Could house prices soar?

[Unmoderated]

9 hours ago, Orb said:

I'm moderately literate with economics, but not nearly as literate as some posters on here. I've been trying to understand something, and welcome thoughts on this.

Inflation is obviously a huge issue, and the consensus suggests it shall keep rising. Interest rates are only going one way too, probably for a fair while. People have less money to spend on properties if they're paying inflated prices for consumables. There's a sentiment here that house prices should, or will crash, or at least correct. I understand fundamentals enough to comprehend the logic.

But if we get something approaching hyperinflation, or even something like Turkey's inflation, wouldn't wages spiral? If so, house prices would actually rise over the next few years, wouldn't they? There must come a point where the relationship between high inflation plus high IR, and falling house prices inverts so that house prices actually soar, mustn't there?

I'm asking, is a correction/crash guaranteed? Like we thought it it should have been when Covid hit us. Or could we see a 1 bed flat cost £1 billion by 2025? I'm struggling to get my head around the mechanics of all this.

Friend of mine is in Zimbabwe at the moment. Sent me a pic of a bottle of whisky. ZW$ 28,000! 

It can easily happen if the currency is debased sufficiently. We're a long way from Zimbabwe but the private sector is getting an average 7,2% nominal pay rise (March to May 2022). I do fairly well earnings wise (for now at least). I bought my ex out in 2019 and was at the very limit of what I could borrow. Two years later I took out an extra £30K to put towards my savings for an extension. The cost of the mortgage is 0.99% on a five year fix. Right now I can borrow an additional £50K on my basic without including my bonus, if they did they would double the lending. I fully expect close to CPI pay rises for next year so if that's another 15% (say) that's another £74K I can borrow. 

£174K in addition to whatever I get for this place. 

8 hours ago, TheCountOfNowhere said:

Could the cost of bread be £1000 a loaf

 

Yes on both fronts

 

Yep. Agreed.

8 hours ago, satsuma said:

Well, yes and no.  Initially, in 2023 what you will see is less free money, for everyone.  Sure these will be some tasty handouts lapped up but this won't cut the mustard in preventing hardship.  Business will fold and people will suffer, wailing and gnashing of teeth there will be.   House prices will have to fall if people want to sell, many will need to.  There will be upward pressure on wages, unions wailing for price increases, people needing to move for more money.  If you go back to the 1980 you will see wages increased for many but not all.  I can see £250k looking cheap at the end of the 20s.  There could be some relief if Russia pulls out of Ukraine but I think the damage is already done, its just a case of how bad will it get.  

People have grown accustomed to not feeling any paid. Government has stepped in repeatedly these last 20 years to bail out the feckless, the cretinous, the downright unbreedable. Yet, here we are. It is Easter Island. They would bankrupt the realm rather than have the burgeoning underclass go without.

7 hours ago, FallingAwake said:

Nothing is guaranteed. Humans aren't very good at accurately predicting even their own behaviours. What makes you think we'd do a better job at predicting events one, five or ten years from now?

Bill Gates once said that 640k should be enough computer memory for people. Someone else said that there was a market for maybe 5 computers. Someone else said that the stock market had reached a permanent plateau. I think all of these were experts in their field... and utterly wrong.

With the advent of cloud computing and quantum computing I am inclined to agree. Increasingly people are lsoing hte computing power on premise and using the cloud. 

I get your point though. Eventually we'll all have a quantum computer at home next to the warp drive wafting us about the galaxy.

7 hours ago, PropertyMania said:

In this scenario house prices would collapse in real terms, so better to stick your money in gold or USD

Could you do some analysis and tell us what house prices in the UK have done in dollar terms since 2007 (this was a peak of $2:£1? I'm just as interested in the findings as you are in winning that argument.

7 hours ago, HovelinHove said:

At some point workers wages will rise. Private sector employees who are in demand will lead the way. I moved jobs this year and got a 12% bump. However, there will also be lots of lay offs at some point as people will not be able to buy so much stuff, so this will tame wage inflation in sectors that are driven by consumer sentiment.

