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A Week Is A Long Time In Housing


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Interesting article here:

Housing Hindsight: Sometimes a week is a long time in housing – Anthony Codling

https://propertyindustryeye.com/housing-hindsight-sometimes-a-week-is-a-long-time-in-housing-anthony-codling/#comments

Anthony Codling looks at prospects for the housing market.

 

Last week was a very busy week for UK housing.

Cutting to the chase: House Prices (going down), Housing Supply (going nowhere), Mortgages (availability down and prices up) and Summer Statement (playing the wrong notes in the wrong order).

House Prices
Let’s not sugar the pill there is downward pressure on house prices, none of the recent surveys or forecasts I’ve seen believes house prices will rise on the next 12 months

The consensus seems to be for a 5% fall in 2020, but perhaps more telling is that many lenders have taken the majority of their 90% and 95% Loan to Value (LTV) mortgage products off the shelves.

More telling still is the increase in pricing (mortgage rates) of the 85% LTV mortgage products since the start of the year. Are lenders planning for a 15% fall in house prices?

The bigger they come the bigger they fall?

Peak to trough house price falls during the Credit Crunch showed very little in the way of location discrimination, the North East fell the least 16% and the South East the most, falling by 20%.

 

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However, if we look at prices today compared to the pre-Credit Crunch peak the relative house price performance varies enormously, with the North East still 10% below its pre-Credit Crunch peak, but inner London 65% higher than its previous peak.

An all too familiar story of the rich getting richer whilst the poor get poorer.

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Could Working From Home and the desire for more internal and external space take the ‘location’ out of ‘location location location’ and lead to a more equitable rebalancing of house prices? Time will tell.

Interestingly Barratt, Persimmon and Vistry (Bovis Homes) all commented that house prices are currently firm, however, I suspect that reflects a lack of supply and access to Help to Buy rather than the condition of the wider housing market.

Housing Supply (It’s different this time… honest…)

During the Credit Crunch – and the clue’s in the name, we had a buyer drought because mortgage supply dried up. Whereas the theme of the COVID Crunch is a Seller Drought.

Demand is fine: the three biggest housebuilders all reported year on year increases in their forward order books and Persimmon this week said that cancellation rates were in-line with historic levels. Barratt reported a significant increase in demand for Help to Buy properties. Demand is fine.

Housebuilders are conserving cash and buying less land so don’t expect housing supply in the short or medium-term to increase without a change in Government policy.

RICS this week reported that the last two months have seen stock levels at record lows, the average estate agent has just 39 properties on their books compared to the 90 they had during the Credit Crunch. The problem is supply.

We have enough demand for the few homes that are currently for sale. Stamp duty cuts increase demand not supply and will probably increase house prices more than they will increase the numbers of those stepping onto the housing ladder

Mortgage availability (Exit Stage left: High LTV mortgages)

If ever you want to know where the smart money is on house prices, look at mortgage supply, mortgage rates, and LTVs.

The latest data from the Bank of England shows that the pricing of high LTV mortgages has been increasing. Interestingly the prices to increase the most are for the 85% LTV mortgages as illustrated in the graph below.

This suggests that lenders believe they were mispriced for the COVID Climate, does this imply that lenders are preparing for house price falls of up to 15%?

 

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Fear of unemployment: The housing market’s secret’s assassin

The simple truth is that if you are worried about losing your job, you do not generally choose to sell your home and buy another one.

Fear of unemployment paralyses the housing market. Fear of unemployment is also difficult to quantify, we can measure the lagging indicator of unemployment but measuring the fear of unemployment has so far alluded us.

One thing I am sure of is that Mr Sunak has done little to calm those fears. Below I quote directly from his Summer Statement:

“I know that when furlough ends it will be a difficult moment. We have to be honest. Leaving the furlough scheme open forever gives people false hope that it will always be possible to return to the jobs they had before.
And the longer people are on furlough, the more likely it is their skills could fade, and they will find it harder to get new opportunities. It is in no-one’s long term interests for the scheme to continue forever… …least of all those trapped in a job that can only exist because of a government subsidy. And the independent Office for Budget Responsibility and Bank of England are both projecting significant job losses – the most urgent challenge we now face.”

