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Interesting to come back to this forum for the first time since the crash and see a load of familar faces. i thought a decade ago the forum was full of generally well informed gossip and analysis. Curious to see how it tackled covid. I would though suggest that an economics approach has something to add. It is after all supposedly the toughest exam as they ask the same questions every year but change the answers...

In no particular order:

- a forum atracts like minded and there is a danger of an echo chamber, with a tendency in the group to the more pessimistic view

- a driver seems to be to get a grip on 'true' value of property, despite the forum being born out of a recognition that actual prices will be different

- there is an underplaying of inflation. In fact inflation accounts for almost all of house price rises over the long term. The BoE inflation calculator shows inflation from 2007 to today to be around 40%, cumulative.

- there is also an underappreciation of improvement over time on existing houses. A Stranmillis property discussed on the forum has had a lot of money spent on it. Walk through a leafy suburb and you will see nearly every house has an extension. That doesn't affect prices at a given point in time but makes a huge difference over a decade or two.

- comparison is often made with renting, which is useful in affordability testing. However the vast majority of any mortgage payment now is a repayment element which automatically adds to equity, though in market falls this might be more than offset. The 'dead' element of the mortgage is the interest component, and this is very low and likely to stay low. In comparing rent and a mortgage the real comparison is then rent to interest, which will give a markedly different answer.

- 'house prices' hides changes within areas and type of house

- over emphasis on 'real' issues, like interest rates, building costs, unemployment etc - reality is that the biggest drivers are (i) emotion/belief and (ii) credit avaliability.

 

Taking these together for a house that was say 400k at peak, 200k after it, which it would have been in 2007 with no bubble. With inflation it should maybe be 280k now. Its on at 260... For someone buying it now, borrowing around 240k, their interest (in the early years) is going to be maybe 2%, or 5k, 400 a month. Its therefore a pretty compelling time to buy. Unless of course prices fall. 

Surrounding houses, that have been refurbed and extended, might be 350k, feeding into the price indices. Ovestating rises maybe deterring some fearing they have missed the boat.

What then of Covid? Those most affected economically (young, low paid, casual in hospitality sector) are generally not in the buying market, Interest rates are so low that with a bit of forebearance those struggling will struggle through. There is no real froth to be blown off the market. Consequently a big step down is unlikely, On the converse so much money is being pumped into the economy, with little place else to go but assets. There may also be a fundamental rejigging of priorities where housing becomes more important. Taking a 5 year view i think prices up somewhere between 10% and 40%. Our mythical buyer then finds they have made between 26k - to just over 100k. And they have paid off 40k. So while they have maybe been paying a few hundred more each month, if that, than the renters the buyers have amassed additional net equity of  66k to 144k. Thats the maths that a lot are looking at, and it becomes self fulfilling.

Of course some sectors may go up less or even down - apartments traditionally rented, areas lacking assets that are now valued...

 

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  • 3 weeks later...
 

Interesting to come back to this forum for the first time since the crash and see a load of familar faces. i thought a decade ago the forum was full of generally well informed gossip and analysis. Curious to see how it tackled covid. I would though suggest that an economics approach has something to add. It is after all supposedly the toughest exam as they ask the same questions every year but change the answers...

In no particular order:

- a forum atracts like minded and there is a danger of an echo chamber, with a tendency in the group to the more pessimistic view

- a driver seems to be to get a grip on 'true' value of property, despite the forum being born out of a recognition that actual prices will be different

- there is an underplaying of inflation. In fact inflation accounts for almost all of house price rises over the long term. The BoE inflation calculator shows inflation from 2007 to today to be around 40%, cumulative.

- there is also an underappreciation of improvement over time on existing houses. A Stranmillis property discussed on the forum has had a lot of money spent on it. Walk through a leafy suburb and you will see nearly every house has an extension. That doesn't affect prices at a given point in time but makes a huge difference over a decade or two.

- comparison is often made with renting, which is useful in affordability testing. However the vast majority of any mortgage payment now is a repayment element which automatically adds to equity, though in market falls this might be more than offset. The 'dead' element of the mortgage is the interest component, and this is very low and likely to stay low. In comparing rent and a mortgage the real comparison is then rent to interest, which will give a markedly different answer.

- 'house prices' hides changes within areas and type of house

- over emphasis on 'real' issues, like interest rates, building costs, unemployment etc - reality is that the biggest drivers are (i) emotion/belief and (ii) credit avaliability.

 

Taking these together for a house that was say 400k at peak, 200k after it, which it would have been in 2007 with no bubble. With inflation it should maybe be 280k now. Its on at 260... For someone buying it now, borrowing around 240k, their interest (in the early years) is going to be maybe 2%, or 5k, 400 a month. Its therefore a pretty compelling time to buy. Unless of course prices fall. 

