Just A Quick Question

[Smurf1976]

Renting is only cheaper short term, and for expensive houses. Rent will rise with inflation. A mortgage is eventually paid off. 10 year fixes or longer are available at around 5%.

The bit about a mortgage being paid off is irrelevant. Borrowed money costs you in interest paid. Your own capital tied up in a house (or anything else) costs you in lost profit from investing it elsewhere. Owning an asset costs either way so the question is whether or not the profit from owning a house (saved rent plus capital growth) is greater than the profit from some other investment. Where you get the funds from is largely irrelevant.

[Geek Man]

Uk has lowest unemployment in the world except Japan. Rises are pretty small and from a very low base.

Low IRs negates the high prices.

Renting is only cheaper short term, and for expensive houses. Rent will rise with inflation. A mortgage is eventually paid off. 10 year fixes or longer are available at around 5%.

Approvals are the HIGHEST for over a year (115k) and well above the longterm trend (96k).

I'm not saying they will rise, just that on the balance of probability, they will not crash soon.

The unemployment rate in NZ, where I now live, is also lower than in the UK. Evidently, the UK rate never actually got low enough to cause wage inflation, whereas in NZ it has. The fact that UK unemployment is now rising again should worry anyone with a large mortgage because the chances of wage inflation actually eroding a debt in the UK becomes ever more remote.

I suspect that in the UK you can be confident of 3 things 1)that taxes will rise, 2)that wages will fall further behind real inflation, and 3) that at some point during the next 15 years, interest rates may well rise significantly (as in NZ now where floating rates will soon cross 10%). I believe rate-rises will occur because we are approaching peak oil (trust me, I am a geophysicist - in fact no, don't trust me, just be very worried that I am very worried). This will be inflationary, $100, then upwards, always upwards. Rates may also have to rise to defend falling sterling from importing inflation (and if sterling falls as peak oil approaches, they will have to rise fast), or even if the Yuan strengthens (same effect, since the UK imports so much from China). The point is that the BofE has been instructed to target inflation (read wage inflation), not to maintain house prices, and it has only one weapon with which to fight it (a blunt one which causes all kinds of imbalances due to phase lags, as NZ is now discovering). The only way I can see the BofE not needing to raise IR's is if you continue to have low wage inflation, e.g. by importing low-earners to replace people like me who get the hell out. I think many UK BTLers fail to grasp that this environment is very negative for house prices in the long term. At best, they have enjoyed 10 years worth of house-price inflation up-front, whereas their tenants have not had equivalent pay hikes. Whether house prices crash or stagnate for 10 years matters not to me personally because in this environment it is financially astute to rent, and if you are in it for the long run, to rent well if you can afford to (a big furnished house by the beach works well for us - it costs less than renting a damp terraced house in the UK).

As you say,

renting is cheaper for expensive houses

, but since all houses are expensive, I think you should accept that renting is now cheaper, end of story. Rents are paid with real money, not borrowed money, which is why rent inflation had been negligible compared to HPI. My rent in the UK did not rise between 2001 and 2004, and in 2005 in NZ, the same, and 2006 too, I'll wager - so against inflation, I have experienced real falls in costs. There simply isn't enough spare real money (look at consumer debt figures) for landlords to increase rent by much, either in the UK or NZ, and in both places there is spare rental capacity (and more is being built all the time). So, go on landlords, call my bluff, if you think your assets are worth so much, try and increase the yield beyond inflation. You couldn't even raise rents at the rate of inflation during a period of record low unemployment in the UK and NZ, so what are the prospects of you doing it in the future?.

Over mortgage timescales, I predict that real money will get further squeezed by taxes, and landlords are going to be competing with governments, and retailers, for any slack (minus1.1 trillion already, what slack? ). Since the taxman is first in line, renting will continue to be a diminishing proprtion of my costs, just as property continues to be a low-yield investment object for my landlord. Faced with the prospect of not seeing his asset appreciate in value as fast as real inflation, and not being able to increase his yield because most renters are cash-strapped, he may well decide to sell, even if interest rates fall. The question is, who would buy a low-yield non-appreciating asset? Maybe I would buy it, but only if it makes economic sense, and for that prices would have to fall by 40% in real terms. IMHO you would be insane to purchase a property that is much less salubrious than one you could easily afford to rent - life is far too short for sacrifices on that time-scale, even if you are 100% assured that you are making an investment.