Crikey, so furlough gives people false hope that they will be able to return to the jobs they had before and it is not in my interest to be in a job that can only exist because of a government subsidy – I am sure that those at the coal face, those about to be made redundant might disagree.

Maybe we should ask the employees of Accenture, Airbus, Boots, British Airways, Easy Jet, Harrods, John Lewis, Pret a Manger, TM Lewin, Upper Crust, Virgin Money, Zoopla to name but an unlucky 13….

Against this backdrop what is the Government doing for housing?

The slogan was ‘Build, Build, Build’, but we do not yet have the policy to underpin the rhetoric. Help to Build would be a great policy to back up the slogan…

Again straight from the Chancellor’s mouth:

“Mr Speaker, One of the most important sectors for job creation is housing. The construction sector adds £39 billion a year to the UK economy; House building alone supports nearly three-quarters of a million jobs; With millions more relying on the availability of housing to find work. But property transactions fell by 50% in May. House prices have fallen for the first time in eight years. And uncertainty abounds in the market – a market we need to be thriving. We need people feeling confident – confident to buy, sell, renovate, move and improve. That will drive growth. That will create jobs.”

I agree I agree I agree, so let’s get Britain building, let’s launch Help to Build…..

Oh, ok let’s cut Stamp Duty a policy that the history books show does work but and a policy which will hamstring first-time buyers by taking away one of the few advantages they had over existing homeowners.. that should work…. That will help the market thrive. Or is the stamp duty cut a sweetener for middle England before tax rises in the Autumn?

I was also surprised that when, from a climate perspective, we are being asked to use our cars less and, from a COVID perspective, we are being asked to work from home, why are we investing in the infrastructure of yesterday (roads and rail) when we could be leading the world by investing in the infrastructure of tomorrow – high-speed broadband to every home in the country.

Surely this would create new jobs in a growing industry that would not, for at least 100 years, need a Government subsidy to exist.

What does it all mean?

House Prices (going down)

All the evidence aside from help to buy assisted new-build home sales points to falling house prices. I am not known for being a housing bear and you will usually find my glass hall full.

However, when analysis from the World Bank suggests this will be the deepest global recession since the Second World War and the broadest collapse in per capita incomes since at least 1870, talking up house prices feels as futile as King Canute talking up the tide.

Fear of unemployment is growing (putting downward pressure on housing transactions)

Over the coming weeks and month as the Furlough scheme draws to a close we will see more and more redundancies across the UK. Unfortunately, what we have seen so far may only be a foretaste of what is to come and if you are worried about losing your job you don’t (out of choice) move home.

Housing supply (going nowhere)

The housebuilding recession playbook is tried and tested and it works. In times of market stress housebuilders batten down the hatches, they stop buying land and they conserve cash, like hibernating bears they stay out of the cold until better weather returns. We need more homes, but the current Government policy will lead to a contraction in our housebuilding capacity.

For the housing market to thrive, we need ‘Help to Build’ to increase supply.

Mortgages (will be in shorter supply and more expensive)

We have already seen mortgage products being pulled from the shelves and mortgage rates ticking up, a trend I suspect will continue for some time.

Banks have to protect their balance sheets and in my view changes to pricing and availability of mortgage products are good indicators of what the lenders (who are arguably those with the best access to the housing market data) believe will happen to house prices.

But, time is on our side (See, I said my glass was usually half full)

In times of change, we should bide our time and let the dust settle.

No one knows how long and deep or how short and shallow the COVID recession will be and none of us knows if working from home will be the new normal.

Why then would we want to rush into the biggest transaction in our lives (buying our next home) to save a relatively small amount of cash?