Surrounding houses, that have been refurbed and extended, might be 350k, feeding into the price indices. Ovestating rises maybe deterring some fearing they have missed the boat.

What then of Covid? Those most affected economically (young, low paid, casual in hospitality sector) are generally not in the buying market, Interest rates are so low that with a bit of forebearance those struggling will struggle through. There is no real froth to be blown off the market. Consequently a big step down is unlikely, On the converse so much money is being pumped into the economy, with little place else to go but assets. There may also be a fundamental rejigging of priorities where housing becomes more important. Taking a 5 year view i think prices up somewhere between 10% and 40%. Our mythical buyer then finds they have made between 26k - to just over 100k. And they have paid off 40k. So while they have maybe been paying a few hundred more each month, if that, than the renters the buyers have amassed additional net equity of  66k to 144k. Thats the maths that a lot are looking at, and it becomes self fulfilling.

Of course some sectors may go up less or even down - apartments traditionally rented, areas lacking assets that are now valued...

 

I'll say 20 - 30% down in 18 months. 

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I'll say 20 - 30% down in 18 months. 

I can see the market slowing to almost a stop year end and Q1 of next year but that is likely to be caused by a stall in the issue of mortgages rather than a lack in actual demand. There has been no let off in demand and prices have increased throughout all this. Output of new housing stick in NI will be 25% to 30% of what is needed. 

A lot of people were predicting large drops in April/May. I can understand why they thought that but as the OP states there was no froth to blow off and this shock to our lives (which is far from over) has made us reassess housing. 

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I can see the market slowing to almost a stop year end and Q1 of next year but that is likely to be caused by a stall in the issue of mortgages rather than a lack in actual demand. There has been no let off in demand and prices have increased throughout all this. Output of new housing stick in NI will be 25% to 30% of what is needed. 

A lot of people were predicting large drops in April/May. I can understand why they thought that but as the OP states there was no froth to blow off and this shock to our lives (which is far from over) has made us reassess housing. 

Few points. 

60%+ of mortgages here for the past few years have been FTB mortgages. They fuel the market and are the bottom link on most chains. The effective closing of the credit tap will, you are right, stop the majority of transactions. The big question is, what happens when we see unemployment at 100k plus?  When/If the furlough money stops, what happens to NPLs? The banks are clearly pricing in drops. You don't remove high LTV products unless you perceived a risk.  Do they repossess and get the liability off the balance sheet?

The world as we know it has effectively imploded. The question now if what are the government prepared to do to stop prices crashing. The banks have clearly signalled an unwillingness to lend to higher LTV customers. Actual demand are those customers who can borrow at the levels available. Actual demand has plummeted. What will be interesting will be transactions by market entrants who can transact at these levels of available credit and suppliers who want/need to sell at this time. 

Not sure many here were talking about drops in 2020. Most said it would be after furlough ends at the earliest before we'd see the effects. Furlough is still going strong. Wait until Richi blows all the money or runs out of ink. 

3 reasons for the big crash, banks stopped lending, unemployment soared and banks repossessed. 

 

 

 

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I just can’t see how the market can remain even remotely functional beyond the end of furlough. Even this new furlough 2.0 where the employers have to pay towards employees wages is going to wipe out a lot of businesses and the employment they provide. 6 months from now could be an absolute bloodbath, with the first stages of it taking place from the 1st Nov.

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I just can’t see how the market can remain even remotely functional beyond the end of furlough. Even this new furlough 2.0 where the employers have to pay towards employees wages is going to wipe out a lot of businesses and the employment they provide. 6 months from now could be an absolute bloodbath, with the first stages of it taking place from the 1st Nov.

There has to be a furlough 2.0. I had 6 staff on furlough (back for months now) if money was tight and I had to choose between the new scheme and redundancy, it's redundancy all the way. I'm lucky, things picked up, and the demand was there and I could afford to top up to 100% anyway. Many businesses don't have that luxury. As you say, and i take no joy in saying it, the fall-out is going to be absolutely massive and won't be confined to the lower paid sectors. 

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What percentage of the FTB work in IT, public sector, finance, manufacturing, media, mum's business etc and either unaffected or given a relatively brief jolt. I would hazard comfortably 80%+. And a lot of these have saved during lockdown so deposits a bit easier. Thats probably pretty factual, but what of the future. The more optimistic see covid retreating by Christmas, the consensus view on vaccines is probably something by Spring. .I don't see it hanging around for five years. Will people say then I'm not going out tonight because you remember that pandemic...? Cinema going in Wuhan is up year on year.

