Homes on the brink: In the wake of dire warning on house market, fresh data shows prices slipping

[Tempus]

More from the Mail on Sunday after last week's biggie...

'The housing market across the whole of England is on average substantially more volatile than any single metropolitan area in the whole of the US,' Cheshire told The Mail on Sunday. So when falls come, they can be substantial.

The shortage of homes, which others say helps prop up the market, also contributes to the huge volatility, he argued.

Real incomes are the key underlying driver of prices, he said. But he conceded that it was not easy to call turning points in the market.

Cheshire said: 'Economists are pretty good at understanding the fundamentals, but they are not at all good at predicting turning points in markets.'

His colleague Professor Christian Hilber is similarly guarded about the likelihood of big falls. 

He said: 'I am not in the business of forecasting house prices, and we can't be certain at this stage, but looking at recent price developments it indeed looks increasingly likely that the markets are indeed turning from 'boom' to 'bust' once again and, indeed, starting from parts of London and spreading outwards.

'Whether the correction will be as stark as in the early 1990s is really difficult to say.'

Hilber said a 1990s-style collapse – when prices fell 37 per cent in real terms over six years according to Nationwide Building Society – is a 'possible' scenario, depending on whether Brexit has severe economic effects.

Read more: http://www.thisismoney.co.uk/money/mortgageshome/article-4677680/RICS-data-expected-house-price-growth-slipping.html#ixzz4mJuVlSAU 
 

[winkie]

A correction would be a good thing for almost everyone.....why would buying the right home in the right place to be used as a home put anyone off buying? if they want it and can afford it now and into the future taking into account slightly higher cost of borrowing.......almost all the HPI props have already been pulled out of the bag little left to maintain the momentum.....already max loan to value based on income inc future income prospects and job stability, many well paid jobs no longer exist, gig and ai, lowest interest rates for longest period of time for many lifetimes....when homes are no longer classed as the only investment in town there will suddenly be plenty available to purchase for those that would want one....one is plenty enough to contend with.

[adarmo]

12 minutes ago, winkie said:

A correction would be a good thing for almost everyone.....why would buying the right home in the right place to be used as a home put anyone off buying? if they want it and can afford it now and into the future taking into account slightly higher cost of borrowing.......almost all the HPI props have already been pulled out of the bag little left to maintain the momentum.....already max loan to value based on income inc future income prospects and job stability, many well paid jobs no longer exist, gig and ai, lowest interest rates for longest period of time for many lifetimes....when homes are no longer classed as the only investment in town there will suddenly be plenty available to purchase for those that would want one....one is plenty enough to contend with.

This is the view we took. It's always a risk, and yes there's a tonne of scary news out there (scary if you're FTBs) but the thing with waiting is that we would have missed the place we've been looking for for well over a year. There's no guarantee anything like this would come up again and certainly in a slow low volume market it's even less likely. 

My dream scenario (for me) is that prices slowly fall and interest rates stay low. We could afford higher rates and were stress tested to a surprisingly high level but it's always nice to be paying less to the banks and more off my debt. 

If inflation picks up and they're forced to increase rates then I guess the monthly costs go up, but the debt is being eroded more by inflation so that in itself isn't always a bad thing either. 

Overall though it would be great if housing was viewed as utility rather than commodity. A final nail in the BTL coffin such as not being able to use borrowed money to fund it would be sweet. Only people with the money who can afford to run a BTL portfolio properly regardless of interest rate increases would be better than any old amateur who lucked out with a nice job and bonus having a stab at it. 

Edited July 9, 2017 by adarmo

[funinhounslow]

There was this odd sentence at the end of the article:

"Most economists may not be predicting a house price collapse just yet, but nervous homebuyers may have reason to be fearful."

Surely "hopeful"?!

 

 

[BoredByTorque]

I think nervous home buyers is referring to those actually buying at the moment,  not looking to buy.

I've been watching my area of SW London and prices on 2 beds have been falling for a good few weeks and hardly any for sale now whereas 3 beds are just starting to decrease but still lots on RM.

 

[frederico]

The problem is, if you get a purchase like this right it can save you a fortune over the life of the mortgage. People very rarely look at the big picture, how much will you pay over the full term.

Two things mainly drive the market, supply and affordability. Of course sentiment is another, by which I mean those who can by but don't or do buy but don't have to because they think they can make easy cash.

Sentiment will already be heading south, risk reward is not looking too good.

So BTL bailing/going bust, speculators waiting, leaves a few buyers with increasing supply.

