How Many Months Will The Reinflated Bubble Last ?

[Venger]

I expect mortgage approvals for purchase year on year negative around July or August (they are falling month on month but holding up year on year ). Whether supply follows it down stabilizing prices I am not sure. The worst possible scenario (good for us) would be if supply increases while demand falls. That would be a bit irrational response.

For London it will be interesting to see if structured investment vehicles have been buying up. Still it is all cash as Carney says so if it all implodes well nothing lost?

Interesting times .

Irrational? Makes perfect sense to me.

There's a story to read. Go to Google News, and search term: House prices.

Read the FT story, 5 hours ago, it's a scroll down the page for me. I find the fewer search terms you use, more likely the story is to open. ABS, banks clearing up their books into the frenzy.

[Quicken]

This MMR seems to be getting a lot of misplaced faith.

There is a very simple way that banks will make mortgages "affordable" - they will just extend the term. The MMR will actually give them an excuse to sell the longer term and so make people pay a much larger amount of mortgage interest. "We will have to extend the term or you cannot have the mortgage".

Longer terms only work for the young though, unless you get into inter-generational mortgages. Rising FTB/STB age says no dice.

[Bruce Banner]

Longer terms only work for the young though, unless you get into inter-generational mortgages. Rising FTB/STB age says no dice.

Which they were trying to get off the ground in 2007 and you know what happened next.

I actually had a, particularly annoying, estate agent try to convince me, in 2007, that prices were going to "rocket" due to a "wall of money" from "Japanese style" inter-generational mortgages.

[Democorruptcy]

Longer terms only work for the young though, unless you get into inter-generational mortgages. Rising FTB/STB age says no dice.

Those nice banker chappies have been generous enough to allow people to have mortgages in their 70's now

We can service debt are living longer

[Corruption]

Itll take ages possibly 2 years for people to realise theyre property isnt worth what agents are telling them at the moment, that is even if the banks stop lending like they currently are.

As most people selling will be looking to move theyll want to price their house relative to what they are going to be buying so you cant really blame them for not dropping 20% right away to sell quickly.

Edited May 19, 2014 by Corruption

[renting til I die]

You need to add an answer 'I have no idea and I've given up trying to guess!"

[Wurzel Of Highbridge]

Itll take ages possibly 2 years for people to realise theyre property isnt worth what agents are telling them at the moment, that is even if the banks stop lending like they currently are.

As most people selling will be looking to move theyll want to price their house relative to what they are going to be buying so you cant really blame them for not dropping 20% right away to sell quickly.

More properties than ever are owned by speculators and BTL 'investors', they will want to dump properties if they think falls are going to happen. They can then buy the price dips again.

[Corruption]

More properties than ever are owned by speculators and BTL 'investors', they will want to dump properties if they think falls are going to happen. They can then buy the price dips again.

Property is a long term punt for even the most amateur B2L scumlord.

[gf3]

I don't think we will have a crash. I think we will get a mexican standoff. Sellers will hold out for more buyer wont be able to borrow enough. The few motivated sellers will only have to drop the price by 5-10% and some one will buy. Housing transactions will be on the floor.

[Corruption]

I don't think we will have a crash. I think we will get a mexican standoff. Sellers will hold out for more buyer wont be able to borrow enough. The few motivated sellers will only have to drop the price by 5-10% and some one will buy. Housing transactions will be on the floor.

At least this way we will see estate agents go out of business!

Until B2L is taxed to the hilt its still a good long term investment so they will hoover up anything vaguely decent coming onto the market, it'll be another election until that happens imho.

Edited May 19, 2014 by Corruption

[Neverwhere]

I don't think we will have a crash. I think we will get a mexican standoff. Sellers will hold out for more buyer wont be able to borrow enough. The few motivated sellers will only have to drop the price by 5-10% and some one will buy. Housing transactions will be on the floor.

That's exactly how we will get a crash: when a single house sells for 5-10% below the previous market price it resets the market price for every similar house, then the next motivated seller comes along and they will have to accept a price 5-10% below the new market price, and so it goes on. It only takes one transaction to reset the price for every similar house so transactions will be on the floor (this is fairly normal during a crash) but the very few transactions that do go through will dictate lower and lower valuations for the rest. They will be the crash.

[Neverwhere]

At least this way we will see estate agents go out of business!

Until B2L is taxed to the hilt its still a good long term investment so they will hoover up anything vaguely decent coming onto the market, it'll be another election until that happens imho.

