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Sausage

What is fair value?

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4 hours ago, Sausage said:

How will we know house prices are back to normal? Average local price v average local salary? Price per sq foot?

Perhaps when interest rates represent some sort of measure of the scarcity of money? ....'cos there's, sure as sh1t, no scarcity atm.

We''ll probably never see it...... not this side of banking collapse anyways.....

6-7% ??     http://ritholtz.com/2012/01/222-years-of-long-term-interest-rates/

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4 hours ago, Sausage said:

How will we know house prices are back to normal? Average local price v average local salary? Price per sq foot?

i dont think we will ever see 'fair value' ever again, we might well reach a stage when you can say a house is 'worth' something based upon various conditions. 

How do you tell what its worth? i suppose see what its bought for. Or similar properties are sold for.

How can you tell when something in undervalued? is that what you want? well then you can look at effective yields to value a place compared to renting a place. 

you could look at how many big macs does a house cost in this country compared to others also.

You could claim houses are fair value when a certain % of the uk population of X age range owns, and it will always hover around that level do to politics. 

sadly there is very little risk to buying a house if you have a decent deposit, the mortgage is not crazy salary multiples and you have a long fixed rate mortgage term, but there is an opportunity cost of not buying, and if your good at your career i suppose there is also an opportunity cost in buying also (cant move around the country that easily to chase roles etc.)

as with most thing sensible low leverage is not horrible with common sense. 

i have been on HPC for a few years now, and have been reading before i joined also. i have gone through ever phase of emotions regarding house prices, it has also dictated every aspect of my life, and life choices, where i moved to, what job i did, selecting the right bird etc. 

I have reached the stage of thinking:

- Well house prices probably will fall
- How much do i think they will likely fall, maybe 20-30% worst/best case (im no where near the south-east)
- Is my current living situation viable moving forward? no rent, but very long commute - not any more
- How much have i saved? about 40% of a potential forever home (big enough to have a whole life in)
- How much money would i pay to not to this commute anymore, probably about 15 or 20% of the house im buying
- Is a house worth buying for me? yes
- Am i prepared to wait any longer? honestly - no one day i will be killed to death on the crappy crowded UK roads if i dont sort a place (im a bad driver)
- Can i survive a 4 day week at work? yes and work is walking distance
- Have i insured against a massive massive financial crisis? yes i have a load of gold and bitcoin safely stored.

what else can you do in this world? do whats best for you and your family, understand the situation so you dont end up like some levered bankrupt BTL moron, insure and plan for worst case scenarios. 

would i buy if i didnt have a big deposit? insurance againt worst case situations, or could live close to work rent free? No. How much of a gambler are you?




 

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5 hours ago, Sausage said:

How will we know house prices are back to normal? Average local price v average local salary? Price per sq foot?

There is no normal, never has been, never will be......It is down to what you can borrow based on what you earn and potential earning either sole or joint purchasers.....what debt free deposit have to add to mortgage.  What type of property, location of property. Would look to only buy a place if would be happy to live there for at least five or ten years......sometimes renting can work out to be a better choice short-term ....renting is more flexible and can offer better value, even more so with capital value falls....;)

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7 minutes ago, winkie said:

There is no normal, never has been, never will be......It is down to what you can borrow based on what you earn and potential earning either sole or joint purchasers.....what debt free deposit have to add to mortgage.  What type of property, location of property. Would look to only buy a place if would be happy to live there for at least five or ten years......sometimes renting can work out to be a better choice short-term ....renting is more flexible and can offer better value, even more so with capital value falls....;)

Odd that you make no mention of interest rates at all...... all a bit 'old hat', I guess...... so what factors affect price discovery?

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5 minutes ago, cnick said:

Odd that you make no mention of interest rates at all...... all a bit 'old hat', I guess...... so what factors affect price discovery?

The rate of interest is factored into what the lenders are prepared to lend stress test.;)

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Lifetime housing cost of about 5 years' gross main earner career average income per household. That includes the cost of renting before you buy, stamp duty and fees, and mortgage interest.

You're only going to earn a finite amount of money in your life and you can account for what it will be spent on in percentages e.g. 10% on food, 10% on utilities, 10% on transport, 40% on tax etc. If that housing % creeps up to 20-30% of lifetime earnings because you buy at the wrong time you are likely to not have much left for everything else in life.

