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What Do You Think Its Worth?

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If you were to consider what you earn and also family, friends, workmates, etc and also all the other finacial considerations of living in the UK what do you think a fair price for a typical home should be?

For the sake of example, I use the latest Rightmove 200K 'average home'

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How about using an affordability model, so let’s say 19% of gross earnings servicing a 5% repayment mortgage over 25 years and calibrated for the HBOS average HP; this gives £122k = 1.5*annuity(0.19*30500,0.05,25), then scaling for the Rightmove equivalent average HP, about 17% higher, finally gives £143k. That’s roughly a 40% over-value at current IRs. :)

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I'm going to go based on affordability.

Rightmove say the average asking price is 200k.

Average salary is 25k

Multiple is 3.5 for single, 2.5 for joint

25*3.5 = 87.5K

Wait that can't be right. let me do what the Govt does and fudge my figures.

Average salary is now 35k

35*3.5 = 122.5

Shit. Still doesn't get to 200k. They must mean joint mortgages.

Assuming both are earning 35k:

70*2.5 = 175k

That's better. Still not 200k but I reckon I'll get there pretty soon.

The reality probably is that the house is worth around 100k with adjustments. Thats a 50% drop from Rightmoves figures.

Edited by Mr Blek

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How about using an affordability model, so let’s say 19% of gross earnings servicing a 5% repayment mortgage over 25 years and calibrated for the HBOS average HP; this gives £122k = 1.5*annuity(0.19*30500,0.05,25), then scaling for the Rightmove equivalent average HP, about 17% higher, finally gives £143k. That’s roughly a 40% over-value at current IRs. :)

For London?

Or where I am in Manchester?

Ok

London it is then: 143K for London sounds fine to me. Add an option and I'll vote.

Just think of all those spare earning pouring into retail, entertainments, holidays, investments etc etc...

Gosh, we could have a proper economy. <_<

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I'm going based on previous 'sane' prices paid in my area.

Houses that currently sell for £200K (Sell, not sit on the market) are IMHO worth £120K adjusted for inflation from when they were £100K-£110K in 2000-2001.

In reality they were probably average value in 2000-2001 so I would expect that if you extract the idiots from the lcoal market that prices should fluctuate between £85K and £120K for the average house.

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Lets use my favorite rental yield technique.

Say the average house is worth £120,000, a bare minimum yield should be 8% which equates to a cost of £800 per calendar month (possibly as high as £1,200 PCM if you think a higher yield is reasonable). I think for the average family on an average wage this is just too much to be affordable (maybe £800 just but no more).

Therefore £120,000 seems to be the upper limit for affordability, which seems to tie up with a predicted 1/3rd fall (based on other averages which seem to indicate 180,000 rather than Rightmoves nonsense).

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Lets use my favorite rental yield technique.

Say the average house is worth £120,000, a bare minimum yield should be 8% which equates to a cost of £800 per calendar month (possibly as high as £1,200 PCM if you think a higher yield is reasonable). I think for the average family on an average wage this is just too much to be affordable (maybe £800 just but no more).

Therefore £120,000 seems to be the upper limit for affordability, which seems to tie up with a predicted 1/3rd fall (based on other averages which seem to indicate 180,000 rather than Rightmoves nonsense).

Oh I'm sure you realise that any house is worth what the market will pay for it. My Mum's 210K house just about fetched its asking price (209K!) so that's what it will be worth when they exchange in a couple of weeks. If times got bad and she had to drop to 180K or even 160K then that's its worth - but we're not there yet!

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Oh I'm sure you realise that any house is worth what the market will pay for it. My Mum's 210K house just about fetched its asking price (209K!) so that's what it will be worth when they exchange in a couple of weeks. If times got bad and she had to drop to 180K or even 160K then that's its worth - but we're not there yet!

We will be soon. FFWD to Feb 2007. What do you think RM's headline will be: "Average asking price now 250k"?

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We will be soon. FFWD to Feb 2007. What do you think RM's headline will be: "Average asking price now 250k"?

I'll put a crisp £5 on Rightmove's Feb 2007 average asking price being £170K or lower.

Any takers?

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Oh I'm sure you realise that any house is worth what the market will pay for it. My Mum's 210K house just about fetched its asking price (209K!) so that's what it will be worth when they exchange in a couple of weeks. If times got bad and she had to drop to 180K or even 160K then that's its worth - but we're not there yet!

Yes and no. Ultimately if people are willing to pay £210,000 for a 3 bed semi then that is the current market price. What this does not address is the question of whether buyers are pricing the property sensibly or are instead caught up in a speculative bubble, pricing the property on the back of (unrealistic) expected gains.

As an example Tulip bulbs in the 17th century and dot.com shares at the end of the last clearly indicate that the current market price does not necessarily reflect an assets true worth.

This issue is key because it tells us the likely future path of house prices. If house prices are well above the fundamental value then ultimately they must come back down; quite simply homeowners won't be able to afford to pay the prices and investors won't be willing to suffer the losses.

So the question is "what is the fundamental value of a house". The answer is the monetary sum of all future housing services provided by that asset, discounted as appropriate.

The best measure of the value of housing services is the annual rental chargable so the statement becomes: a house is fundamentally worth the discounted present value of all rents receivable.

Mathematically this is equal to the annual rent divided by the required discount rate or yield.

The only question now remaining is what discount rate is appropriate? I would argue that the bare minimum necessary is 8%, in the recent past it has been as high as 12%.