Anyway back to my original point, do the maths assume realistic interest rates and work out the cost over the life time of the mortgage.

Also if you end up in negative equity you will pay more and be trapped.

Even the ones who bought a couple of years ago will find the cost high if rates normalise. They will be stuck with it for years. The only thing that could save them is large pay rises.

Wage rises cause inflation which causes job losses and lowers disposable income.

It really is a right mess

[Eddie_George]

"Brink" seems to be the word of the moment.

 

 

[jiltedjen]

Thankfully the media seems to have been told to start pushing the crash narrative. this is very good news for a HPC. 

everything is well lined up for crash ramming speed. interest rates starting to go up, politically HPI is now toxic, BTL selling up or going bust. brexit. media shouting crash stories.

We now have all the ingredients, for a nice HPC stew. all we need to do now is wait. 

6-12 months before prices are down 10-20%? 

[stuckmojo]

13 minutes ago, jiltedjen said:

Thankfully the media seems to have been told to start pushing the crash narrative. this is very good news for a HPC. 

everything is well lined up for crash ramming speed. interest rates starting to go up, politically HPI is now toxic, BTL selling up or going bust. brexit. media shouting crash stories.

We now have all the ingredients, for a nice HPC stew. all we need to do now is wait. 

6-12 months before prices are down 10-20%? 

I think that's entirely possible 

[nome]

30 minutes ago, Eddie_George said:

"Brink" seems to be the word of the moment.

 

 

It's been the word of the last 10 years, as well  as ''looming''... trouble is everything seems to just keep remaining ''on the brink'' and ''looming''

[LittlePig]

7 minutes ago, nome said:

It's been the word of the last 10 years, as well  as ''looming''... trouble is everything seems to just keep remaining ''on the brink'' and ''looming''

Not really, 2009 to 2012 was pretty stagnant. This current double bubble business kicked off in 2013 ish.

[nome]

I know it's a bit of an obvious point to make, bur everyone here should share and comment on that article, or at least rate some of the existing comments... the more clicks it gets the longer it will remain a top story in the DM online and the more encouragement the DM will have to publish other similarly sentiment influencing pieces.   Every little helps!

[ftb_fml]

1 hour ago, frederico said:

The problem is, if you get a purchase like this right it can save you a fortune over the life of the mortgage. People very rarely look at the big picture, how much will you pay over the full term.

Totally agree with your whole post, but with this in particular. It seems that shockingly few people look past the cost of monthly cost at the lump of debt they're actually committing to.. fewer still consider the total cost of this debt over its full term.

Playing with the RM mortgage calculator, looking at two scenarios:

1. £250k property, £25k deposit giving a mortgage of £225k. Over 30yrs at 2% IR this gives repayments of £832pm and a total repayable amount of £299,520; £74,520 or around 33% above the principal sum over the life of the mortgage. This makes the total cost of the property £324,520 or nearly 30% more than the asking price.

2. £200k property, £25k deposit giving a morgage of £175k. Over 22yrs at 2% IR this gives repayments of £820pm and a total repayable amount of £216,480; £41,480 or around 24% above the principal sum over the life of the mortgage. This makes the total cost of the property £241,480; around 21% more than the asking price.

So in this example a 20% fall means that for approximately the same montly payment cost you can pay your mortgage off 8 years or 25% earlier, saving you over £30k in interest payments. While the sale price of the property falls by £50k the total cost falls by over £80k.

Of course this is only ballpark; those with a larger deposit will fare even better. It assumes the same interest rate so doesn't take into account a hike (which might be one of the driving factors of a price correction), but equally doesn't account for the thousands saved in fees in having 8 years of not having to re-morgage to maintain competitive rates. Lots of variables but the underlying fact is that for most people a fall in prices is magnified further by lower absolute borrowing costs.

[Democorruptcy]

9 minutes ago, ftb_fml said:

Totally agree with your whole post, but with this in particular. It seems that shockingly few people look past the cost of monthly cost at the lump of debt they're actually committing to.. fewer still consider the total cost of this debt over its full term.

Playing with the RM mortgage calculator, looking at two scenarios:

1. £250k property, £25k deposit giving a mortgage of £225k. Over 30yrs at 2% IR this gives repayments of £832pm and a total repayable amount of £299,520; £74,520 or around 33% above the principal sum over the life of the mortgage. This makes the total cost of the property £324,520 or nearly 30% more than the asking price.