That saving of between 1-3% of the purchase price could be wiped out before the year-end by falling house prices and we may find we have bought at the wrong price at the wrong time in the wrong place.

Instead of rushing to buy in a market with short supply and limited choice, why don’t we take the time to: work out what we what from our homes, understand whether these things are provided by our homes, get our finances in order so that we can buy a home which provides all the things we want

 

Anthony Codling was Executive Director at JP Morgan Cazenove, a partner at Oriel Securities, managing director of Jefferies, and CEO of Rummage4Property. He is now CEO at twindig.

This article was first published on his LinkedIn page.

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Very balanced article. I think we may see a real snorter of a month for July...a rise of 3-5%. I am seeing houses selling fast, and the sellers I am speaking to are in no mood for discounts...that isn’t going to stop me offering them 8% off asking (half the BoE prediction of a fall of 16%). I am offering on one later this week. He is an old fella who will have lived through 2 previous crashes, bought his place 46 years ago (probably for 15k or thereabouts) so may see the sense in my offer. If he says no, I have a very close second choice. They are boomers who are wanting to cash out. He is retired and is now “driving” driving for a living. They want to sell up, put their stuff in storage for a year, go travelling, then buy something smaller a bit later. I don’t think either will take my offer, so we will then hunker down till January. Not worried if they say no, I reckon they will be begging me for the price I offer this week come February if they don’t find a buyer.

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2 hours ago, rantnrave said:

However, when analysis from the World Bank suggests this will be the deepest global recession since the Second World War and the broadest collapse in per capita incomes since at least 1870, talking up house prices feels as futile as King Canute talking up the tide.

That is quite the quote from a property bull.

 

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I’m currently in the market. 

The twin benefits over the last 1 week Rishi’s removal of stamp and Nationwide bringing back 10% deposits for first time buyers has put me in a position to buy. 

I feel like I need to buy, I’m in a one bed flat with a baby and my Mrs is going nuts, so we’ve bitten the bullet and put an offer in.

Do I think prices will go down in the mid term - absolutely. Could the economy tank and take my job - possibly. But I’ve held on for 10 years waiting for a crash and YES it’s Sod’s law that it will happen in 2021 but I’m not moving, I’ve got a very low fixed rate for 5 years and I’m knocking on 40. How long can a person wait?
 

im also bricking it that my deposit may inflate away as the GOV seem hell bent on insuring the house market moves.

will I live to regret it - maybe! But I’d also regret waiting another X number of years and see house prices slip completely out of grasp and be so old I can’t get a mortgage!

Thems the risks! I can take a house price crash - were not moving for 16 years! It’s the job situ that’s scary!

id say wish me luck but I know you’re all rooting for the wipe to come!

 

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Also, some info from the market here in SW London, properties are selling atm within 2-3 weeks if reasonably priced, people just want to move after lockdown and so decent discount offers are being accepted. We got 25k off the asking and saw same house sell for that 25k more at end of 2019 so it was a fair price. (yes yes - not when I get a 40% wipe! I know)!

the stamp duty is also having a big impact down here at the lower end of the market - properties up to 500k. My stamp bill went from £16.5k to £1.5k (yes yes, I’ll lose all that next year - I know). 
 

proving the info for those who want to hear both sides

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I have posted before that an area that I keep an eye on is around South Woodford, Highams Park, Wanstead, etc Some of the schools there are good and commute is reasonable to city. Cycling is possible. 

Unfortunately, houses are selling fairly quickly there still.

Eg. Two that I noted (because of proximity to schools)

https://www.rightmove.co.uk/property-for-sale/property-94080101.html

https://www.rightmove.co.uk/property-for-sale/property-81255607.html

But the article itself makes a lot of good points, I just wish all of these bear articles would turn into reality at some point. 

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10 hours ago, dugsbody said:

I have posted before that an area that I keep an eye on is around South Woodford, Highams Park, Wanstead, etc Some of the schools there are good and commute is reasonable to city. Cycling is possible. 