Lastly, let me just take one swipe at muppets who quote that house prices have always risen above inflation in the long term, and then proceeded to buy a house as an investment based on this fact alone. This is primarily because homeowners tended to improve their houses by investing in them. Landlords tend not to. At best, landlords maintain property, and that is all. As for tiny BTL apartments, you couldn't add value to one if you tried, primarily because there is nowhere to extend - heck, you'd lose significant volume if you put wallpaper in some of them. In this case, do not imagine that these properties will appreciate at the same rate as a detached houses with a new extensions and loft conversions. Landlords, you won't have long-term increases above inflation unless you further invest in your properties, crash or no crash. (Crash, obviously).

[NJP]

If the economy is ok, where are the forced sellers going to come from ?

Don't forget newbuilds. The house builders are effectively 'forced sellers', and there's no doubt at all that prices are falling in that sector. If this continues, and it may well do, they're unlikely to fall in isolation.

[AgeingBabyBoomer]

Absolutely - new builds have lead the market up, as they fall,

old builds will have to follow

ABB

[Guest wrongmove]

Hi Geek Man, and a warm welcome to HPC.

Thank you for your post. Much better than just sqeaking AWOOGA !!

It may surprise you to know that I am renting myself, and have no immediate plans to buy. I agree that property looks like a cr@p investment at the moment, and renting suits my lifestyle and does save me a bit of money. I have posted a lot of crash counter-arguments over the last day or so because many pro-crash posts are not detailed and considered, like yours is.

I do not think that Hps will rise much over the next few years, certainly not in real terms. With yields low, this makes them a poor investment, IMNO. What worries me is that nesters, rather than investors, will be taken in by the crash VI spin, and change their lifestyles in the hope of cashing in soon. We have even had one thread where a poster thinks his 17 year marriage is in danger because he STR. However, anyone buying now for quick gains is onto a losr IMHO.

All I am trying to say is that the ingredients for a crash are just not there AT THE MOMENT. So ruining your family life or STRing in the hope of making a quick buck may not be the "no-brainer" the uber bears keep telling us it is.

[deus ex machina]

Back to reality chaps, we have 3 million currently unemployed receiving benefits.What impact will this have over the next 3 year cycle particularly when GDP has been revised downwards? I/Rs up or down?

[Bystander]

Number of property transactions: http://www.statistics.gov.uk/STATBASE/tsda...04&More=N&All=Y

The first column is England and Wales, not seasonally adjusted, for the last 30 years. How exactly is now the lowest for 30 years ? Look at the early 90s.

etc etc

2003 3 358 369 327

2003 4 340 349 333

2004 1 447 457 470

2004 2 452 463 459

2004 3 491 504 447

2004 4 396 406 411

2005 1 322 329 351

2005 2 363 375 358

2005 3 464 478 416

Can anyone make sense of these figures? They are indeed what are on the gov web site but they dont seem to relate to either mortgage approvals and lending from CML or the land registry figures on the graphs page of this site. For example the land registry Q3 figure for house sales is 261K. I don't get it.

Plotting mortgage approvals against the land registry sales shows a reasonable fit but these figures don't seem to show the same pattern.

Am I being dim somehow? - do these figures include other land transactions??

Notice that the Q3 figure is the second highest ever...?

Edited January 5, 2006 by Bystander

[Guest wrongmove]

Can anyone make sense of these figures? They are indeed what are on the gov web site but they dont seem to relate to either mortgage approvals and lending from CML or the land registry figures on the graphs page of this site. For example the land registry Q3 figure for house sales is 261K. I don't get it.

Plotting mortgage approvals against the land registry sales shows a reasonable fit but these figures don't seem to show the same pattern.

Am I being dim somehow? - do these figures include other land transactions??