2. £200k property, £25k deposit giving a morgage of £175k. Over 22yrs at 2% IR this gives repayments of £820pm and a total repayable amount of £216,480; £41,480 or around 24% above the principal sum over the life of the mortgage. This makes the total cost of the property £241,480; around 21% more than the asking price.

So in this example a 20% fall means that for approximately the same montly payment cost you can pay your mortgage off 8 years or 25% earlier, saving you over £30k in interest payments. While the sale price of the property falls by £50k the total cost falls by over £80k.

Of course this is only ballpark; those with a larger deposit will fare even better. It assumes the same interest rate so doesn't take into account a hike (which might be one of the driving factors of a price correction), but equally doesn't account for the thousands saved in fees in having 8 years of not having to re-morgage to maintain competitive rates. Lots of variables but the underlying fact is that for most people a fall in prices is magnified further by lower absolute borrowing costs.

Your figures demonstrate why banks love HPI and while the MMR and "stress testing" are perceived as bad for them, they actually increase profits. With no 25 year maximum mortgage term, they use them to get the monthly payment down by extending the mortgage term, to make more money from the longer interest payments.

[sideysid]

All the signs and sentiments are now there and I find myself warning people once again like I did a decade ago. My brother and his wife who has 3 BTL properties, smirked to each other when I brought it up last night. I warned him in 2007 too when I sold my then 3 bed house (he went bankrupt renovating his house he just bought). But people have such short memories and greed obscures sense.

Two people I've spoken to recently (a nurse and I guy I worked with for the day) both everyday people who 'accidentally' found themselves landlords and got several more BTL properties on top, despite being on modest salaries. When I asked if they were aware of the s24 tax changes, they both answered that they didn't understand it and that their accountants 'deal with all that stuff' like it would magically go away.

As I've said before we won't see falls until well into next year when the tax returns are due, and until the full force of s24 comes in, it will be a long drawn out drop. 

The financially illiterate have fuelled this housing bubble and it will take an equally obvious slap in the face to make them realise that the market has well an truly started to unwind. The whole Kübler-Ross model needs to happen first.

I make no predictions in % drops as it's entirely by whatever areas have achieved the most unsustainable growth in the quickest time-frame.

I go by years and If we go back to 2012-2013 prices before the props, I think that is totally achievable. That maybe 60% in some areas and 10% in others.

Edited July 9, 2017 by sideysid
.

[winkie]

18 minutes ago, wotsthat said:

A lot of BTL landlords have just one or two properties, and a lot of them are not whiter than white., they won't be paying any tax if they can help it. Grenfell Towers again opened up a lot of the dodgy dealings in that one small microcosm, but of course that tragedy will make all tax  and property crimes null and void, and probably quite rightly.

There are communities in the UK where speculative property ownership and renting it out tax free is an art form, rented out to each other and friends of family and  illegal immigrants.

....been going on for years....except TPTB have in the most turned a blind eye to it......the reasons they have done this are clearly obvious.....not everyone is completely blind.

Edited July 9, 2017 by winkie

[winkie]

....all sorts of goings on that have been allowed to go on.....benefits claimed on renting partners and relatives homes, couples claiming they are separated but still an item......to, don't make us aware of the illegals subletting social housing or we will be duty bound to rehouse them.....politicians and the expenses some of them claim are the tip of the iceberg.....nobody cares so why should anybody care?......interesting times.

[bobbo]

I'm not sure where I read it, here or somewhere else but help to by, btl mortgages and low interest rates have brought forward demand.

25 year olds with parental help and htb buying a house they might not have otherwise bought until they were well into their 30s.

Well some of those kids will be in their 30s and no longer needing a house. So with a lul in demand, capital gains taxes, s24, stamp duty we could be looking at a bit of a  perfect storm.

[durhamborn]

7 hours ago, sideysid said:

All the signs and sentiments are now there and I find myself warning people once again like I did a decade ago. My brother and his wife who has 3 BTL properties, smirked to each other when I brought it up last night. I warned him in 2007 too when I sold my then 3 bed house (he went bankrupt renovating his house he just bought). But people have such short memories and greed obscures sense.

Two people I've spoken to recently (a nurse and I guy I worked with for the day) both everyday people who 'accidentally' found themselves landlords and got several more BTL properties on top, despite being on modest salaries. When I asked if they were aware of the s24 tax changes, they both answered that they didn't understand it and that their accountants 'deal with all that stuff' like it would magically go away.

