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BillyShears

Definition Of Sane Prices

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When would people say that prices would be sane again? If prices dropped in an area so that rental gross yields were 7.5% or higher, would that be a return to sanity? The house I am renting is £475 a month. If that were to be a 7.5% gross yield, then the house should be worth £76,000. I would imagine that if the owner were to try and sell it, they'd probably put it up for £120-130,000. That makes it significantly overpriced by the 7.5% figure.

What other measures would people use to estimate the true worth of a house, minus "irrational exuberance"? I see people pointing to "2002 prices" and often just giving a figure of what they think it's worth. Any other estimates of true worth?

Billy Shears

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I'm not convinced that buying a family home should be based on rental yieds. Where I live it is not easy to rent out property because it is not near a city/town centre or on a public transport route. It is a lot easier in the local town which is near a tram station. BUT I like it where I am and wouldn't want to live in the local town.

My measure is that I will buy when I can afford to buy something that meets our needs. I don't think I am being unrealistic. We both have good jobs earning slightly above the average. We also have some savings. When I can buy a basic three bed semi with a 10 per cent deposit and an affordable repayment mortgage then I will buy.

If I was pushed to put a price on a house I would say that houses in my area currently up for £180-200K are probably 'worth' about £120-140K but I don;t think I will wait 5 years to see if houses ever reach that again.*

They are coming down in my area. Although new houses on the market are still going up for 'sily prices' I have seen the average asking price for a 3 bed semi come down from about £190-200K to £170-180K - so it's a step in the right direction.

*Obviously if there was a sudden economic 'jolt' and house prices looked like going into freefall then I would wait a while longer.

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My definition of a sane housing market:

A sane housing market is where in any regional variation a family on the median wage requiring a 3-4 bed house can manage their affairs so that if they have 2 working members they can get a morgage that allows that they spend no more than 1/4 of their joint income on the morgage, and those families that trade down the house for the value of a non working partner can get a morgage where no more than a 1/3 is going out in the morgage.

Thats a drop of about 60-70% I would say.

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Guest Charlie The Tramp

Properties in my area took until 2001 to return to their 1989 selling price after the last correction. If we take a sensible annual HPI rise of 5% then in 2006 they would be 153k. At present they are asking 240k.

A couple with a 40k deposit and a mortgage of 200k would repay at 5.5% £1242.48 a month on a repayment and £916.66 a month on an IO. If the rate went to 12% then the IO monthly payment would be £2,000.

Interesting that an IO mortgage would cost a £100k extra over a repayment at the end of the 25 year period. The reason the lenders push IO mortgages. ;)

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I'm not convinced that buying a family home should be based on rental yieds. Where I live it is not easy to rent out property because it is not near a city/town centre or on a public transport route. It is a lot easier in the local town which is near a tram station. BUT I like it where I am and wouldn't want to live in the local town.

Just answering a single point among all the replies. One reason why I used BTL yields is that potential homeowners are in competition with BTL'ers. BTL could become deeply unfashionable if a whole lot of people publically lose their shirts, meaning that house prices could dip below prices that give a good BTL return. But I think that in the long term, people will continue to buy to let, and therefore push the prices up or not let them fall below this level in the long term. As mentioned in another thread, if there are additional costs involved in renting due to more restrictive laws, then this, assuming fixed rents, pushes down the price that a house has to be to achieve a certain yield.

I'm not saying that this is a good method of estimating value, but I'm not yet able to estimate them more accurately by any other method.

Where do people get the average income figures for local areas in the UK from? People keep mentioning them, but I haven't seen them despite searching on the web.

Billy Shears

Edited by BillyShears

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I tried applying Charlie the Tramp's method of assuming 5% inflation since 2001. I didn't calculate average house prices in 2001 very accurately, I just looked at some nearby streets.

A detached house was the only one that sold in my street in 2001. Assuming 5% interest per year then at the end of 2005 the price should have risen to:

80500 * 1.05 * 1.05 * 1.05 * 1.05 = 97848.25312500

Looking at a much longer road just near me with similar (not lower) house prices than here, a number of semi-detached houses sold in 2001 for prices between 60-80K. Taking the figure 72K out of the air, the predicted

72000 * 1.05 * 1.05 * 1.05 * 1.05 = 87516.45000000

These would be selling for 130K-150K these days.

Prices predicted this way seem a bit cheaper than prediction by 7.5% yields. My first figure for my own house is biased by a below average rent.

But in either case, if I could buy a house at even the higher of these figures, I probably would.

Over on Singing Pig, someone recommended making a 75% asking offer on a house as if I get refused, I've lost the time required to make the offer. That would still be above either of the 7.5% or 5% inflation since 2001 figures, but certainly if such a discount were possible, then I'd be sorely tempted. I wouldn't expect any such offer to be successful though, as I attended a property auction here, and clearly the buyers were motivated, and I can't see a property at auction not getting bid up way beyond 75% typical asking price. It seems that people were prepared to bid up to prices that would give gross yields well below 5%.

Billy Shears

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  • 339 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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