Guest Posted August 22, 2017 Share Posted August 22, 2017 We're all waiting for a crash. But how will we know it's happened? I.e. how can we look at a property price and think yes that's in line with local wages. Average house prices could be 3x salary but what's an average house in any given town? Do we look at likely rent for a property and work out what would give 10% yield (120 x rent)? My rule of thumb is "can I afford it with 33% of take home pay, with base rate at 5% AND would I be happy in it for 25yrs". Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 Just now, Grab_Some_Popcorn said: We're all waiting for a crash. But how will we know it's happened? I.e. how can we look at a property price and think yes that's in line with local wages. Average house prices could be 3x salary but what's an average house in any given town? Do we look at likely rent for a property and work out what would give 10% yield (120 x rent)? My rule of thumb is "can I afford it with 33% of take home pay, with base rate at 5% AND would I be happy in it for 25yrs". Many think fair value will be reached when house prices double again in the next 10 years  Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 Seriously though, when mortgage costs ( factored in at 5% ) are lower than the cost of renting, then it's probably a good time to buy. When IRs are at 0 and they're magicking up money and schemes to keep the bubble going then it's a good bet we're at peak madness and no one joining the pyramid at the bottom is every going to make a penny out the house they buy. Quote Link to comment Share on other sites More sharing options...
Si1 Posted August 22, 2017 Share Posted August 22, 2017 (edited) Yield  Rule of thumb, multiply monthly rental price of equivalent property by 150 Edited August 22, 2017 by Si1 Quote Link to comment Share on other sites More sharing options...
Guest Posted August 22, 2017 Share Posted August 22, 2017 Just now, TheCountOfNowhere said: Many think fair value will be reached when house prices double again in the next 10 years  Indeed People literally can't do the maths and realise their kids are being priced out or dragged into a Ponzi. Joking aside what's your rule of thumb? Quote Link to comment Share on other sites More sharing options...
Guest Posted August 22, 2017 Share Posted August 22, 2017 Just now, Si1 said: Yield  Rule I thumb, multiply monthly rental price of equivalent property by 150 Cool, very similar to mine. There's 3 bed semis near me for £300k that would rent for £1200... So they'd need a 40% drop to be fair value. Quote Link to comment Share on other sites More sharing options...
Beaker Posted August 22, 2017 Share Posted August 22, 2017 (edited) This has been something bugging me. We've got everything ready to buy, but when is right (Or fair)? In my local town in Herts there has been a step down of about 80k on anything new and realistically priced. For example, I can now buy a decent 3 bed for 350k which would've been £430k++ a year ago. Anyway,  point is, I need to know the shape of this downturn. It feels to me here that it has dropped down a gear,  and we'll priced stuff sells very quickly. So is that my crash done? If people are buying the cheaper stuff quickly what supports further drops?  So for me, fair price is simply knowing it's at the bottom, but there's no indeces that relate to my local area to suggest when that is. I think basing 'fair' on a statistic will mean you'll never buy as there'll always be f*cktards who will underpin a small level of madness - that's just the nature of UK housing. So if you're thinking 3x average wages, don't go over 3.5 or 4 and that would be realistic, but I worry that (for the reason above) fair ain't ever gonna happen.  This is now my last chance, age wise, so I will have to buy within the  next year or two - it's just a case of when it that small window. Edited August 22, 2017 by Beaker Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 30 minutes ago, Grab_Some_Popcorn said: Indeed People literally can't do the maths and realise their kids are being priced out or dragged into a Ponzi. Joking aside what's your rule of thumb? Price per sq ft. Top of the market round our way was around 200-250.  People now asking 300-400. My target was always around 175. I've seen a couple of places at that price over the year but somehow developera get to b uy them just as I want to view  There's not much that could convince me to buy a house in the UK now. Quote Link to comment Share on other sites More sharing options...