Edited by Dorkins

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5 hours ago, Sausage said:

How will we know house prices are back to normal? Average local price v average local salary? Price per sq foot?

you could say that house prices are always "normal" if you accept that over time, house prices always adjust to

- Demand

- Debt availability

- Debt servicing ability

Lets say that house prices are currently high because all three parts are high. Put another credit crunch in play, and you'd soon see a new level of  "normal"  

 

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Thanks folks... All good points. I've added up my deposit... Sensible MTG... Rough idea of future earnings... No intention of moving again... I look at property in my budget and think "am I Getting enough for my money?"

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From your thread.

11 hours ago, Sausage said:

It's on at £309k, estate sale. On at £305k a year ago, accepted offer, then family decided to rent it for a year. EA said the family now regret renting it out. 

Don't fall for a word of it, just EA/seller BS. Use recent sold prices as a guide then low offer that number. Say open an offer at £250k fully furnished (only 20% off asking) and work it, no rush, figure out the people and play them to your strong position.

Edited by DarkHorseWaits-NoMore

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When the median mortgage taken out in a given year is within a factor of 2 of the cost of building a basic 3 bed semi. 

The purpose of mortgages is to make house building financially viable, not to inflate land/property prices and a massive debt bubble. Fair will be when this purpose is in sight again. 

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I put fair value to the Maxim "people will pay what they can at that moment in time".  You then put yourself in that area household income x mortgage multiplier (cica 4/5 now) + 20% deposit.

So I place this assumption between two extremes which in my head to is a pendulum.

High Rates/high payments/low deposits     vs        low rates/low payments/high deposits.

If your passive (most people buying a home) then the only real way to pay a cheaper overall price is when the cost of credit is high or otherwise restricted and then enjoy the capital rises and possibly reducing mortgage payments as it swings.

However we are the other side of the swing and in a in a period of rising rates.  All factors could remain the same and the property would become more unaffordable as the pendulum swings in the other direction + capital loss on the house.

Eg in the areas I am looking a family house 4 bed bog standard is about 400-500k asking.  60k family income x 5 = 300 + 20% deposit means a max (you cannot even get that high with a couple of kids) of £360,000 hence why the market has stalled with lack of supply and a few richer than average folks making it look healthier than it is.  350K and you are golden and a decent house at this price will sell.

So at this moment in time a standard family home is "fair value" around 300-350 but once those rate go up and/or the mortgage multiple goes down.......

This can only apply in areas where locals buy the houses.  In London you have the issue of external money coming in if you look at what the people renting the flats could afford to pay....then you can imagine the size of falls if that external money was stopped.

 

 

 

Edited by Fromage Frais

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12 hours ago, bushblairandbrown said:

When the median mortgage taken out in a given year is within a factor of 2 of the cost of building a basic 3 bed semi. 

The purpose of mortgages is to make house building financially viable, not to inflate land/property prices and a massive debt bubble. Fair will be when this purpose is in sight again. 

And the purpose of financialisation is to divert an ever greater share of the national output into the hands of rent seekers. If the present govt gets its way then buying or renting an entire house will never again fall within the purview of median income earners. Twenty years from now we may marvel that it was ever possible, much as we marvel today at the idea of a single income being sufficient to purchase an entire house in the 1980s.

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On 14/09/2018 at 10:14, Sausage said:

How will we know house prices are back to normal? Average local price v average local salary? Price per sq foot?

I fear that houses will never be as affordable as they were in the early 90s.

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21 hours ago, bushblairandbrown said:

When the median mortgage taken out in a given year is within a factor of 2 of the cost of building a basic 3 bed semi. 

The purpose of mortgages is to make house building financially viable, not to inflate land/property prices and a massive debt bubble. Fair will be when this purpose is in sight again. 

That's a really good point..

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7 hours ago, iamnumerate said:

I fear that houses will never be as affordable as they were in the early 90s.

Sadly that's what it seems. My offers on 2 flats in Glasgow were rejected.

First offer flat home report value £210,000. I placed offer at £212,000. Rejected and they accepted another offer at higher value out of total 2 offers they received.

Second offer flat home report value £235,000. I placed offer at £261,000. Rejected and they accepted another offer at higher value out of  total 8 offers they received.