Going to be very tough for a lot to bridge that ravine, but no evidence that will take the wider economy down. So no doubt there may be wobbles on the way but anyone buying on less than a five year view probably shouldn't. I wouldn't encourage speculation or unaffordable buying but if someone is seriously considering renting or buying they have to put their fingers in their ears to block out those that remember the crash and try to buy a good house, in the right location for them at a good price and take a sound mortgage product, maybe a 5 year fix for certainty in that difficult few years.

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What percentage of the FTB work in IT, public sector, finance, manufacturing, media, mum's business etc and either unaffected or given a relatively brief jolt. I would hazard comfortably 80%+. And a lot of these have saved during lockdown so deposits a bit easier. Thats probably pretty factual, but what of the future. The more optimistic see covid retreating by Christmas, the consensus view on vaccines is probably something by Spring. .I don't see it hanging around for five years. Will people say then I'm not going out tonight because you remember that pandemic...? Cinema going in Wuhan is up year on year.

Going to be very tough for a lot to bridge that ravine, but no evidence that will take the wider economy down. So no doubt there may be wobbles on the way but anyone buying on less than a five year view probably shouldn't. I wouldn't encourage speculation or unaffordable buying but if someone is seriously considering renting or buying they have to put their fingers in their ears to block out those that remember the crash and try to buy a good house, in the right location for them at a good price and take a sound mortgage product, maybe a 5 year fix for certainty in that difficult few years.

Your comfortable hazard guess is way wide of the mark I'm afraid. Last year, FTBs average age was 31, average HOUSEHOLD income was 33k. Two full-time workers making roughly £8.87 an hour or one full-time and one part-time with tax credits thrown in. So unless those working in Mum's business are getting paid in tray bakes or the ones in IT in PlayStation points and bringing the average down, I'd hazard a guess and say 80% of FTB are in low paid, near minimum wage employment. It should cause much of an effect if the figure is mean or median as the MW provides a floor on how low income can go. 

I like your super optimistic covid outlook. Listening today early 2021 is the best we can expect a vaccines to be distributed to the highly vulnerable. We're looking at at least a year before it can be distributed in an numbers. 

GDP has tanked. We're headed for another lockdown a la the south and unemployment is going to be truly terrifying. Think 2008 on steroids. 

Agree with getting a fixed rate. Problem being, it's going to be difficult getting any mortgage, fixed or otherwise. 

 

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I suspect your analysis of the average is not allowing for single purchasers. In Northern Ireland according to NISRA public sector employment is 212,700 estimate for June 2020. There are of course loads of people who work for the public sector but are not employed by them, outscourced and agency. Universities are technically private but lump them in here, Easy total of 250k plus. Manufacturing is 86k but again a lot of outsourcing and directly related employment in logistics etc.. call it 100k. Within services there are 132k in what you could call the health and care sector. 13k in farming etc and 24k in other industries like powerstations. This is the group not being slammed by covid, though obviously pay rises might be hard to come by etc. This is 519k, which by itself is 519/779 = 67%. Then add in the finance and IT etc (not already in above) and other relatively secure occupations and you will get to 80%... and that's before any recovery... i do think this group more likely to be buying houses as more secure in their jobs, so higher again effective proportion of the actual FTBs

Quite a few leading doctors etc talking of vaccine roll-out starting before Christmas... probably the very at risk and volunteer front line medics. https://www.irishtimes.com/news/ireland/irish-news/reasons-to-be-optimistic-for-a-covid-19-vaccine-by-christmas-says-expert-1.4383970

 

 

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I think also a lot of people don’t take into account that the average wage is based on everyone employed, from doctors to dinner ladies and everyone in between, a lot of people maybe only work 8-12 hours a week as they are maybe semi retired, or studying, or have children to bring up etc, so although there income is only 4-5,000 a year they are working for the joy of it, this brings the average income down, I have said several times that I think the overall price of houses won’t change but I predict that apartments in town centres will drop dramatically and houses in the country will jump in price, I think people’s house  buying habits will change, country and seaside towns will jump, this is certainly what friends are telling me in estate agents, also mortgage broker friends are telling me that they are busier than they have ever been,  mortgages are readily available so long as the buyers have a deposit 

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I think also a lot of people don’t take into account that the average wage is based on everyone employed, from doctors to dinner ladies and everyone in between, a lot of people maybe only work 8-12 hours a week as they are maybe semi retired, or studying, or have children to bring up etc, so although there income is only 4-5,000 a year they are working for the joy of it, this brings the average income down, I have said several times that I think the overall price of houses won’t change but I predict that apartments in town centres will drop dramatically and houses in the country will jump in price, I think people’s house  buying habits will change, country and seaside towns will jump, this is certainly what friends are telling me in estate agents, also mortgage broker friends are telling me that they are busier than they have ever been,  mortgages are readily available so long as the buyers have a deposit 

Except we're talking about FTBers who make up the majority of the market here and not the movers market. We're only talking about the income distribution of FTBers, who on average have 33k household income and are 31 years of age. 84% of UK FTBers purchases are by couples. No reason to think NI or any other region is significantly different. That 33k figure isn't far off minimum wage for two full-time workers. It doesn't matter if you have one full-time and one part-time. The figure is so "low" and close to minimum wage that the full-time worker won't be making significantly more than the part-time partner. 

