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Surging London House Prices Point To Possible Rate Rise

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http://news.ft.com/cms/s/b2145c60-c69d-11d...20abe49a01.html

Surging London house prices point to possible rate rise

London's house prices surged in the first months of the year, raising both the rate of house price inflation across England and Wales and the probability that the next interest rate move will be up, the latest Financial Times house price index shows.....

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I second that.

Funny how they all screamed at me late last year when I told them what I saw - where's the proof they asked - you have it now beary wearys.

:D

At least Tony B will be able to sell his house now for a profit and the EA will have to eat his words! :lol:

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Guest Winners and Losers

Evidence that London's housing market is pulling away from the rest of the country has strengthened over the past month.

So will it be different this time? One argument that is put forward is that London was way ahead of other parts of the UK before the last crash.

Keep going up London prices, keep going.

Edited by Winners and Losers

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Evidence that London's housing market is pulling away from the rest of the country has strengthened over the past month.

So will it be different this time? One argument that is put forward is that London was way ahead of other parts of the UK before the last crash.

Keep going up London prices, keep going.

Before we all get carried away we need to ask how many houses sold and at what prices. I am monitoring the San Diego market (California) where we might buy a long term retirment home and the high end coastal prices bumped up in the first Q. The average home there is around $800k so we are talking about very expensive real estate. The EAs admit that the market is declining and that due to falling sales the stats can easily be skewed with a few upper end homes selling.

The FT say that the annualized HPI is 30% which is clearly unreflective of real conditions. In any event, the following quote from the artcile best sums up the overall UK picture:

"
Some regions, however, are still experiencing extremely slow housing markets.
Over the past three months, house prices grew by only 1.0 per cent in the north of England and they fell by 1 per cent in the East Midlands
"

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Evidence that London's housing market is pulling away from the rest of the country has strengthened over the past month.

So will it be different this time? One argument that is put forward is that London was way ahead of other parts of the UK before the last crash.

Keep going up London prices, keep going.

It's not just that it was way ahead last time. It was that the preceding boom only really happened at all in London and the South-East - HPI up north and elsewhere was much more subdued and so there wasn't the same need for corresponding falls.

This time the difference is that everywhere has gone up by similarly ludicrous amounts, so it needn't be the case that London leads the falls. London could fall the same or less than other places rather than more.

My personal hunch is that prices overshot on the way down, so London was actually a bit underpriced in the mid-90s. Then the first part of the rises here were maybe a genuine correction. Admittedly it's now overshot the other side again (and could do the same on the way back down again...). But there's at least a possibility that London is less overpriced than elsewhere - I think the North/South gap is way below its long term average for instance, meaning the differentials are out of whack.

It's all guessing though...

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A quick look at the RICS February survey shows the differences between London and most of the rest of the country. Just cursor down the report and look at the different area charts. The East Midlands (as mentioned at the bottom of the FT.com article) looks weak to me. The only areas where HPI seems to be taking off again in a convincing way are London, South East and South West. It seems easy enough to work that one out. Employment in the City is now higher than it was during the dotcom boom. Salaries and bonuses have recovered. So London, South East and South West (holiday homes in Cornwall for bankers?) are doing ok.

Apart from that, there seem to be plenty of mixed messages in the economy. Retail hasn't picked up, except in Central London. The City and the service sectors are doing well, but manufacturing isn't and unemployment outside London is rising. If you look at just one factor, like London house prices or Central London retail sales (+10% YoY in Feb), you'd conclude rates will go up, but if you look at almost any other factor, you might think they should go down.

Asking price increases in my part of London are really quite alarming, although I have seen quite a few reductions from initial asking prices still coming through. Eg. a 3-bed house in Islington/Hackney comes on at £630k that would have been closer to £499k a year ago. But then a few weeks later it pops up on Prime Location again at under £600k, and sometimes again a few weeks later at a lower price. Sellers are testing what they see as a rising market but not all of them are getting lucky.

My feeling is that there might be just enough of a pick-up in the City and enough people with enough equity or access to debt to keep the market going up for a while, but not in double digits and there are limits (affordability constraints), even in London.

I don't see it feeding out into the rest of the country, or into retail, so I don't see rates going up. Though if they did, it probably would produce an HPC outside London, not that the national press would notice. There hasn't been much coverage of weak housing markets outside London so far.