Unfortunately, houses are selling fairly quickly there still.

Eg. Two that I noted (because of proximity to schools)

https://www.rightmove.co.uk/property-for-sale/property-94080101.html

https://www.rightmove.co.uk/property-for-sale/property-81255607.html

But the article itself makes a lot of good points, I just wish all of these bear articles would turn into reality at some point. 

750k and still you have to share a wall. ??? 

 

 

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11 hours ago, whynow said:

Also, some info from the market here in SW London, properties are selling atm within 2-3 weeks if reasonably priced, people just want to move after lockdown and so decent discount offers are being accepted. We got 25k off the asking and saw same house sell for that 25k more at end of 2019 so it was a fair price. (yes yes - not when I get a 40% wipe! I know)!

the stamp duty is also having a big impact down here at the lower end of the market - properties up to 500k. My stamp bill went from £16.5k to £1.5k (yes yes, I’ll lose all that next year - I know). 
 

proving the info for those who want to hear both sides

From a pure wealth point of view, my personal calculations shows I would break even if house prices drop by 12% withing 5 years (maturity of mortgage I am looking at). 

Only change the values in green to suit your needs:

Mortgage_viability v5.xlsx

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12 hours ago, whynow said:

I’m currently in the market. 

The twin benefits over the last 1 week Rishi’s removal of stamp and Nationwide bringing back 10% deposits for first time buyers has put me in a position to buy. 

I feel like I need to buy, I’m in a one bed flat with a baby and my Mrs is going nuts, so we’ve bitten the bullet and put an offer in.

Do I think prices will go down in the mid term - absolutely. Could the economy tank and take my job - possibly. But I’ve held on for 10 years waiting for a crash and YES it’s Sod’s law that it will happen in 2021 but I’m not moving, I’ve got a very low fixed rate for 5 years and I’m knocking on 40. How long can a person wait?
 

im also bricking it that my deposit may inflate away as the GOV seem hell bent on insuring the house market moves.

will I live to regret it - maybe! But I’d also regret waiting another X number of years and see house prices slip completely out of grasp and be so old I can’t get a mortgage!

Thems the risks! I can take a house price crash - were not moving for 16 years! It’s the job situ that’s scary!

id say wish me luck but I know you’re all rooting for the wipe to come!

 

People with NW mortgages might find themselves in the same boat as those with Norther Rock mortgages.

Nw are desperate. They are being outcompeted by HSBC, who are hoovering all the safe borrowers up.

NW finds itself with a very expensive management structure, looking to justify their very high costs.

 

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1 hour ago, longgone said:

750k and still you have to share a wall. ??? 

 

 

Well exactly. You asked me the other day why I as a high earning thought I couldn't afford a house. I can afford a house, I own one right now. It's just that the value I get for my money as a high earner is massively diminished compared to what someone in my situation would get 20+ years ago (more or less).

You'd be surprised what a top few percentiles earner can borrow. It isn't a huge sum and will get you one of those shared wall, nondescript houses in a relatively nondescript area.

The days of earning enough to buy a decent house in say, Clapham Common or Hackney are long gone. You have to be a previous owner and seen your equity increase thought HPI, or have a huge BOMAD.

I have neither, so I'm priced out of decent areas in commutable distance to work which also have decent schools. Even as a high earner.

 

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16 minutes ago, dugsbody said:

Well exactly. You asked me the other day why I as a high earning thought I couldn't afford a house. I can afford a house, I own one right now. It's just that the value I get for my money as a high earner is massively diminished compared to what someone in my situation would get 20+ years ago (more or less).

You'd be surprised what a top few percentiles earner can borrow. It isn't a huge sum and will get you one of those shared wall, nondescript houses in a relatively nondescript area.

The days of earning enough to buy a decent house in say, Clapham Common or Hackney are long gone. You have to be a previous owner and seen your equity increase thought HPI, or have a huge BOMAD.

