is insanity.

[winkie]

London house prices and high rents are only a problem for those that are new to London and want to live in London.....

[Starla]

I dont think the london bubble will last more than 25 weeks never mind 25 years.

I really hope you're right. I'd like to buy but I'm as scared of getting financially wiped out as I am of "missing the boat". Cliche. Saying that the boat has pretty much dropped it's anchor and sailed off. I'm priced out of everything and anything I'd like to live in and having to look in area's that I'd never considered living in before and further and further out of London. Then you start to question if it's worth buying when it's not where you even want to live or what you want to live in, or perhaps I should eat humble pie and pay for 10x10 room. My max borrowing at 3.5 times salary plus my deposit is around 200k, which is considered as a minnow amount when studio's in my immediate current area are circa that and above.

Fortunately as it's very difficult for me to capitulate and buy, there's little danger of me getting involved in any of this London madness.

[koala_bear]

I was always convinced that funny money from the City was what made London house prices insane. I guess I was wrong. I just don't understand where all the money is coming from to keep houses going up and up now. Prices in my area are going nuts and houses seem to be selling quickly too.

What is obvious from the FCA report on IO last week was that London was (and still is) the "home" of IO lending.

The bonuses would provide a reasonably sized deposit and provide a source for repayment of the capital in the longer term.

Prices have remained high because transaction levels are ~30% of peak in London (LR) so those still earning big bonuses are determining the prices with the aid of [iO] leverage from certain banks. With real mortgage IRs at record lows repayment mortgages will seem reasonable for high earners at the moment.

[Henry Pryor put London IO figure at 50% of lending in London]

Given the new rules on bonus payments salaries have risen instead so total remuneration / employee may not be that different.

Edited May 9, 2013 by koala_bear

[winkie]

I really hope you're right. I'd like to buy but I'm as scared of getting financially wiped out as I am of "missing the boat". Cliche. Saying that the boat has pretty much dropped it's anchor and sailed off. I'm priced out of everything and anything I'd like to live in and having to look in area's that I'd never considered living in before and further and further out of London. Then you start to question if it's worth buying when it's not where you even want to live or what you want to live in, or perhaps I should eat humble pie and pay for 10x10 room. My max borrowing at 3.5 times salary plus my deposit is around 200k, which is considered as a minnow amount when studio's in my immediate current area are circa that and above.

Fortunately as it's very difficult for me to capitulate and buy, there's little danger of me getting involved in any of this London madness.

You could say, saved by the bell......so do you think there is a big market for a +200k studio flat?....who would buy it? some week day worker as a den to crash out in whilst staying and working in town?

Say you bought it, would you one day be able to sell it for what you paid for it or more?

[worried1]

Say you bought it, would you one day be able to sell it for what you paid for it or more?

The problem is that people said that 10 years ago when the costs of Victorian terraces hit £250k in my area. Everyone considered it a ridiculous price to pay for a workers cottage, and that the world had gone mad.

They were right of course, the world had gone mad, but 10 years on the world has gone even madder, the houses are selling for more than twice that value, but this time people are queueing up to buy in to it because it is now a 'good investment'.

Sentiment has completely changed and history says that this should be the time when the crash actually happens, but I can't yet see it with 0.5% IRs and 'Help To Buy' everywhere. The risk now appears to be it bubbles up even more, a 50% crash happens and it is still to expensive for most people to afford.

[TheCountOfNowhere]

I really hope you're right. I'd like to buy but I'm as scared of getting financially wiped out as I am of "missing the boat".

I used to worry about that but they way I see it is if I/we get financially wiped out the least of our worries will be some s**tty house and a barrow full of paper money.

[TheCountOfNowhere]

The problem is that people said that 10 years ago when the costs of Victorian terraces hit £250k in my area. Everyone considered it a ridiculous price to pay for a workers cottage, and that the world had gone mad.

They were right of course, the world had gone mad, but 10 years on the world has gone even madder, the houses are selling for more than twice that value, but this time people are queueing up to buy in to it because it is now a 'good investment'.

Sentiment has completely changed and history says that this should be the time when the crash actually happens, but I can't yet see it with 0.5% IRs and 'Help To Buy' everywhere. The risk now appears to be it bubbles up even more, a 50% crash happens and it is still to expensive for most people to afford.

It is insanity but remember the sales volumes are at an ALL TIME LOW. That's with Q.E., low I.R. government schemes, foreign money, immigration. This bubble has nowhere to go, there are are so many people who will and can pay massive rents, take on massive debt and risk everything.

I had a look on the Scottish/Edinburgh thread today and they guys on there are talking BIG crash figures now at the bottom end of the market, Edinburgh was meant to be different too.

[zugzwang]

It is insanity but remember the sales volumes are at an ALL TIME LOW. That's with Q.E., low I.R. government schemes, foreign money, immigration. This bubble has nowhere to go, there are are so many people who will and can pay massive rents, take on massive debt and risk everything.

I had a look on the Scottish/Edinburgh thread today and they guys on there are talking BIG crash figures now at the bottom end of the market, Edinburgh was meant to be different too.

It's the Athens of the North.

[dances with sheeple]

A bubble in asset prices occurs when prices overshoot what they would be based purely on fundamentals.

But what if the funamentals change? What if interest rates are low for a couple of decades a la Japan, thereby making the yields attractive.

What if London property becomes an aspirational global asset for the numerous Asian million and billionaires.

Although I don't like, I have to say when the facts are changing I have to change my mind.

London, especially (but not excluding)prime has a whole world of greater fools after it. It will pop when a major country defaults or its debt or a currency collapses not before me thinks.

I can think of a currency not a million miles away from London that is a good candidate