The other aspect of high inflation is the investment factor. Stocks are looking very wobbly as profits are going to take a hit and IRs are going up. Gold and silver are rigged by the CBs so will never reflect true value. If you have cash, the last thing you want is for it to be losing 15% a year with no prospect of it ever recovering. For me property is probably one of the safest long term places to park wealth. People ho don’t have to sell won’t. The government will back stop the market and create schemes that underwrite the market.

My bet is that we will see a correction of 5-10% over the next year. The next leader will then panic with only a year till the election and then introduce all kinds of things to prop up the market, then if wage inflation really takes off, house prices will indeed rocket, especially if builders have pulled back on new starts.

I'd agree with your bet. I am thinking closer to 5% nominal though before things catch up. Every time I've gone out (I visit a fair few places) the town/city centres have been buzzing. Full of shoppers, browsers, eaters and drinkers. Many companies are able to increase prices with inflation. Check out Vodafone for example, your phone contract uplifts are CPI plus 3.9%!

6 hours ago, scottbeard said:

If wage inflation hits double digits then so will HPI.  However, that will take time, and in the meantime I expect a nominal fall in house prices.  Nothing in life is guaranteed.

The error in judgment re COVID was that it was assumed that economic activity being suppressed by the COVID recession would naturally cause house prices to fall.  What was not anticipated was:

-  The middle class were able to WFH much more effectively than expected, so they continued to earn at a high rate, and save up lots of money

- The working class were given furlough money via MASSIVE QE, so money printing also boosted house prices

Compare that to now:

- The middle class are shafted by inflation and interest rates increasing

- The working class are even more shafted by inflation

So either we will get a nominal HPC, or they attempt some sort of bailout which could just fuel higher inflation, worsening the UK's problems overall.

Essentially we either get a nominal HPC, or runaway inflation.

I agree with your points but it seems the middle classes are also benefitting from the evaporation of the real value of their mortgage debt. CPI is a broad measure and it's markedly different the poorer you are. 

It's expensive being poor. 

6 hours ago, TheResponsibleHouseBuyer said:

- The middle class are shafted by inflation and interest rates increasing

- The middle class are propped up by wage increases and further government handouts making their 300k loan (of free money) fixed at 1% evaporate quickly

- The working class (renters + poor FTBers with no BOMAD) are even more shafted by inflation

So either we will get a nominal no HPC, or they attempt some sort of bailout which could just fuel higher inflation, worsening the UK's problems (for poor) overall.

Essentially we either get a nominal HPC, or and runaway inflation.

Possible alternative outcome outlined above to consider. Sorry took your wording, but think this could also happen as per Authors OP.

Somehow feel the well off will do good on this still.

We get, at best, a real HPC not a nominal one. 

Look where we are in the political cycle though, closer to a GE than the GFC and look what they did back then.

1 hour ago, Orb said:

Thanks all so far for your contributions. It's helping me understand more. 

PaddyO and Depressedpedro, two very thought provoking and complimentary posts, adressing both the long and short term. Depressedpedro I've arrived at a similar conclusion to you: that we'll see drops in the next 24 months, followed by a rally. I really think there will be a window of opportunity begin soon, probably within 2 months, but it'll be fairly short lived, relatively speaking. I'm not sure we'll see them drop 20-40%, but that's just my gut feeling, which could be way off. I'm thinking 10-20% over the next 24 months, mainly due to the points PaddyO highlighted. I'd be completely floored if house prices didn't go down at all. 

If you are looking to buy a house then I would recommend starting a new thread. Many of us are die hard HPCers and yet have bought a property while waiting for the inevitable to never arrive. I think you'd be warmed by the advice you'd get. @Sausage did something similar IIRC.

48 minutes ago, Pmax2020 said:

I agree some house prices are unaffordable in large swathes of the UK but comparing ‘average salaries’ to ‘average house prices’ is completely flawed.

1) It doesn’t reflect that mortgages are intrinsically less than the value of the property. 

2) it assumes your first home is an ‘average’ price when it arguably should be far, far lower. Hence property ladder.

3) It exaggerates cost in relation to your age and/or where you are in your career. 