Third offer flat home report value £200,000. I placed offer at £216,000. They came back and asked me to change the entry date to early November. I said yes this Friday. Waiting for their response. Hopefully it'll be accepted on Monday.

The concept placing above/below home report value is new to me in Scotland as it has no relevance with the price they actually advertised. I can see market growing at low pace in Southeast but in Glasgow its still going strong.

Lots of Chinese buying flats for their kids who are joining university. Most of the viewings I've seen Chinese buyers.

We may see more people getting indefinite leave to remain in UK with investor visas  in future.

http://www.high-net-worth-immigration.com/hnw-immigration-blog/what-investments-qualify-for-the-uk-investor-visa

£2 million - apply for ILR after 5 years.

£5 million - apply for ILR after 3 years.

£10 million - apply for ILR after 2 years.

We're selling our citizenship to whoever can purchase from around the world.

I don't see the flood of overseas money into UK slowing down any time soon. If this continues, ou house prices will continue to rise.

£2 million is peanuts for corrupted crooks with dirty money from all around the world. They can buy ILR for their families and settle in UK and transfer their ill gotten wealth into UK.

 

 

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On 15/09/2018 at 00:17, bushblairandbrown said:

When the median mortgage taken out in a given year is within a factor of 2 of the cost of building a basic 3 bed semi. 

The purpose of mortgages is to make house building financially viable, not to inflate land/property prices and a massive debt bubble. Fair will be when this purpose is in sight again. 

A very basic calculator (Jewsons!) Has given a figure of £100k for building the kinds of houses in my area (3 bed semi) that sell for £300k. I treat those as average.

So are you saying a mortgage of 2 x rebuild cost = £200k = fair value? Plus deposit?

That ties in with my hunch: when I view places at £300k I'm thinking at £200k I'd buy it, £250 I'd be tempted.

 

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On 14/09/2018 at 21:30, DarkHorseWaits-NoMore said:

From your thread.

Don't fall for a word of it, just EA/seller BS. Use recent sold prices as a guide then low offer that number. Say open an offer at £250k fully furnished (only 20% off asking) and work it, no rush, figure out the people and play them to your strong position.

Problem is volumes are so low that sold prices of similar places are years old.

I put in an offer of £250k on Friday morning. No reply yet, not even an acknowledgement. Which I think is rude.

I did view the property first time round, and it's definitely an estate sale, so this does seem like a rare occurrence of EA telling the truth. I'm intrigued why the family regret renting (to a family member). 1 year later trying to sell in a falling market?

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On 15/09/2018 at 00:17, bushblairandbrown said:

When the median mortgage taken out in a given year is within a factor of 2 of the cost of building a basic 3 bed semi. 

The purpose of mortgages is to make house building financially viable, not to inflate land/property prices and a massive debt bubble. Fair will be when this purpose is in sight again. 

I’d expect the price of a typical house (not the mortgage taken out) to be roughly equal to (a factor of 1.25, maybe, but not 2) but a bit less than (because a new house should trade at a premium) the cost of building a new 3 bedroom house. 

For manufactured goods, in theory,  price = cost of making one additional unit.

Anything significantly more than that is a rent being extracted by someone. 

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23 minutes ago, Sausage said:

A very basic calculator (Jewsons!) Has given a figure of £100k for building the kinds of houses in my area (3 bed semi) that sell for £300k. I treat those as average.

So are you saying a mortgage of 2 x rebuild cost = £200k = fair value? Plus deposit?

 

On that basis, I’d expect the price of a typical house to be about 80k, and a new house maybe 110k.

Roughly. 

You can buy 3 bedroom houses for ~100k (less even) in the U.K. now, if you choose the right location. The difference in purely due to location. 

Selling access to a location is pure rent seeking, so this seems a reasonable estimate of the ‘zero rent’ price. 

Edited by BorrowToLeech

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3 hours ago, Sausage said:

...I put in an offer of £250k on Friday morning. No reply yet, not even an acknowledgement. Which I think is rude.

Sit tight, don't worry, I'd expect a few working days, for the EA to contact the owner (who could be sick or on holiday), might take a while. Let the offer settle/burn into the seller's mind, then poke the EA, then verifiy with the owner (if they live there) by knocking on the door or asking for direct contact from who ever answers the door etc.