Edited by geranium

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Before we all get carried away we need to ask how many houses sold and at what prices.

Which is relativley easy to do for each area at the moment as Rightmove are now showing sold data for 2006 (up to around mid February). So it's quite easy to compare both the numbers and prices of properties selling in your own locality. For example, my area of West Yorkshire appears to be signalling that sales are on par with last year both in price and volume! :(

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I don't see it feeding out into the rest of the country, or into retail, so I don't see rates going up. Though if they did, it probably would produce an HPC outside London, not that the national press would notice. There hasn't been much coverage of weak housing markets outside London so far.

Possibly because too many journalists rarely leave London. I agree that there's no reason why these increases (even if they're real) should spread to the rest of the country. But the journalists might take a long time to realise that as all they're thinking about is their own houses...

I also think people here get irritated by the London contingent talking about prices going up a bit - because last time the crash was led by London there's a strong presumption that where London leads, the rest must follow. But I don't see that as inevitable at all. London could easily edge up while the rest of the country falls from where we are now.

Edited by Magpie

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Guest Charlie The Tramp

Since the middle of 2005 property in my area was selling at £234k. Since the beginning of this year only 1 property went up at £40k more around 6 weeks ago. I have been waiting to see a sudden surge in For Sale boards springing up, but to date zero. No spring bounce in my area more a case of MEW. :rolleyes:

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Unfortunately prices have gone up in central london.

I almost bought a couple of weeks ago a property that was priced at 10 % above the Nov price.

I just couldn't get around the fact that I was getting screwed for approx 30 K and pulled.

To me 25 years is a long time to take such a huge risk.

Jobs are not secure at the moment and I just can't believe the number of people who will buy such overpriced properties and think that everythig will be ok, when most of our jobs will be outsourced to India and China in 5 years or so.

All I see in london are investors getting out and FTB buying their properties. The FTB is getting a raw deal and the investor is laughing all the way to the bank.

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Before we all get carried away we need to ask how many houses sold and at what prices.

Well, the recent BoE mortgage approval figures are saying that houses are selling in surprisingly large numbers, remember the huge increases YoY, both SA and NSA, and, worryingly, these figures are actually consistent with an staggering 20% HPI if you take them at face value, although it’s obviously wise to scale that down a bit. This view is consistent with the 5—6% HPI reported recently by Nationwide and Halifax, and again with the latest London figures from the very reliable FT Index showing HPI igniting again - and where London goes the rest of the UK follows. Also remember that these indices are mix-adjusted, so trying to “explain” it all away by activity at the multi-million pound stratospheric levels won’t wash - clearly there has been a lot of detrermined “thronging” going on in estate agents’ offices across the country. And there is clearly more in the pipeline as the indicators are currently pointing to an accelerating upward trend.

The lenders seem to be relaxing their lending multiples to allow this to continue, for example the Nationwide affordability calculator now openly accepts lending that needs up to 50% of take-home pay to service it!

Edited by spline

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This growth can't be sustained.

There has been a frenzy of buying, the strange thing is I work in the City and the bonuses weren't that great for IT and Support staff. Only the business got the large bonuses. But the only people I see buying are those with the crap bonuses. They are of the opinion that nothing can be done, and that they want "their" place.

It's kind of a depression they have.

Personally I've got my CV out there and I'm looking for a 10K rise. :rolleyes:

Probably won't get it though so I'll just buy :lol:

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Well, the recent BoE mortgage approval figures are saying that houses are selling in surprisingly large numbers, remember the huge increases YoY, both SA and NSA, and, worryingly, these figures are actually consistent with an staggering 20% HPI if you take them at face value, although it’s obviously wise to scale that down a bit. This view is consistent with the 5—6% HPI reported recently by Nationwide and Halifax, and again with the latest London figures from the very reliable FT Index showing HPI igniting again - and where London goes the rest of the UK follows. Also remember that these indices are mix-adjusted, so trying to “explain” it all away by activity at the multi-million pound stratospheric levels won’t wash - clearly there has been a lot of detrermined “thronging” going on in estate agents’ offices across the country. And there is clearly more in the pipeline as the indicators are currently pointing to an accelerating upward trend.