Notice that the Q3 figure is the second highest ever...?

This is the summary:

The figures are based on counts of the relevant administrative forms successfully processed each month. For completions up to and including November 2003 the relevant form was the Particulars Delivered form processed by Inland Revenue Stamp Offices or District Land Registries. Since December 2003 the relevant form is the Land Transaction Return processed under arrangements associated with the introduction of Stamp Duty Land Tax. These forms are completed whenever freehold land or property is transferred on sale, or a notifiable lease is granted, or such a lease is transferred on sale.

The figures do include land - they also included land in the early 90s. The LR is notoriously slow to collate all the data - have another look in about 6 months. The Stamp Office is probably a lot quicker !

[Bystander]

This is the summary:

The figures do include land - they also included land in the early 90s. The LR is notoriously slow to collate all the data - have another look in about 6 months. The Stamp Office is probably a lot quicker !

Hi there!

I'm still not convinced - if you compare these stats with say the CML mortgage lending figures on the CML website it would appear that more that a third of purchases are cash sales...?! I'll try and post a graph

showing this but I'm in the middle of checking in for a BA flight at the mo.

[Guest wrongmove]

Hi there!

I'm still not convinced - if you compare these stats with say the CML mortgage lending figures on the CML website it would appear that more that a third of purchases are cash sales...?! I'll try and post a graph

showing this but I'm in the middle of checking in for a BA flight at the mo.

Hi

Interesting. Try the BoE figures, they should be more complete. Out of interest, are the CML figures at their lowest for 30 years ?

ps. how do you manage to check in and post at the same time ? That is very impressive !!

[apom]

weird that one of the biggest home builders and one of the biggest estate agents.. both claim that the last year sold fewer then in 30 years..

aren't their profits relying on the bulls view that the market is fine.

anyway..

that aside..

I was trying to see if the market was fine..

And a bull has actually said that prices are more affordable then ever before..

[Bystander]

Hi

Interesting. Try the BoE figures, they should be more complete. Out of interest, are the CML figures at their lowest for 30 years ?

ps. how do you manage to check in and post at the same time ? That is very impressive !!

Err - I was checking in on line - so not quite so difficult

Here's the graph - I dont understand it but it seems odd

Shows (non seasonally adjusted) Mortgage lending numbers for house purchase from CML

Land Registry sales

Gov Stat sales

Note that the CML figures are bigger than the land registry figures in a fairly consistent way. They follow each other fairly well. The GovStat figures are bigger than CML - which makes sense - not all purchases involve a mortgage but since the start of 2004 they seem to suddenly have increased and diverged - surely it isnt true that in Q1 2005 120K out of 320K were purchases for cash??

Edited January 5, 2006 by Bystander

[Guest wrongmove]

Thanks for that Bystander. It is certainly very strange that the LR is consistantly less than the CML.

The numbers are pretty correlated though, and none of them appear to be at a 30 year low though.

Just more VI BS I guess !

[Once in a lifetime]

You're right (despite the fact that I'd like to challenge the broadness of some of your statements), the markets in a tough period.

Only 1 thing left to do, lower rates........

Oooh, & I almost forgot, raise rents........

Ha ha... I know you're not my landlord I've had £20 per month knocked off.

[apom]

I am not a bull, more a slighly bearish/neutral, but here goes:

We see that IRs are down.

But that prices are going to crash and the market is f*****d.

We see that approvals are strong and rising

But that prices are going to crash and the market is f*****d.

We see that affordability is much better than the last crash.

But that prices are going to crash and the market is f*****d.

We see that GDP is positive and predicted to rise.

But that prices are going to crash and the market is f*****d.

We see that employment is stable.

But that prices are going to crash and the market is f*****d.

We see that payrises are above inflation.

But that prices are going to crash and the market is f*****d.

WE see that city bonuses are well up this year.

But that prices are going to crash and the market is f*****d.

There are still two sides to the argument IMHO - I have just listed the positive side to compliment apom's negative factors.

IR's are down..?

Okay 4.5% after a quarter point drop as the country was having a hernia.. a hernia at 4.75%?