Work the probable first 'No' and find the real difference between both positions and try to soften up the seller's red lines, highlighting the strengths and benefits of dealing with you and your offer etc. With low volumes I'd say time is on your side anyway. Have another viewing, play the game, evaluate the seller and all the other factors relating to time scales, finances and likely completion reliability.
Who knows, you might get lucky and Brexit's inflation profile (with the right mortgage product) could gift you a large part of any debt. Good luck.
 

 

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Anyone hoping for a return to early 90s prices is going to be perpetually disappointed.  Houses are undoubtedly overvalued now, but they were also massively undervalued then.  This was the one period of history where lending had been loosened but that loose lending hadn't yet pushed prices up.  Once I build my time machine I'll travel back and buy several streets but it's never going to happen again, at least not this side of an apocalypse.

The fair value of a house is the cost of the land plus the cost of building it.  There's lots of competition in building, so it's probably safe to assume that any quote from an independent builder is a fair price, i.e. the cost of materials plus a reasonable price for the labour.  The big issue is the land price, which is distorted beyond logic by the issue of planning permission.  There really isn't a functioning market for building land, as planning keeps it in permanent shortage so its value is always massively inflated.

Where I'm looking to buy, offering below asking price is probably a waste of time, as they'll sell it to someone else instead.  The market is very different in different parts of the UK at the moment.

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13 hours ago, Simhadri said:

Sadly that's what it seems. My offers on 2 flats in Glasgow were rejected.

First offer flat home report value £210,000. I placed offer at £212,000. Rejected and they accepted another offer at higher value out of total 2 offers they received.

Second offer flat home report value £235,000. I placed offer at £261,000. Rejected and they accepted another offer at higher value out of  total 8 offers they received.

Third offer flat home report value £200,000. I placed offer at £216,000. They came back and asked me to change the entry date to early November. I said yes this Friday. Waiting for their response. Hopefully it'll be accepted on Monday.

The concept placing above/below home report value is new to me in Scotland as it has no relevance with the price they actually advertised. I can see market growing at low pace in Southeast but in Glasgow its still going strong.

Lots of Chinese buying flats for their kids who are joining university. Most of the viewings I've seen Chinese buyers.

We may see more people getting indefinite leave to remain in UK with investor visas  in future.

http://www.high-net-worth-immigration.com/hnw-immigration-blog/what-investments-qualify-for-the-uk-investor-visa

£2 million - apply for ILR after 5 years.

£5 million - apply for ILR after 3 years.

£10 million - apply for ILR after 2 years.

We're selling our citizenship to whoever can purchase from around the world.

I don't see the flood of overseas money into UK slowing down any time soon. If this continues, ou house prices will continue to rise.

£2 million is peanuts for corrupted crooks with dirty money from all around the world. They can buy ILR for their families and settle in UK and transfer their ill gotten wealth into UK.

 

 

Unless this is the best part of Glasgow, those prices would be high for most parts of London, if houses had gone up with inflation for the last 20 years!

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1 hour ago, Tes Tickle said:

Anyone hoping for a return to early 90s prices is going to be perpetually disappointed.  Houses are undoubtedly overvalued now, but they were also massively undervalued then.  This was the one period of history where lending had been loosened but that loose lending hadn't yet pushed prices up.  Once I build my time machine I'll travel back and buy several streets but it's never going to happen again, at least not this side of an apocalypse.

The fair value of a house is the cost of the land plus the cost of building it.  There's lots of competition in building, so it's probably safe to assume that any quote from an independent builder is a fair price, i.e. the cost of materials plus a reasonable price for the labour.  The big issue is the land price, which is distorted beyond logic by the issue of planning permission.  There really isn't a functioning market for building land, as planning keeps it in permanent shortage so its value is always massively inflated.

Where I'm looking to buy, offering below asking price is probably a waste of time, as they'll sell it to someone else instead.  The market is very different in different parts of the UK at the moment.

True but I fear even 1970s or 1980s affordability will not happen.

It is not just planning permission it is also benefits. If the Government were to say no housing benefit in London and the South East unless you work 35 hours a week, a lot of people would have to either move somewhere cheaper or stay with family.  This would cause a massive drop in demand for rented property causing landlords to fire sell to FTBs.

It would also save the Government lots of money (and human dignity because people working would no longer need housing benefit as rents would be much cheaper).

It would also help working families as they would be able to live closer their work.

(They could also move some ministries out of London)

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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