The 'blip'

[frugalista]

I don't think most FTBs are panicked into buying, I think for most of them it comes with the 'time is right' associated with settling down with girlfriend, and if I'm honest I think most of the pressure comes from the lady to do this.

If house prices were rising smoothly with wages, I'd agree with you. FTBs would wait until it is a natural time of their life to buy, and then they would go for it, perhaps prompted by marriage, kids, settling down or whatever. No rush.

But that is not the way it's been over the last few years. Double digit rises, "don't miss the boat", property TV shows, "rent is dead money", "must get on the ladder" -- all these things slogans been getting louder and louder. Given these factors, surely many FTBs brought forward the date of first time purchase, possibly by years.

This is an artificial and unsustainable example of speculative demand. It could be that the FTBs who bought earlier would, under "normal" conditions only be thinking about buying now, in 2006. It could be a reason for the FTB shortage.

As for people at retirement hanging onto their house - well I intend to do the same as its my home. I won't want to downsize until I'm b@ggered and have to move to a bungalow. So I don't really see this one as speculation.

If you have a decent pension, then why not hang on to your large house, it's your home as you say. But many 50- and 60-somethings do not have decent pension provisions, and yet are still hanging on. Why is this? Surely it is because they have seen the price tag going up and they think they are on to a winner. i.e. speculation.

The three examples are just what came into my head at the time. Another big one is this: What about those people who, when moving, felt they had to bid an extra few tens of thousands to get the house they wanted, because they thought that prices were rising so fast that they did not want to go back into the marketplace for a few months. Again, this is an example of speculative demand. They are not overbidding because of the percieved value of occupying the house, but because of the belief that prices are rising.

frugalista

[Smurf1976]

I don't think most FTBs are panicked into buying, I think for most of them it comes with the 'time is right' associated with settling down with girlfriend, and if I'm honest I think most of the pressure comes from the lady to do this.

Not sure about the UK but there most certainly was a buying panic in Australia. Around August / September 2003 seemed to mark the peak for Sydney (and thus media attention and reporting).

According to various posts on this site the UK does have that absolute classic bubble symptom - media attention. Apparently it's gone so far that some property programs on TV are actually rating quite well with some even shown in prime time! That's happened in Australia too with such programs making it right to number 1 rating during the buying panic. That's a pretty good sign of a bubble... Investment isn't sexy, it doesn't sell and the masses aren't interested in it. Except during the advanced stages of a bubble.

It would be unusual for such a bubble to have occurred without a buying panic at some stage. Possible but unusual. Are you sure that there hasn't been a buying panic? It's difficult to understand how the TV shows would rate well under a mass psychology that didn't also produce a buying panic.

[SCUMBAG]

Yes, but a small role, when BTL only accounts for 8% of lending, then it will have an effect but only a small one compared to the other 92%. Whether you call BTL 'speculative' though is open to debate. People after all are trying to invest probably for the longer term, by getting somebody else to buy a house for them, which they anticipate will be worth something in 25 years time.

No doubt there may be some BTL investing for the short term, but they are fools as it doesn't stack up unless you've got rampant house price inflation, which we haven't had for the last 2 years.

As for sentiment, well sentiment is still positive and it won't change until IRs go up to 5.5% and starts giving people real financial pain. Sentiment has been bolstered by all the property programmes - i.e. you're sexy and cool if you are moving house, or doing one up, or just even redecorating.

Immigration will also have played a part, as people have to live somewhere, whether they are poor or not - I couldn't guess a % to immigration though, but I think it is probably small.

By far the biggest factor in all this, which I think counts for 90% of the price rises, and thats low IRs. When they start rising, and rising properly then wake me up cos until then I might as well go to sleep until they do. Well apart from the need to spread realism on here, so as to stop all the false building of hopes on every piece of news that is issued.

Oh now I see what you're doing. You actually have a fairly good handle on this. Reckon house prices will come down at some point in my lifetime though. The reason I don't buy now is because, whereas it might not be evident now, interest rates are bound to rise at some point over the next 25 years. Whenever that happens it will be a financial bloodbath. So it doesn't really matter if I can afford it now or not. Truth is I probably could if all I was looking at was monthly payments. But I know for sure that at some point in the future something will change and it will spell financial disaster for me. Everything is in place for a crash, all that is missing is a trigger. It is only a matter of time before that comes along.

I have believed this for 5 years now, which is when I first started looking at buying. In 2001 I saw an interview with Maggie Thatcher's right hand man (can't recall his name) on TV. He said that if the current situation continued (Re: house prices and personal debt) for another year then the long term outlook for the economy was very bleak. I think everything he said in that interview is panning out like he said.

[Europa]

theres an interesting thread a few days ago about the speculation over classic cars and how some ferrairs reached £400K.

In the end there was no end user. Only speculators.

Today quite possibly there are no end users to many new build apartments. BTL landlords cannot find tennants to cover the mortagage. We are in this situation now, and there will be professionals landlords who have sold, and only amatuear speculators (with less buying ability) coming in causing the second upswing.

Yep - and the platitudes were much the same "they don't make land/classic cars(delete as appropriate) any more", "only go up," etc.

[pagaman]

The basic problem is that the market is now ready to crash.

Ie There can be no more HPI, since we just can't borrow enough money to push HPs up.

So the market has peaked, and cannot go further up, without major wage inflation.

This has removed the upward "force".

IR have not yet risen. If they do there's going to be a downward "force".

But for the time being there isn't a real reason for the market to move downwards.

So the market drifts along for a while where it is.

