Jump to content
House Price Crash Forum
Sign in to follow this  
Realistbear

Housing Market Now On The Knife Edge

Recommended Posts

http://www.telegraph.co.uk/money/main.jhtm.../14/ixcoms.html

TELEGRAPH

Housing market on a knife-edge

Last week came more news indicating that the housing market had perked up again. Meanwhile, the overwhelming reaction to last week's Inflation Report from the Bank of England was that interest rates were set to rise.
If house prices have reached some new equilibrium, then they can continue to rise, but not at breakneck pace. We should expect them to rise roughly in line with average earnings, or perhaps slightly more - something like 4 per cent to 6 per cent a year.
But are they at a new equilibrium? On almost any measure, property looks exceedingly expensive. The top chart shows the ratio of
average house prices to average earnings
. It looks horrific. Of course, the optimists, who have been largely right so far, argue that the evidence in this chart has been rendered irrelevant by the factors I outlined above. That I do not accept.
It is true that low interest rates have meant that at any level of the price to earnings ratio housing is much more affordable than at higher interest rates. But affordability has also deteriorated substantially over the past few years as
interest rates have been fairly stable at their low level, but house prices, and hence the size of mortgages, have continued to rise sharply.
The particular wrinkle in the UK housing market has been the influence of
buy-to-let investors
. They are not sensitive to the house price to earnings ratio. What matters to them is investment returns. Rents may be low but while house prices are rising they don't care.
But if prices were steady, never mind falling, it would be a different matter. Landlords would then have to compare their meagre rental returns with the cost of finance.

Pretty much sums up what most Bears on HPC have been saying for quite awhile. Affordability IS an issue and low interest rates are not enough to compensate for bloated irrational house prices. BTL is dead in the water unless HPI is rampant--its a sucker's market now and the smart BTLers got out once capital appreciation slowed.

Share this post


Link to post
Share on other sites

As the late great Galbraith said:

The only function of economic forecasting is to make astrology look respectable.

Why can't people like Bootle learn?

Edited by BandWagon

Share this post


Link to post
Share on other sites

He makes a good point about BTLrs not being sensitive to P/E ratios and not dependant on their own incomes to buy property. Where I currently live I am seeing more and more TO LET boards ... I estimate the ratio of FOR SALE to TO LET boards is about 1:1 I have never seen this before. Thing is the TO LET boards just sit there month after month. The local rag is full of property TO LET, 10 years ago you might have had a page and a half of property to rent now it is more like 9 or 10. Virtually the only property moving now seems to be BTL .. unfortunatley for the BTLrs there does seem to be a glut of the stuff which would probably explain falling yields.

I get the feeling that this years much hyped pick up is down to City bonuses and Johny come lately BTLrs. A bit like the amatuers who rush into equities just after all the professionals have got out.

How long can these muppets hang onto these properties with extended void periods and rents not covering their oncomes.

Share this post


Link to post
Share on other sites

He makes a good point about BTLrs not being sensitive to P/E ratios and not dependant on their own incomes to buy property. [bearfacts]

They're dependent on someone else's income over which they have no control.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.