I have neither, so I'm priced out of decent areas in commutable distance to work which also have decent schools. Even as a high earner.

 

That post seemed to imply you did not own any house hence my answer.  i imagine pushing yourself to earn a decent wedge and then being no better off is rather depressing. but in your case i would move to somewhere you can get a better home job availability permitting. 

spare a thought for those not earning with no hpi gains and a diminishing cash pot. in reality my savings have been wiped out by hpi  in relation to anything near to where i live now. i estimate a loss of 500k not working and no hpi gain over the past few years.  no real way back from that one apart from winning the lotto. 

it is a disgrace what has been done to the UK but you either put up with it or vote with your feet.  personally for me flats will be dropping like stones so i could pick up of those up for not much more than i have saved, but who is going to buy it later. 

 

 

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7 minutes ago, longgone said:

That post seemed to imply you did not own any house hence my answer.  i imagine pushing yourself to earn a decent wedge and then being no better off is rather depressing. but in your case i would move to somewhere you can get a better home job availability permitting. 

That is now part of the plan. We're trying to arrange some viewings. 

 

8 minutes ago, longgone said:

spare a thought for those not earning with no hpi gains and a diminishing cash pot. in reality my savings have been wiped out by hpi  in relation to anything near to where i live now. i estimate a loss of 500k not working and no hpi gain over the past few years.  no real way back from that one apart from winning the lotto. 

Yes, I do feel for those in that situation. I consider myself and my wife incredibly fortunate that our jobs have not been impacted and we can fully work from home at the moment. Really fortunate situation. We're trying to use this as an opportunity and taking a risk by moving further out of London banking on our ability to negotiate working remotely 2-3 days a week permanently. We'll see how that goes, I might end up regretting it.

 

10 minutes ago, longgone said:

it is a disgrace what has been done to the UK but you either put up with it or vote with your feet.  personally for me flats will be dropping like stones so i could pick up of those up for not much more than i have saved, but who is going to buy it later. 

I agree but you know, it isn't a UK thing. The entire globe has seen enormous house price inflation. We would like to move to Europe but this is driven more because we like the continent and we like the idea of being able to put family in a vehicle and drive around rather than flying. Or taking trains is another good option. I hate airports. We also have family and friends there so getting closer to them will be nice. But the areas we're interested in have seen the same HPI, so it definitely isn't just the UK.

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3 minutes ago, dugsbody said:

Yes, I do feel for those in that situation. I consider myself and my wife incredibly fortunate that our jobs have not been impacted and we can fully work from home at the moment. Really fortunate situation. We're trying to use this as an opportunity and taking a risk by moving further out of London banking on our ability to negotiate working remotely 2-3 days a week permanently. We'll see how that goes, I might end up regretting it.

The most efficient money wise is to be week in / week out. You will save a lot of money on transport.

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21 minutes ago, Freki said:

The most efficient money wise is to be week in / week out. You will save a lot of money on transport.

I think I'd love that! Party week with my London friends. My wife stuck with the kids? Not so much. Even worse she may expect me to reciprocate!

The primary plan is to sell the small house we have now and move quite a bit further out to a larger house in good school area. We have a location in mind but it isn't fixed. We're also considering for example Hitchin. 

Another option would be to try something like you suggest. So instead of buying the place further out, we'd rent in our new location and buy a good two flat in central London near work. Rent out one of the rooms permanently while the other room would be my room for when I'm in the city.

Not ideal though. I like owning the house I live in.

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Hitchin is ok but anything more than 15 minutes' walk from the station and it's problematic, if you still have to commute.

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2 minutes ago, Killer Bunny said:

Hitchin is ok but anything more than 15 minutes' walk from the station and it's problematic, if you still have to commute.

Thanks. The idea would be to commute only twice a week. I'd cycle to the station if necessary.

The area we're looking at is a longer commute but we know more people that way.

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  • 417 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?


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      • up 5%



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