Si1 Posted August 22, 2017 Share Posted August 22, 2017 31 minutes ago, Grab_Some_Popcorn said: Cool, very similar to mine. There's 3 bed semis near me for £300k that would rent for £1200... So they'd need a 40% drop to be fair value. That's not considering an undershoot. Quote Link to comment Share on other sites More sharing options...
stuckmojo Posted August 22, 2017 Share Posted August 22, 2017 My 2cents: I am using the last 15 years' RPI/CPI from the price a basket of houses have sold for then (2002). Plotting a 2/3% growth per year I try to see true value versus current asking prices. Note, this is for the Newcastle area. Example is that my house is 19% overvalued and the one I'd move to if the crash happens (WHEN it does) is 32% over valued. I imagine those gaps will be much higher the closer one gets to London. Not really scientific but makes sense to me. Quote Link to comment Share on other sites More sharing options...
locky82 Posted August 22, 2017 Share Posted August 22, 2017 49 minutes ago, Grab_Some_Popcorn said: Cool, very similar to mine. There's 3 bed semis near me for £300k that would rent for £1200... So they'd need a 40% drop to be fair value. In the 40% scenario what assumptions have been made about interest rates? Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 (edited) 16 minutes ago, stuckmojo said: My 2cents: I am using the last 15 years' RPI/CPI from the price a basket of houses have sold for then (2002). Plotting a 2/3% growth per year I try to see true value versus current asking prices. Note, this is for the Newcastle area. Example is that my house is 19% overvalued and the one I'd move to if the crash happens (WHEN it does) is 32% over valued. I imagine those gaps will be much higher the closer one gets to London. Not really scientific but makes sense to me. And wage growth ? ( the thing you need to use to buy the house ). With static wage growth and high CPI/RPI you need to factor in houses actually being worth less to counter this.  Edited August 22, 2017 by TheCountOfNowhere Quote Link to comment Share on other sites More sharing options...
stuckmojo Posted August 22, 2017 Share Posted August 22, 2017 6 minutes ago, TheCountOfNowhere said: And wage growth ? ( the thing you need to use to buy the house ). With static wage growth and high CPI/RPI you need to factor in houses actually being worth less to counter this.  That is true.  Wages have gone nowhere, but mortgage rates are very low, propping the bubble. As I said, I am doing this in the context of my potential move, rather than the market as a whole. Of course if interest rates were to rise, then there would be a multiplier to the gap effect.  Good point Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 (edited) 31 minutes ago, stuckmojo said: That is true.  Wages have gone nowhere, but mortgage rates are very low, propping the bubble. As I said, I am doing this in the context of my potential move, rather than the market as a whole. Of course if interest rates were to rise, then there would be a multiplier to the gap effect.  Good point It's massive risk buying a house.  The bankers can keep squeezing the current crop of buyers for the next 30 years. The the government will confiscate your asset yo pay for end of life care, or you might get lucky and die just after you've paid off the mortgage..... Might as well rent. Edited August 22, 2017 by TheCountOfNowhere Quote Link to comment Share on other sites More sharing options...
longgone Posted August 22, 2017 Share Posted August 22, 2017 pre HTB minus 15-20% would do it for me. any chance of this in london and south east ? nearly bought this in feb 2012 what a stupid twonk   2, Oak Hill Court, Oakhill Road, Surbiton, Greater London KT6 6EL £425,000 Flat, Leasehold, Residential 01 Dec 2015  £210,000 Flat, Leasehold, Residential 27 Mar 2012  Quote Link to comment Share on other sites More sharing options...
locky82 Posted August 22, 2017 Share Posted August 22, 2017 58 minutes ago, TheCountOfNowhere said: It's massive risk buying a house.  The bankers can keep squeezing the current crop of buyers for the next 30 years. The the government will confiscate your asset yo pay for end of life care, or you might get lucky and die just after you've paid off the mortgage..... Might as well rent. Terrible advice Besides landlords can (and will) keep squeezing people. If you end up renting in the UK your 60's, probably with a kid/s in their 20s at home you are destitute and will never have any kind of retirement.   If a 3 bed semi around your way is 300K and and you're renting similar for 1200 and you plan on being in the area long term then its a no brainer. Well in 30 years you will be thankful you paid over the odds. "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change" You are all applying old world rules to the ZIRP world. I don't disagree the current interest rate level is theft from the people but come on, "might as well rent" sheesh  Quote Link to comment Share on other sites More sharing options...