The truth is that 99% of people could buy a modest house or flat within 30-45 minutes of where they currently live or work. Problem is millions of us want a banging properly in a desirable location. 

I agree with you 100%. 

There's an affordability issue with desirable houses with nice gardens, off road parking and an easy walk of a mainline station and town centre. 

Plenty of copy and paste houses knocking about the place for relatively little money. 

[scottbeard]

13 minutes ago, Unmoderated said:

I agree with your points but it seems the middle classes are also benefitting from the evaporation of the real value of their mortgage debt.

True, but only if they own a house, which increasingly they haven't been able to afford.

But without a doubt the middle classes will always fare better than the poor, just as the upper class always fare better than the middle.

[desiringonlychild]

14 minutes ago, Unmoderated said:

Friend of mine is in Zimbabwe at the moment. Sent me a pic of a bottle of whisky. ZW$ 28,000! 

It can easily happen if the currency is debased sufficiently. We're a long way from Zimbabwe but the private sector is getting an average 7,2% nominal pay rise (March to May 2022). I do fairly well earnings wise (for now at least). I bought my ex out in 2019 and was at the very limit of what I could borrow. Two years later I took out an extra £30K to put towards my savings for an extension. The cost of the mortgage is 0.99% on a five year fix. Right now I can borrow an additional £50K on my basic without including my bonus, if they did they would double the lending. I fully expect close to CPI pay rises for next year so if that's another 15% (say) that's another £74K I can borrow. 

£174K in addition to whatever I get for this place. 

Yep. Agreed.

People have grown accustomed to not feeling any paid. Government has stepped in repeatedly these last 20 years to bail out the feckless, the cretinous, the downright unbreedable. Yet, here we are. It is Easter Island. They would bankrupt the realm rather than have the burgeoning underclass go without.

With the advent of cloud computing and quantum computing I am inclined to agree. Increasingly people are lsoing hte computing power on premise and using the cloud. 

I get your point though. Eventually we'll all have a quantum computer at home next to the warp drive wafting us about the galaxy.

Could you do some analysis and tell us what house prices in the UK have done in dollar terms since 2007 (this was a peak of $2:£1? I'm just as interested in the findings as you are in winning that argument.

I'd agree with your bet. I am thinking closer to 5% nominal though before things catch up. Every time I've gone out (I visit a fair few places) the town/city centres have been buzzing. Full of shoppers, browsers, eaters and drinkers. Many companies are able to increase prices with inflation. Check out Vodafone for example, your phone contract uplifts are CPI plus 3.9%!

I agree with your points but it seems the middle classes are also benefitting from the evaporation of the real value of their mortgage debt. CPI is a broad measure and it's markedly different the poorer you are. 

It's expensive being poor. 

We get, at best, a real HPC not a nominal one. 

Look where we are in the political cycle though, closer to a GE than the GFC and look what they did back then.

If you are looking to buy a house then I would recommend starting a new thread. Many of us are die hard HPCers and yet have bought a property while waiting for the inevitable to never arrive. I think you'd be warmed by the advice you'd get. @Sausage did something similar IIRC.

I agree with you 100%. 

There's an affordability issue with desirable houses with nice gardens, off road parking and an easy walk of a mainline station and town centre. 

Plenty of copy and paste houses knocking about the place for relatively little money. 

the modest terraced house my husband's mother bought in north london is now in excess of £700k. The flat she bought before buying the house is a lot more affordable, its probably worth about £300k today.. Indeed my husband and I bought a 2 bed flat at the same age as she did- late 20s. Adn to be fair, she only managed to buy the house because of the house price crash in the 1990s. However, the reality is that her area of London was not desirable in the 1990s (i believe most people preferred to live in the Home Counties); when she bought it,the neighbour was a drug dealer. Today, it is a mishmash of Jewish families and international students. However, such gentrification has occurred in many areas in London

[Unmoderated]

1 minute ago, scottbeard said:

True, but only if they own a house, which increasingly they haven't been able to afford.

But without a doubt the middle classes will always fare better than the poor, just as the upper class always fare better than the middle.