The lenders seem to be relaxing their lending multiples to allow this to continue, for example the Nationwide affordability calculator now openly accepts lending that needs up to 50% of take-home pay to service it!

You also have to factor in the sense of wealth people have if they are invested in Equities. My STM funds returned some frighteningly large amounts this past Q and I have taken some profits as I cannot see such returns continuing much beyond Spring due to IR hikes coming harder and faster in the US and Japan starting to move upwards also. Thus, the London frenzy may be a spin off from the FTSE and the general "feel good" factor that high stock prices bring. If the market turns south due to IR hikes in the US it might be time to consider unloading equities. Makes you wonder who is actually buying into the top of the market in London as most of the people I know down there say they would not touch property at these levels.

Edited by Realistbear

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...and where London goes the rest of the UK follows...

But why is that? Is it just induction from a few recent examples (ie it happened before so must happen again)? Or because everyone believes what they read in the papers and the papers have a London-centric poit of view. I just don't see why it is inevitably true that the country has to follow London.

The country didn't really follow London up in 1987-1989, and didn't fall at the same rate afterwards. Yes, prices went up first in London this time round, but after a bit of stagnation here, there could easily be the conditions for some steady rises here while the rest of the country has perhaps gone up as far as it can.

You also have to factor in the sense of wealth people have if they are invested in Equities. My STM funds returned some frighteningly large amounts this past Q and I have taken some profits as I cannot see such returns continuing much beyond Spring due to IR hikes coming harder and faster in the US and Japan starting to move upwards also. Thus, the London frenzy may be a spin off from the FTSE and the general "feel good" factor that high stock prices bring. If the market turns south due to IR hikes in the US it might be time to consider unloading equities. Makes you wonder who is actually buying into the top of the market in London as most of the people I know down there say they would not touch property at these levels.

That's a good point - London maybe also has a relatively high proportion of people with money invested in the STM (city types for instance). While people here tend to see investing elsewhere as an alternative to property, the population in general may just see that they have a bit more money and feel OK about putting it into property?

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But why is that? Is it just induction from a few recent examples (ie it happened before so must happen again)? Or because everyone believes what they read in the papers and the papers have a London-centric poit of view. I just don't see why it is inevitably true that the country has to follow London.

The country didn't really follow London up in 1987-1989, and didn't fall at the same rate afterwards. Yes, prices went up first in London this time round, but after a bit of stagnation here, there could easily be the conditions for some steady rises here while the rest of the country has perhaps gone up as far as it can.

That's a good point - London maybe also has a relatively high proportion of people with money invested in the STM (city types for instance). While people here tend to see investing elsewhere as an alternative to property, the population in general may just see that they have a bit more money and feel OK about putting it into property?

Never underestimate the "feel good factor" when it comes to irrational buying. That is why "confidence" is all important and the way to raise confidence is to spin the bad news into good and exaggerate prices of whatever it is you are selling. VIs are well seasoned experts at this. A recent article from the WSJ in the US said the professional investors left the property market in late 2004 leaving the amateurs to take the risks of when the market turns and its too late to get out. Whoever is buying in London now are either immune to downturns in the market (the super rich) or they are amateurs who do not know that you should sell high not buy high.

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It’s all very weird and slightly surreal – people just seem to be getting on with buying and ignoring the very obvious risks. I don’t think it’s sustainable, just look at the percentage of take-home pay that will be needed to support the next round of prices, but it’s certainly what appears to going on now.

But why is that? Is it just induction from a few recent examples (ie it happened before so must happen again)? Or because everyone believes what they read in the papers and the papers have a London-centric poit of view. I just don't see why it is inevitably true that the country has to follow London.