TheCountOfNowhere Posted August 22, 2017 Share Posted August 22, 2017 1 hour ago, longgone said: pre HTB minus 15-20% would do it for me. any chance of this in london and south east ? nearly bought this in feb 2012 what a stupid twonk   2, Oak Hill Court, Oakhill Road, Surbiton, Greater London KT6 6EL £425,000 Flat, Leasehold, Residential 01 Dec 2015  £210,000 Flat, Leasehold, Residential 27 Mar 2012  In 2012 that flat was 50% over priced...it#'s not 75% over priced  Quote Link to comment Share on other sites More sharing options...
longgone Posted August 22, 2017 Share Posted August 22, 2017 10 minutes ago, TheCountOfNowhere said: In 2012 that flat was 50% over priced...it#'s not 75% over priced  If the 2015 seller cashed out I don't suppose they give a ***k anymore. Quote Link to comment Share on other sites More sharing options...
Talking Monkey Posted August 22, 2017 Share Posted August 22, 2017 4 hours ago, Si1 said: Yield  Rule of thumb, multiply monthly rental price of equivalent property by 150 Hi Si1 Why the multiplier of 150. Quote Link to comment Share on other sites More sharing options...
scottbeard Posted August 22, 2017 Share Posted August 22, 2017 4 hours ago, Beaker said: So for me, fair price is simply knowing it's at the bottom Ah but that's the point - you never will know when it's the bottom. No-one ever does except in hindsight. What you can say is that generally, price tops come when no-one can possibly imagine prices falling (think 2007) whilst price bottoms occur when everyone is expecting them to fall further (2010 anyone?). In any event, the bottom is usually BELOW the "fair price" so it's not actually crucial to buy at the bottom. As to what is "fair price", historically I guess somewhere between 10-20 times the annual rent. So a house that rents out for £1,000 per month should cost somewhere in the region of £120,000 to £240,000 to buy outright.  Quote Link to comment Share on other sites More sharing options...
Guest Posted August 22, 2017 Share Posted August 22, 2017 2 hours ago, locky82 said: Terrible advice Besides landlords can (and will) keep squeezing people. If you end up renting in the UK your 60's, probably with a kid/s in their 20s at home you are destitute and will never have any kind of retirement.   If a 3 bed semi around your way is 300K and and you're renting similar for 1200 and you plan on being in the area long term then its a no brainer. Well in 30 years you will be thankful you paid over the odds. "It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change" You are all applying old world rules to the ZIRP world. I don't disagree the current interest rate level is theft from the people but come on, "might as well rent" sheesh  Average salary £30k, say the other parent earns half that (same salary but 0.5fte). The mortgage repayments would be nearly half their takehome. That is not sustainable. Quote Link to comment Share on other sites More sharing options...
sPinwheel Posted August 22, 2017 Share Posted August 22, 2017 Big Ben will bong at the precise moment. Quote Link to comment Share on other sites More sharing options...
Locke Posted August 22, 2017 Share Posted August 22, 2017 Here's a secret: there is no fair price. The price is whatever you can get for it. A useful question is, "At what price would you make an offer?" Quote Link to comment Share on other sites More sharing options...
Guest Posted August 22, 2017 Share Posted August 22, 2017 I would say that we should all know instinctively, but something weird has happened with housing, the brain washing and marketing that has been thrown at housing has made people believe 2+2=5. One of my few sins is malt whiskey and cheesecake. I am quite happy to pay £5 for a good cheese cake and would be happy to pay up to £35 for a good Malt. If some started rigging the market for cheese cake and Malt whiskey by hoarding it and telling me that cheese cake was now £65 and a bottle of average Malt was now £290, and no matter how many people tried to convince me that I could still afford it, which I could, there is no way I am going to part with that sort of money relative to the pleasure they give to me, to me it is not worth it, it is just a gut thing with no formula.. I have dismantled large section of houses, some Grade 2 listed to the point you are nearly demolishing it, and when you do you just cannot reconcile your acceptance of it being worth anything like the money people pay. I will never buy a Grade 2 listed after what I have seen,great to look at from your 100 year old house across the green, but live in no, nothing like worth the money. Quote Link to comment Share on other sites More sharing options...
Guest Posted August 22, 2017 Share Posted August 22, 2017 There is another way of looking at this. Is a five gallon tank full of water worth £100,000. Yes if you have hours to live, in a desert with no other sources. Quote Link to comment Share on other sites More sharing options...
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