I know it's splitting hairs but what do you mean by working, middle and upper class? I picked up a former colleague on this a while ago as he was slating the working classes. I pointed out that him and I, while both qualified in our fields were working for a living too. 

But yes I kinda get what you mean and it is fair to say home ownership was the preserve of the 'middle' classes more so than the 'working' class. Middle class has arguable shrunk?

[Unmoderated]

1 minute ago, desiringonlychild said:

the modest terraced house my husband's mother bought in north london is now in excess of £700k. The flat she bought before buying the house is a lot more affordable, its probably worth about £300k today.. Indeed my husband and I bought a 2 bed flat at the same age as she did- late 20s. Adn to be fair, she only managed to buy the house because of the house price crash in the 1990s. However, the reality is that her area of London was not desirable in the 1990s (i believe most people preferred to live in the Home Counties); when she bought it,the neighbour was a drug dealer. Today, it is a mishmash of Jewish families and international students. However, such gentrification has occurred in many areas in London

It is a shame that some neighbourhoods change for the worse  

[scottbeard]

4 minutes ago, Unmoderated said:

I know it's splitting hairs but what do you mean by working, middle and upper class? I picked up a former colleague on this a while ago as he was slating the working classes. I pointed out that him and I, while both qualified in our fields were working for a living too. 

But yes I kinda get what you mean and it is fair to say home ownership was the preserve of the 'middle' classes more so than the 'working' class. Middle class has arguable shrunk?

I didn't use the phrase "working class" in my last email, I used "poor" specifically since not every working class person is poor and it is those with the very least who will suffer the most from inflation.

However, to answer you, the basic definition is:

Working class = works hard all day and still has little to show for it

Middle class = works hard all day but at least has a comfortable lifestyle

Upper class = doesn't need to work

[Unmoderated]

1 minute ago, scottbeard said:

I didn't use the phrase "working class" in my last email, I used "poor" specifically since not every working class person is poor and it is those with the very least who will suffer the most from inflation.

However, to answer you, the basic definition is:

Working class = works hard all day and still has little to show for it

Middle class = works hard all day but at least has a comfortable lifestyle

Upper class = doesn't need to work

hmmm. I like it

[Blobsy]

There are far more ‘poor’ and working class than in the other 2 brackets so it all depends how much TPTB are willing to placate them. Pitchforks await. 

[Monkey]

I think it depends on what the Tories want from the next election. 

The language of the winner of the No10 vote will be telling.

If they want another term, i think they will try and dampen inflation, raise rates a little and try to not let it crash too much or rise too much. They wont over spend. They will say we are in tough times and we need to all hunker down.

 

If they feel the UK is a dead duck and dont want another term because of the $!4T storm coming when it all unravels, they will pump billion into the economy, pay for everything, let IRs rise as fast as inflation, whilst giving everyone and their dog handouts for XYZ.... then hand the poisoned challace over to someone else, and the "There is no money" note will be for real. 

[bartelbe]

If we get hyper-inflation, the pound would effectively become worthless, the British economy would collapse and the housing market would be the least of our worries.

Assuming cheese disgrace is kicked out before her incompetence leads to a total economic wasteland, I don't think that will happen.

[user not found]

13 hours ago, Unmoderated said:

Friend of mine is in Zimbabwe at the moment. Sent me a pic of a bottle of whisky. ZW$ 28,000! 

It can easily happen if the currency is debased sufficiently. We're a long way from Zimbabwe but the private sector is getting an average 7,2% nominal pay rise (March to May 2022). I do fairly well earnings wise (for now at least). I bought my ex out in 2019 and was at the very limit of what I could borrow. Two years later I took out an extra £30K to put towards my savings for an extension. The cost of the mortgage is 0.99% on a five year fix. Right now I can borrow an additional £50K on my basic without including my bonus, if they did they would double the lending. I fully expect close to CPI pay rises for next year so if that's another 15% (say) that's another £74K I can borrow. 

£174K in addition to whatever I get for this place. 

Yep. Agreed.

People have grown accustomed to not feeling any paid. Government has stepped in repeatedly these last 20 years to bail out the feckless, the cretinous, the downright unbreedable. Yet, here we are. It is Easter Island. They would bankrupt the realm rather than have the burgeoning underclass go without.