As I've said before we won't see falls until well into next year when the tax returns are due, and until the full force of s24 comes in, it will be a long drawn out drop. 

The financially illiterate have fuelled this housing bubble and it will take an equally obvious slap in the face to make them realise that the market has well an truly started to unwind. The whole Kübler-Ross model needs to happen first.

I make no predictions in % drops as it's entirely by whatever areas have achieved the most unsustainable growth in the quickest time-frame.

I go by years and If we go back to 2012-2013 prices before the props, I think that is totally achievable. That maybe 60% in some areas and 10% in others.

Those are the sized drops iv roughly got.60%+ nominal in bubble areas to perhaps 15%/20% in areas where prices are already at 2004 levels.I actually think we get a two part crash.First due to a financial crisis/really deep recession,then after a lull more strong falls in real terms due to inflation and rates cranking up.Depending how deep the crash is and how much they print (twice or three times what they did last time) will see how high rates and inflation are in 2025.The highly leveraged are in deep trouble,and they will be shocked at whats coming.

[zugzwang]

4 hours ago, winkie said:

....all sorts of goings on that have been allowed to go on.....benefits claimed on renting partners and relatives homes, couples claiming they are separated but still an item......to, don't make us aware of the illegals subletting social housing or we will be duty bound to rehouse them.....politicians and the expenses some of them claim are the tip of the iceberg.....nobody cares so why should anybody care?......interesting times.

Nobody cares so why should anybody care? Beautifully put. The principle-free amorality of a culture from which every vestige of self-restraint has been extinguished. We're all sovereign individuals now. Accountable only to our appetites.

[interestrateripoff]

Seems the crash will be blamed on Brexit! HPI due to EU....

[long time lurking]

10 hours ago, adarmo said:

This is the view we took. It's always a risk, and yes there's a tonne of scary news out there (scary if you're FTBs) but the thing with waiting is that we would have missed the place we've been looking for for well over a year. There's no guarantee anything like this would come up again and certainly in a slow low volume market it's even less likely. 

My dream scenario (for me) is that prices slowly fall and interest rates stay low. We could afford higher rates and were stress tested to a surprisingly high level but it's always nice to be paying less to the banks and more off my debt. 

If inflation picks up and they're forced to increase rates then I guess the monthly costs go up, but the debt is being eroded more by inflation so that in itself isn't always a bad thing either. 

Overall though it would be great if housing was viewed as utility rather than commodity. A final nail in the BTL coffin such as not being able to use borrowed money to fund it would be sweet. Only people with the money who can afford to run a BTL portfolio properly regardless of interest rate increases would be better than any old amateur who lucked out with a nice job and bonus having a stab at it. 

Only wage inflation above RPI/CPI will do that ....can you see that happening  ?

Edited July 9, 2017 by long time lurking

[adarmo]

Just now, long time lurking said:

Only wage inflation will do that ....can you see that happening  ?

Yes. 

Real wage inflation doesn't even need to be positive as long as there's absolute wage inflation. The debt is fixed in nominal terms so even if inflation runs higher than payrises for a year or three the debt relative to my earnings will fall. Further, the tax free and basic rate allowances are increasing so cet. par. my take home will increase regardless. 

In my position (I am not everyone of course) I would expect a reasonable pay rise within the next 12 months. This would be for a step up in responsibility rather than just doing the same role. 

Just driving back from the parent's house this evening and talking to my better half about our five year plan (Chairman Mao eat your heart out!) I raised the idea of relocating to Bristol since it's a cool city, cheap and the cycling is good. She replied than she'd expect to be invited to the partnership around that sort of time so all to play for our end. 

I guess what I'm saying is that I've done way too much due diligence on whether or not we should buy a house. That doesn't necessarily mean it's a fab idea for the whole world to run out and borrow a shedload of magic money from Carney but we're very excited about leaving rented behind (only done it for two and half years but that's long enough) and executing the renovation plan. 

[adarmo]

16 minutes ago, long time lurking said:

Only wage inflation above RPI/CPI will do that ....can you see that happening  ?

You are incorrect.

1. The debt will fall in real terms provided inflation is positive regardless of wage increases or not. What you might mean is that this would be of no benefit to me unless wages increase. Therefore;

2. If wage increases are below inflation (any index you fancy) the value of the mortgage debt relative to income will fall. 

[maverick73]

13 minutes ago, long time lurking said:

Only wage inflation above RPI/CPI will do that ....can you see that happening  ?

It depends on the demand for labour and associated wages (low)