Until there's a HPC BTL will still look like a superficially good investment. BTL causes a problem when they are competing with prospective owner occupiers but I'm unconvinced they can sustain the market entirely by themselves. They may not have MMR but falling rents should constrain their purchasing power from rising much above current levels.

[Venger]

The BTL market is about the only game in town, basically property that no one in their right mind would actually buy to live in. By contrast nice family homes in the 250-500k bracket just sit on the market.

A crash proper would mean we could just get back to normal with 2 million transactions a year, but no chance of that with the MPC protecting bank's loan books.

Just enough of a trickle of them selling, but my view is the banks will want to get huge amounts of debt on mid-to-upper end property, necessitating lower prices that younger people can afford.

The foolish housing bulls who think the BoE FED gives a damn about flipping/BTL enterprises are in for a rude awakening.

What was it last week here at HPC? Some guy claiming too many important people having housing investments for them to let it fall, and that BTL is the new savings account for the everyman, and they won't dare lose housing VI votes.

The BoE and FED are not concerned with the value of houses, only in the balance sheets and health of the banks. Housing Bubble 2.0 has only been about strengthening the banks balance sheets.

That's exactly how we will get a crash: when a single house sells for 5-10% below the previous market price it resets the market price for every similar house, then the next motivated seller comes along and they will have to accept a price 5-10% below the new market price, and so it goes on. It only takes one transaction to reset the price for every similar house so transactions will be on the floor (this is fairly normal during a crash) but the very few transactions that do go through will dictate lower and lower valuations for the rest. They will be the crash.

I totally agree, but it's so amazing people can't understand the dynamic. Or have forgotten. gf3, transactions were on the floor in 2008 too, but sellers and buyers agreed lower prices, and it brought all the other houses down in value. It only takes some sellers and buyers to agree to transact at lower prices, for it to impinge on value of surrounding properties.

It's basic market principle. If a semi is "worth" £450,000, because near identical semi across the road just bought by someone paying £450K-£475K.... then its value also goes down in owner next door can't find any buyer willing to pay £450K... wants to sell, and agrees to transact at £350K. (He may be old and bought it £50K back in the 80s with no or little mortgage to pay off, or it may be a probate sale and they want rid... few buyers around). The new £350K price paid impinges on rest value of rest of the road/area. No one can confidently claim their own house now worth £450K when next door just sold for £100K or more less.

I don't think we will have a crash. I think we will get a mexican standoff. Sellers will hold out for more buyer wont be able to borrow enough. The few motivated sellers will only have to drop the price by 5-10% and some one will buy. Housing transactions will be on the floor.

Edited May 19, 2014 by Venger

[disenfranchised]

The government is aiming for a gradual crumble.

We are being softened up for building, as it must happen. We are being softened up for IR raises, as they too must come. We are increasingly hearing that lower prices would be a good thing in the most Tory shill press.

They are hoping that they can push the pin in quietly and get it to deflate rather than burst.

I think they might even get away with containing it to 30% in London & 15% outside. Do not underestimate the number of 30-40 frustrated renters who may throw their lot in after a repeat of 2008-9

[Liquid Goldfish]

The BoE and FED are not concerned with the value of houses, only in the balance sheets and health of the banks. Housing Bubble 2.0 has only been about strengthening the banks balance sheets.

In the USA I thought banks and other parts of trhe finance industry had invested hugely in buying properties over the past few years - something like 75% of all purchases - so wouldn't they be wiped out by a property price crash?

[Venger]

In the USA I thought banks and other parts of trhe finance industry had invested hugely in buying properties over the past few years - something like 75% of all purchases - so wouldn't they be wiped out by a property price crash?

Where does their money come from? Investors in the market is my view, under structures like reits. Do many such investment firms have direct exposure? Who really gets wiped out?

http://www.bloomberg.com/news/2013-10-29/blackstone-adds-to-biggest-year-for-reit-ipos-since-2004.html

Even if they do, I thought this exact issue through the other week. It strays into conspiracy, but the 'huge' number of properties such companies have acquired, is still only a fraction of overall stock. And prices they've paid put a floor under things, and much of what they've acquired lower-end stock as well (it seems). They've had rental income for years too, for some gain, for companies who turned them out of rental.

Maybe all the banks and finance companies make out in a wider crash. I'm not sure of the calculations but wouldn't be surprised if it's part of a wider smoothing operation. Perhaps rental yields will hold up as well for them too on the lower end stock acquired. It's now the better houses, currently owned by older owners, which are more at risk, to HPC, I would have thought.