With the advent of cloud computing and quantum computing I am inclined to agree. Increasingly people are lsoing hte computing power on premise and using the cloud. 

I get your point though. Eventually we'll all have a quantum computer at home next to the warp drive wafting us about the galaxy.

Could you do some analysis and tell us what house prices in the UK have done in dollar terms since 2007 (this was a peak of $2:£1? I'm just as interested in the findings as you are in winning that argument.

I'd agree with your bet. I am thinking closer to 5% nominal though before things catch up. Every time I've gone out (I visit a fair few places) the town/city centres have been buzzing. Full of shoppers, browsers, eaters and drinkers. Many companies are able to increase prices with inflation. Check out Vodafone for example, your phone contract uplifts are CPI plus 3.9%!

I agree with your points but it seems the middle classes are also benefitting from the evaporation of the real value of their mortgage debt. CPI is a broad measure and it's markedly different the poorer you are. 

It's expensive being poor. 

We get, at best, a real HPC not a nominal one. 

Look where we are in the political cycle though, closer to a GE than the GFC and look what they did back then.

If you are looking to buy a house then I would recommend starting a new thread. Many of us are die hard HPCers and yet have bought a property while waiting for the inevitable to never arrive. I think you'd be warmed by the advice you'd get. @Sausage did something similar IIRC.

I agree with you 100%. 

There's an affordability issue with desirable houses with nice gardens, off road parking and an easy walk of a mainline station and town centre. 

Plenty of copy and paste houses knocking about the place for relatively little money. 

If I was renting now, I would definitely hold fire until IRs filter through to prices. It just happened that when we bought in early 2021 we found the right house at the right price. We hadn't seen one before that, and haven't seen one since.

[Guest PaddyO]

5 minutes ago, Sausage said:

If I was renting now, I would definitely hold fire until IRs filter through to prices. It just happened that when we bought in early 2021 we found the right house at the right price. We hadn't seen one before that, and haven't seen one since.

One thing worth factoring in is that the cost of renting somewhere is currently rising at more than three times the rate at which the cost of a mortgage is rising. This latest quarterly rental market report from Rightmove makes for interesting reading:

https://www.rightmove.co.uk/news/rental-price-tracker/
 

 

[househunter123]

Regarding Turkey and their economic issues, with inflation and interest rates, how have they impacted their housing market and specifically sales?

Must take into account that they have taken millions of refugees from Syria which have heavily skewed rent and prices of things generally and so are beginning to be despised by the locals.

[70PC]

16 hours ago, Pmax2020 said:

I agree some house prices are unaffordable in large swathes of the UK but comparing ‘average salaries’ to ‘average house prices’ is completely flawed.

1) It doesn’t reflect that mortgages are intrinsically less than the value of the property. 

2) it assumes your first home is an ‘average’ price when it arguably should be far, far lower. Hence property ladder.

3) It exaggerates cost in relation to your age and/or where you are in your career. 

The truth is that 99% of people could buy a modest house or flat within 30-45 minutes of where they currently live or work. Problem is millions of us want a banging properly in a desirable location. 

The principle of a property ladder existed in the past and I agree on that. With interest rates rising today combined with the higher costs of property transactions, this now a case of trying to walk up a 'going down' escalator.  

[Speed1987]

Heres my take,

The government will continue borrowing and the BOE printing or they’ll find money through taxation. All they do now is expand debt and print, rinse and repeat.

Firstly, millennials and home ownership are a huge problem for the conservative government. The government wants to create easier pathways to home ownership and there's currently a think tank, looking at how this can be done.

We are also, all aware HTB is ending shortly. The government need votes in 2024 and without some sort of deal for millennials, they won't be getting their vote and after covid19, parties etc. They really need to sweaten this group up, their current voter base pensioners, are dying off.

The government will provide some relief for high gas and electric prices, however currently there is no urgency until October comes. 

Throughout the pandemic there main aim was to preserve wealth equality and I believe they will continue. The conservatives are backed and paid for by big businesses, these are landlords, property developers and more. They win campaigns with these businesses money. 