Why not grab the HPI data from Nationwide and do a quick correlation between London and a few of the regions for (say) the last few cycles. It’s not rocket science, you know! :)

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With the market on tenterhooks over IR worldwide it may not take much to reverse the "feel good" factor. Can you imagine the appeal of London property when they discover Bird Flu in some pidgeon voids? Quite a few of the people who have died from bird flu were apparently shat on from high.

http://news.bbc.co.uk/1/hi/health/4308872.stm

Edited by Realistbear

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Well, the recent BoE mortgage approval figures are saying that houses are selling in surprisingly large numbers, remember the huge increases YoY, both SA and NSA, and, worryingly, these figures are actually consistent with an staggering 20% HPI if you take them at face value, although it’s obviously wise to scale that down a bit. This view is consistent with the 5—6% HPI reported recently by Nationwide and Halifax, and again with the latest London figures from the very reliable FT Index showing HPI igniting again - and where London goes the rest of the UK follows. Also remember that these indices are mix-adjusted, so trying to “explain” it all away by activity at the multi-million pound stratospheric levels won’t wash - clearly there has been a lot of detrermined “thronging” going on in estate agents’ offices across the country. And there is clearly more in the pipeline as the indicators are currently pointing to an accelerating upward trend.

The lenders seem to be relaxing their lending multiples to allow this to continue, for example the Nationwide affordability calculator now openly accepts lending that needs up to 50% of take-home pay to service it!

=VERY HARD LANDING imo

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With the market on tenterhooks over IR worldwide it may not take much to reverse the "feel good" factor. Can you imagine the appeal of London property when they discover Bird Flu in some pidgeon voids? Quite a few of the people who have died from bird flu were apparently shat on from high.

Easy to imagine what might happen if bird flu was discovered in London's Big Mac super-sized pigeon population – would you risk breathing in all that “dust”? :o

Edited by spline

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Hard landing is the likely scenario. SKY:

http://www.sky.com/skynews/article/0,,3040...6,00.html?f=rss

Business

Sharp Rise In House Prices

Updated: 12:26, Saturday April 08, 2006

A fresh surge in house price inflation bodes ill for borrowing costs, according to the Financial Times.
The paper claims house prices in London leapt by 7.2% between November and February alone.
This equates to an annualised rate of over 30% and is the biggest quarterly increase in the capital's house prices for almost six years.
The price surge also helped lift annual house price inflation across England and Wales from 3.4% in February to 4.0% in March.
The FT quoted Goldman Sachs analyst Ben Broadbent as saying the general pick-up in house prices was "another indicator of consumer confidence".
It was also "a reason for the Bank of England to leave its optimistic forecast in place".
Predicting higher interest rates by the end of the year, Mr Broadbent said surging London house prices were a sign that demand was picking up across the economy.
Futures markets are no longer betting on a cut in interest rates, currently at 4.5%, later in the year
.

The good news for the rest of the country is that London hype is keeping IR from dropping! The VIs may well spin themselves out of business at this rate. All that irrational borrowing will become more painful as IR rise.

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It’s all very weird and slightly surreal – people just seem to be getting on with buying and ignoring the very obvious risks. I don’t think it’s sustainable, just look at the percentage of take-home pay that will be needed to support the next round of prices, but it’s certainly what appears to going on now.

Why not grab the HPI data from Nationwide and do a quick correlation between London and a few of the regions for (say) the last few cycles. It’s not rocket science, you know! :)

It's not rocket science and I have plotted these charts in the past (sorry don't have them to hand, they're at work and a bit out of date) but it is quite difficult to read very much into them. In the past (eg late 80's, early 90's), the London market seemed more volatile on the upside & downside. More recently, London has been bumping along around 0% for the last few years

2002 - up

2003 - down

2004 - up

2005 - down

2006 - probably up

while the rest of the country was soaring away on the upside. So now it looks as if the housing market outside London is more volatile than the one within. Looking for a leading-following pattern is almost impossible.

I agree with Magpie, the rest of the country doesn't have to follow London. The City economy seems quite separate from the rest of the UK. Yes I know it's partly linked but not completely as FTSE100 companies generate a lot their profit overseas and the City's business is international.

I really think much of the UK is struggling economically at the moment and that includes the housing market. London is doing its own sweet thing for a while, recovering against a pretty dismal few years. The disparity between the two could last quite a while longer.

Edited by geranium

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The price dynamics would certainly suggest a lagged correlation:

+ a price gradient drives displaced purchasing (favour lower costs) = diffusion/stable

+ a HPI gradient drives reverse displaced purchasing (favour higher HPI) = negative diffusion/unstable.

+ prices are pushed in remote regions in anticipation (information flow, newspaper headlines).

But a correlation is just that – a statistical likelyhood rather than certainty.

Edited by spline

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  • 302 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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