[dances with sheeple]

Where does their money come from? Investors in the market is my view, under structures like reits. Do many such investment firms have direct exposure? Who really gets wiped out?

http://www.bloomberg.com/news/2013-10-29/blackstone-adds-to-biggest-year-for-reit-ipos-since-2004.html

Even if they do, I thought this exact issue through the other week. It strays into conspiracy, but the 'huge' number of properties such companies have acquired, is still only a fraction of overall stock. And prices they've paid put a floor under things, and much of what they've acquired lower-end stock as well (it seems). They've had rental income for years too, for some gain, for companies who turned them out of rental.

Maybe all the banks and finance companies make out in a wider crash. I'm not sure of the calculations but wouldn't be surprised if it's part of a wider smoothing operation. Perhaps rental yields will hold up as well for them too on the lower end stock acquired. It's now the better houses, currently owned by older owners, which are more at risk, to HPC, I would have thought.

Yep, people who thought they had "built up" years of equity on bigger houses are going to get creamed. In Edinburgh you can already get a bog standard flat in a not so great postcode for 50 - 60k, it is already over for that end of the market, but when the tide goes properly out many "desirable" homes are going to get hammered on price IMO.

[zugzwang]

Bernanke's second US bubble, 2011-13, appears done too.

The burden of servicing $1.1 trn of student loans has clearly begun to eat into other forms of debt consumption such as credit card use and mortgage borrowing.

[Venger]

I picked the 1 month because:

• We have already had two months of land registry falls.
• The rush to buy before MMR kicks in has ended
• MMR anecdotal's from MSE http://forums.moneysavingexpert.com/forumdisplay.php?f=15
• Reports that foreign investors have scaled back buying in London (Over the past year, almost two-thirds of prime London sales have been to UK buyers)
• Carney covering his ass yesterday
• Since 24th April, new mortgages are being borrowed against a rate equivalent of about 7% vs ~3% in months prior.

Definitely all those things. The rush goes back to last year in my view, and us enduring it, with it having a real effect on pushing prices up. Even from cash buyers not affected by MMR, but with some view MMR will still make prices go up, together with the not building enough/supply-demand flawed position about values. Let's hope it's now a time of some softening.

That MSE place shows how so many people have fallen into line with MMR. I've always found it quite something how people so quickly follow and comply with any authority. There was tv show a few years ago which tested the theory, and people willing to do extremely stupid/risky things when asked for help/ordered by people in authoritative uniforms or authoritative positions of power in a workplace. And offer sensitive information they didn't have to answer when asked.

Just a few grumbles but mostly total acceptance this is how things are now with MMR. All wishing each other luck with the interviews as they apply. Others making sure they've got all the necessary paperwork together, and double checking. Some downhearted at amount offered way lower than they expected or were first told (pre MMR). I wonder if the banks will come to enjoy this new roll-over and comply with tighter lending standards, and the beginning of less forbearance, and getting real with existing borrowers.

Possibly part of MMR, even tightening on landlords who've only had temporary permission to let, and then finding they don't meet the standard to borrow under BTL. http://forums.moneysavingexpert.com/showthread.php?t=4964247

Just annoying how there are still so many BTL wannabee threads.

Edited May 20, 2014 by Venger

[Venger]

Yep, people who thought they had "built up" years of equity on bigger houses are going to get creamed. In Edinburgh you can already get a bog standard flat in a not so great postcode for 50 - 60k, it is already over for that end of the market, but when the tide goes properly out many "desirable" homes are going to get hammered on price IMO.

[winkie]

I don't believe there will be a proper crash in the nearest future. For this to happen property hoarders need to start dumping their holdings. They accumulated 2-3mln properties since 2000 and they still doing this at a pace 200-300k/year. The 2008 financial crash didn't change this behaviour, it rather reinforced their view that a property is a good long time investment. Even high leveraged property investors were saved by low interest rate and a political decision not to repossess mortgages with negative equity.

Increasing supply will mostly likely be absorbed by property investors. It will help keep house prices in check but not trigger an immediate crash. However it will amplify a crash when it happens when oversupply will be dumped in a short period of time (Spain scenario).

Restricting demand by reducing mortgage supply will cause market to cool down and enter low volume regime we have seen after the crisis.

Increasing interest rates could trigger a sell off if leveraged landlords were not being able to increase the rents. With negative cash flows property investor demand would drop.

Have you considered tighter tax policies for property held in excess of own owner occupied property........capital gains and/or income gained from investment property?

[RentaBear]

Have you considered tighter tax policies for property held in excess of own owner occupied property........capital gains and/or income gained from investment property?

Surely that would require the BTL MP's to vote to tax themselves - can't see that happening anytime soon...