Again, it's so close to the minimum wage which provides a floor on earnings that the effect of couples in the higher percentiles of the income distribution will have little impact. I.e. there won't be a few low earning outliers brining the average down because their income can only be as low as minimum wage. 

I expect what is happening is that the majority of FTBers are near minimum wage couples. The odd person is higher paid. Pretty much a reflection in the under 34 cohort the are members of. 

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I suspect your analysis of the average is not allowing for single purchasers. In Northern Ireland according to NISRA public sector employment is 212,700 estimate for June 2020. There are of course loads of people who work for the public sector but are not employed by them, outscourced and agency. Universities are technically private but lump them in here, Easy total of 250k plus. Manufacturing is 86k but again a lot of outsourcing and directly related employment in logistics etc.. call it 100k. Within services there are 132k in what you could call the health and care sector. 13k in farming etc and 24k in other industries like powerstations. This is the group not being slammed by covid, though obviously pay rises might be hard to come by etc. This is 519k, which by itself is 519/779 = 67%. Then add in the finance and IT etc (not already in above) and other relatively secure occupations and you will get to 80%... and that's before any recovery... i do think this group more likely to be buying houses as more secure in their jobs, so higher again effective proportion of the actual FTBs

Quite a few leading doctors etc talking of vaccine roll-out starting before Christmas... probably the very at risk and volunteer front line medics. https://www.irishtimes.com/news/ireland/irish-news/reasons-to-be-optimistic-for-a-covid-19-vaccine-by-christmas-says-expert-1.4383970

 

 

You've said the sectors you've quoted won't be slammed by covid. I agree some won't be affected to the same extent as others however those sectors will have subgroups which will feel massive impacts. Manufacturing for example, 70%+ were furloughed, massive aerospace sector and supply chain here, directly employing 10k. Add another few thousand for the supply chain. On the public sector some councils have already announced redundancies. Health and care sector includes care home workers, majority low paid. Then you have the higher paid like dentist and private consultants who have taken a hammering on revenue. IT and finance had 25% on furlough. 

The fact remains, NI has taken a massive GVA hit, still hasn't recoved from the Financial crash and will be years coming out of this one. Oh and we have brexit in 3 months. 

 

 

 

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Maybe someone on the board could help on the single/couple proportions of FTBs here and GB. On an anecdotal basis i see quite a lot of those who are buying are doing it by themselves.. I suspect it's a bit harder in London!

Completely agree that its a challenging time, but there is a fair bit of difference across sectors, i think we can agree that the hospitality industry has taken a real kicking, while many - probably a majority - have seen little pain, even some gain around less commuting etc. Manufacturing more paused than destroyed, remember quite a lot here in sectors like food and drink, and here we are seeing quality grow - note the anouncement from Finnebrogue - great news from a great innovator. Aerospace maybe going to run lower, but local activity is focused on pretty attractive products in the segment that was doing best, so...

GVA is a bit of a poor guide to the current storm. If for example people furloughed had been told to look out their windows and act as covid pavement marshals their 'pay' would have been added to GVA.

I would also agree that we haven't shaken off the crash, but in a way i think that is exactly why there is no froth to blow off. If this had happened in 2008 or so...

Might there be a bit of a dip after winter as unemployment rises, possibly. But then again i think overall the covid news is going to be better than it is now, whether or not there is a vaccine as there is continuous news of advances around treatment etc. The old adage of buy at the sound of war drums is a reminder that once it's a great time to buy it won't be, as houses race away...

Public sector workers made redundant will be focused on older workers, who are more attracted by a much larger pay-off and who are the more costly to keep. These aren't FTBs. Large payouts here will if anything drive up prices on the North coast - which seems to be a regular fascination on this board.

Quite a few people here that looked back in 2012 onwards saying what was I thinking five years ago... Will those buying now think that in 5 years? If they buy the right house i think worst case will be a bit of shrug that maybe they could have timed it even better, but then would they have got the house they wanted... remember the actual livingthere bit is important too.

 

 

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  • 433 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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