There are no upwards forces, and there isn't going to be for a while.

Eventually a downwards force comes into play and the market crashes.

There are 3 main downwards forces I think that can come into play:

1) IR raises.

2) Employment

3) Sentiment.

IRs

----

IR rates may not actually go up.

You see if they do the market crashes, then the economy goes. This is simple to understand.

If they don't go up, whilst the rest of the worlds IRs go up, sterling tanks, and the UK economy is fluffed seven ways to sunday, the market crashes. This is more complicated to understand & it takes longer.

So the choice for the MPC:

1) Definitely cause a crash in a really obvious way by raising IRs

2) Maybe cause a crash by allowing damaging the economy, hoping some other factor helps the economy

So I doubt IRs are going up anytime soon.

Employment

---------------

Unemployment has been increasing, however I think its really got to go shooting up to make a huge difference. I think there are probably pockets of unemployment shooting up, which haven't translated into a national picture of rising unemployment.

Sentiment

------------

Currently even I've talked to doesn't think theres going to be a HPC.

We all know the reasons people give (IRs, low unemployment, etc...)

In order to change sentiment I think its worth making the following points:

1) The market has at best flat lined. It cannot increase anymore.

2) Given 1 whats the point in an IO morgage?

You aren't going to gain anything you can only lose.

3) Given 1 whats the point in owning a BTL, having the tenants pay the morgage?

4) If you are a BTL investor who has bought a "nest egg", please do bear in mind that many people have been buying "nest eggs" instead of pensions. When you retire you will need to sell this "nest egg", along with everyone else. So in 25-30yrs time the market will get swamped. Not only that but the demographic time bomb will have exploded, the baby boomers will have died off. That means suplus of housing = you lose money.

3) We should provide a "rent calculator". I did a very simple spread sheet.

A drop of only a few % Easily pays for my rent

[BillyShears]

Yes, but a small role, when BTL only accounts for 8% of lending, then it will have an effect but only a small one compared to the other 92%. Whether you call BTL 'speculative' though is open to debate. People after all are trying to invest probably for the longer term, by getting somebody else to buy a house for them, which they anticipate will be worth something in 25 years time.

What happens to the % of BTLing if we (i) look only at typical FTB properties, and (ii) measure it as a % of houses sold, not % of lending? Is it common for BTL landlords to MEW their BTL homes? Could that distort the figures. Does ImUpNorth's avatar make others feel uncomfortable because the young lady appears "incomplete"?

Billy Shears

[Guest Winners and Losers]

What happens to the % of BTLing if we (i) look only at typical FTB properties, and (ii) measure it as a % of houses sold, not % of lending? Is it common for BTL landlords to MEW their BTL homes? Could that distort the figures. Does ImUpNorth's avatar make others feel uncomfortable because the young lady appears "incomplete"?

Billy Shears

Of course it is. They MEW to buy more BTL.

[Guest Riser]

The basic problem is that the market is now ready to crash.

Ie There can be no more HPI, since we just can't borrow enough money to push HPs up.

So the market has peaked, and cannot go further up, without major wage inflation.

This has removed the upward "force".

IR have not yet risen. If they do there's going to be a downward "force".

But for the time being there isn't a real reason for the market to move downwards.

So the market drifts along for a while where it is.

There are no upwards forces, and there isn't going to be for a while.

Eventually a downwards force comes into play and the market crashes.

There are 3 main downwards forces I think that can come into play:

1) IR raises.

2) Employment

3) Sentiment.

IRs

----

IR rates may not actually go up.

You see if they do the market crashes, then the economy goes. This is simple to understand.

If they don't go up, whilst the rest of the worlds IRs go up, sterling tanks, and the UK economy is fluffed seven ways to sunday, the market crashes. This is more complicated to understand & it takes longer.

So the choice for the MPC:

1) Definitely cause a crash in a really obvious way by raising IRs

2) Maybe cause a crash by allowing damaging the economy, hoping some other factor helps the economy

So I doubt IRs are going up anytime soon.

Employment

---------------

Unemployment has been increasing, however I think its really got to go shooting up to make a huge difference. I think there are probably pockets of unemployment shooting up, which haven't translated into a national picture of rising unemployment.

Sentiment

------------

Currently even I've talked to doesn't think theres going to be a HPC.

We all know the reasons people give (IRs, low unemployment, etc...)

In order to change sentiment I think its worth making the following points:

1) The market has at best flat lined. It cannot increase anymore.

2) Given 1 whats the point in an IO morgage?

You aren't going to gain anything you can only lose.

3) Given 1 whats the point in owning a BTL, having the tenants pay the morgage?

4) If you are a BTL investor who has bought a "nest egg", please do bear in mind that many people have been buying "nest eggs" instead of pensions. When you retire you will need to sell this "nest egg", along with everyone else. So in 25-30yrs time the market will get swamped. Not only that but the demographic time bomb will have exploded, the baby boomers will have died off. That means suplus of housing = you lose money.

3) We should provide a "rent calculator". I did a very simple spread sheet.

A drop of only a few % Easily pays for my rent

Good post, I would go along with all of what you say. However I believe you may have missed a factor out:

4) One off Economic shock

There are any number of events which may cause a shock to the whole system, events such as collapse of the derivative markets, war, or terrorist attack all have the potential to drastically change the current status quo. There appears to be a great deal of tension and imbalance in the world markets caused by years of cheap money, that tension will either be released slowley or spring back much faster than many expect with such inertia that it has the potential to undermine the whole world economy.