So if we say that the maximum reasonably affordable figure for an average household is £800 per month or £9,600 per year then dividing this by 0.08 we see that the fundamental value of the average house is a maximum of £120,000.

Perhaps some people might wish to argue that £800 is not the maximum for the average household, I can't really see how much more can be affordable, in any event my 8% working yield is IMO well below what should be reasonably required.

As an example I know that commercial property companies will not consider an investment where the yield is below 12% and these guys let the properties on 25 year full repairing leases with upward only rent reviews! Compare and contrast this with 6 month AST's with frequent void periods and repairing obligations and then argue that BTLers should be aiming for less than 12%.

The only conclusion that can be drawn is that the average price of a uk property is in the region of 50% above its fundamental level and must loose at least a third of its value over the next few years.

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We will be soon. FFWD to Feb 2007. What do you think RM's headline will be: "Average asking price now 250k"?

Seems perfectly plausible to me. All the 'valuations' on here take no account of the vast amount of money - equity - already sloshing around the property market.

For somebody already in - sticking another 50k on a 100k mortgage is no big deal (not at current IRs).

The factor that would normally stop the market - lack of FTBs - is still being overcome by nutters still up for BTL and parents too thick to realise that lending their kids 50k to get a foot on the ladder is helping to condemn their kids to a lifetime of mortgage slavery.

Unless we get credit tightening - this thing will drift sideways and slightly up - at least in London and the South East.

Yes and no. Ultimately if people are willing to pay £210,000 for a 3 bed semi then that is the current market price. What this does not address is the question of whether buyers are pricing the property sensibly or are instead caught up in a speculative bubble, pricing the property on the back of (unrealistic) expected gains.

As an example Tulip bulbs in the 17th century and dot.com shares at the end of the last clearly indicate that the current market price does not necessarily reflect an assets true worth.

This issue is key because it tells us the likely future path of house prices. If house prices are well above the fundamental value then ultimately they must come back down; quite simply homeowners won't be able to afford to pay the prices and investors won't be willing to suffer the losses.

So the question is "what is the fundamental value of a house". The answer is the monetary sum of all future housing services provided by that asset, discounted as appropriate.

The best measure of the value of housing services is the annual rental chargable so the statement becomes: a house is fundamentally worth the discounted present value of all rents receivable.

Mathematically this is equal to the annual rent divided by the required discount rate or yield.

The only question now remaining is what discount rate is appropriate? I would argue that the bare minimum necessary is 8%, in the recent past it has been as high as 12%.

So if we say that the maximum reasonably affordable figure for an average household is £800 per month or £9,600 per year then dividing this by 0.08 we see that the fundamental value of the average house is a maximum of £120,000.

Perhaps some people might wish to argue that £800 is not the maximum for the average household, I can't really see how much more can be affordable, in any event my 8% working yield is IMO well below what should be reasonably required.

As an example I know that commercial property companies will not consider an investment where the yield is below 12% and these guys let the properties on 25 year full repairing leases with upward only rent reviews! Compare and contrast this with 6 month AST's with frequent void periods and repairing obligations and then argue that BTLers should be aiming for less than 12%.

The only conclusion that can be drawn is that the average price of a uk property is in the region of 50% above its fundamental level and must loose at least a third of its value over the next few years.

Interesting that. It makes the house I rent 'worth' £165k. In fact it is 'worth' (based on similar sold in the last few months) about £375k.

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I'll put a crisp £5 on Rightmove's Feb 2007 average asking price being £170K or lower.

Any takers?

I remember reading this forum, this time last year, and people saying houses would have dropped 20% by now too. I'm tempted to take that bet :) as I dont see house prices falling until suply meets demand.

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Seems perfectly plausible to me. All the 'valuations' on here take no account of the vast amount of money - equity - already sloshing around the property market.

For somebody already in - sticking another 50k on a 100k mortgage is no big deal (not at current IRs).

The factor that would normally stop the market - lack of FTBs - is still being overcome by nutters still up for BTL and parents too thick to realise that lending their kids 50k to get a foot on the ladder is helping to condemn their kids to a lifetime of mortgage slavery.

Unless we get credit tightening - this thing will drift sideways and slightly up - at least in London and the South East.

Interesting that. It makes the house I rent 'worth' £165k. In fact it is 'worth' (based on similar sold in the last few months) about £375k.

Don't worry too much about the equity in the market, bear in mind that much of this only exists because of the rapid increases in the last 5 years. Also the bulk of it is in the hands of older homeowners many of whom will wish to downsize in the next few years, to do this there will need to be new money coming into the market from FTB's etc.

Re: Your house, doesn't it surprise you that you can rent an asset worth nearly £400,000 for £1,100 PCM, a yield of 3.5%, an IO mortgage at 5.5% would cost £1,700 PCM. Your landlord would be better off selling the house and keeping the money in the bank and that's before repairs and voids!

Now perhaps you are renting BMV but if £1,100 is all that it could yield then yes, it is only really worth about £165,000! People may be willing to pay £375,000 at the moment but that is because they expect to be able to sell it for more, they are waiting for the greater fool!

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I remember reading this forum, this time last year, and people saying houses would have dropped 20% by now too. I'm tempted to take that bet :) as I dont see house prices falling until suply meets demand.

Nobody can accurately predict the precise path of house prices, as has been demonstrated by the current bubble the market can remain out of line for a very long time.

That notwithstanding, plenty of signs now point towards the beginning of the crash. I would bet you a fiver that all of the main indicies are yoy negative by the end of the year, 20% is a bit optomistic though.

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  • 301 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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