Rishi is heavily invested in property and so are many MPs, I highly doubt he or the others will want to see there wealth wiped away. Would you allow that to happen if you were an MP?

Conservatives, got in power through arguing they would stop immigration. Has it stopped? No.... it was simply a ploy and anyone could see that, as their donors mainly exploit immigrants, for cheap labour.

The government are not going to sit back and watch house prices fall anything like 30% unless it is totally out of their control and a gun is held to their heads.

What if interest rates rise, well yes house prices would eventually fall... however, in the past we've seen schemes such as MIRAS. It's just as likely we will see somthing similar. The government has time on their hands and most people are fixed for 5 years.

Supply is extremely low and demand is high, particularly as we have evolving crisises around the world which is causing a big shifts of people.

Punishing home owners is against conservative ideology. Council homes require maintence, they need a team to regularly attend to problems. This costs money, more money than a person who owns and takes self responsibility. As when people own somthing, they tend to look after it better and are more likely to problem solve. Conservatives believe in responsibility and autonomy. That's has been the shift since Thatcher.

This will continue unless labour get in and change things with public support, this is only likely if the Conservatives hang themselves by turning their back on businesses and home owners, the people who pay them to win elections. This doesn't seem likely...

They don't want your money in the bank, saving money in a bank and getting 5% interest is lazy..... it's the most idle way to make money, worse than being a landlord. Atleast a landlord creates some value.

All this is also reflected in current opinion polls, the public are punishing the conservatives, but the conservatives have plenty of time.

Of course nobody has a glass ball, but this is how I make sense of the current times.

[Flat Bear]

It is ALL down to interest rates. 

[Guest PaddyO]

2 hours ago, Speed1987 said:

Heres my take,

The government will continue borrowing and the BOE printing or they’ll find money through taxation. All they do now is expand debt and print, rinse and repeat.

Firstly, millennials and home ownership are a huge problem for the conservative government. The government wants to create easier pathways to home ownership and there's currently a think tank, looking at how this can be done.

We are also, all aware HTB is ending shortly. The government need votes in 2024 and without some sort of deal for millennials, they won't be getting their vote and after covid19, parties etc. They really need to sweaten this group up, their current voter base pensioners, are dying off.

The government will provide some relief for high gas and electric prices, however currently there is no urgency until October comes. 

Throughout the pandemic there main aim was to preserve wealth equality and I believe they will continue. The conservatives are backed and paid for by big businesses, these are landlords, property developers and more. They win campaigns with these businesses money. 

Rishi is heavily invested in property and so are many MPs, I highly doubt he or the others will want to see there wealth wiped away. Would you allow that to happen if you were an MP?

Conservatives, got in power through arguing they would stop immigration. Has it stopped? No.... it was simply a ploy and anyone could see that, as their donors mainly exploit immigrants, for cheap labour.

The government are not going to sit back and watch house prices fall anything like 30% unless it is totally out of their control and a gun is held to their heads.

What if interest rates rise, well yes house prices would eventually fall... however, in the past we've seen schemes such as MIRAS. It's just as likely we will see somthing similar. The government has time on their hands and most people are fixed for 5 years.

Supply is extremely low and demand is high, particularly as we have evolving crisises around the world which is causing a big shifts of people.

Punishing home owners is against conservative ideology. Council homes require maintence, they need a team to regularly attend to problems. This costs money, more money than a person who owns and takes self responsibility. As when people own somthing, they tend to look after it better and are more likely to problem solve. Conservatives believe in responsibility and autonomy. That's has been the shift since Thatcher.

This will continue unless labour get in and change things with public support, this is only likely if the Conservatives hang themselves by turning their back on businesses and home owners, the people who pay them to win elections. This doesn't seem likely...

They don't want your money in the bank, saving money in a bank and getting 5% interest is lazy..... it's the most idle way to make money, worse than being a landlord. Atleast a landlord creates some value.

All this is also reflected in current opinion polls, the public are punishing the conservatives, but the conservatives have plenty of time.

Of course nobody has a glass ball, but this is how I make sense of the current times.

This guy gets it.