We are seeing desperate calls for further drops...

Approvals are up?

We I was approved for a mortgage I had never asked for, as have many of my friends..

Affordabulity, average house is 9 times the average income this time?? how do you afford?

Employment is rising at the fastest rate since labour was in last time.

If payrises are above 2.5% overall the MPC will raise IR's.. thats what they said.. That's inflation you see.

City Bonuses??

Really, living in Devon here..

Average salary less the £20,000 average house £190,000

so which bonus does what for whom?

[E Powell]

nodumscumreader

Have you enjoyed your holiday after collecting token from your

favourite rag ? May be you should collet another set to have a

brain transplant. But I do like some of the rubbish you come out

with.

[apom]

Mortgage lending nears record high:

http://www.thisismoney.co.uk/mortgages/mor...3&in_page_id=58

According to HPC logic this must mean prices are falling

Can I say again genius.

this was in the article you quote put down to people remortgaging..

and therefor making the bears case stronger..

I made one mistake in judgement about when houseprices would peak and become their cyclical downswing..

and that is the amount of deranged idiots..

You not a bull, your bull fodder..

You have given the bulls a great deal of money.

[Guest wrongmove]

Approvals are up?

We I was approved for a mortgage I had never asked for, as have many of my friends..

Affordabulity, average house is 9 times the average income this time?? how do you afford?

For the 99th time BoE mortgage approvals are counted from when the mortgage is approved after the house has been valued by the lender. Just applying for a mortgage, or get pre-approved, does not count (why do you think the BoE would care about pointless "approvals" ?). BoE approval figures are only counted for house purchase, and do not include remortgaging or MEWing.

Also, prices 9x average salary ? I assume you are talking about your local area there. This is not the case nationally.

BoE approvals for December are due out on Monday BTW. Should be interesting as these will be the first since SIPPs was removed.

[john_d_uk]

We have had rising employment for nine months in a row - yet the media still report unchallenged the government's glib statements that we have rising employment. This is truly Orwellian.

The UK unemployment statistics are a joke.

We have lost a million jobs in manufacturing since 1997 and gained a million jobs in the public sector. This is the biggest single act of folly I have ever witnessed. This will take a generation or more to undo.

Low IRs negate high prices - only if IRs stay low. Last time I looked most people took on a 25 year mortgage. The affordability ratio is so stretched now that even a 1% rise in IRs would kill the economy stone dead.

Mortgage approval figures - sorry, I don't believe a word of the VI figures. They massage everything to try to put a positive spin on things.

If everything is so rosy, how come developers round here simply cannot sell their new build flats? Even with 15% or more off - they are still not shifting. One block is coming up for its second anniversary now and, according to the Land Registry, only 4 out of 8 have ever been sold. Another block now a year old - 6 out of 24 sold.

Marina,

I agree, the 1M 'disappeared' unemployed are now employed in 1M government created non-jobs at £30k a time such as a cultural diversity officers for the ethnic women's trick cycling club, in the London Borough of Hackney.

Also I really believe that unemployment is actually much higher than published anyway. The amount of people now on 'incapacity benefit' or whatever it is called this week, has gone from less than 1M in 1997 to over 2.5M now.

Unemployment should be 'economically inactive' I saw figures recently that this could be about 8M people. Frightening.

[apom]

For the 99th time BoE mortgage approvals are counted from when the mortgage is approved after the house has been valued by the lender. Just applying for a mortgage, or get pre-approved, does not count (why do you think the BoE would care about pointless "approvals" ?). BoE approval figures are only counted for house purchase, and do not include remortgaging or MEWing.

Also, prices 9x average salary ? I assume you are talking about your local area there. This is not the case nationally.

BoE approvals for December are due out on Monday BTW. Should be interesting as these will be the first since SIPPs was removed.

ahha.. I din't know that one..

But I am in Devon..

When I hear london moaning about 50% rises in the boom I do tend to look at 300% here and think "You call that a boom"

Some say the average price is £217,000 here.

The average wage is below £20,000 in devon.