So Whats A Resonable Price?

[james791]

what do you guys consider a "reasonable" price for property these days? Im not really bothered about big mansions, but what would be a good price for a terrace or a semi in the North West? i just cant see prices falling to mid 90's prices so what would be a good price to pay today?

[BillyShears]

what do you guys consider a "reasonable" price for property these days? Im not really bothered about big mansions, but what would be a good price for a terrace or a semi in the North West? i just cant see prices falling to mid 90's prices so what would be a good price to pay today?

I would look out for BTL becoming a reasonable proposition again. A gross yield of 7.5% is a good return in a static market. You shouldn't have to worry about BTL'ers diving in before you, as in a falling market they need a bigger yield to offset capital depreciation, in the same way that capital appreciation offsets low yields now.

In Leicester a 3 bed semi in a moderately cheap area might be £550pcm. Therefore that would be a reasonable price of £88K, versus the £130K they are now.

This is only one very simple method of estimating a reasonable price however. In a falling market where it is impossible to predict the bottom, it might be worthwhile to buy at more than a "reasonable" price to lock in savings, the same way that selling before the peak of a rising market might be a good idea to lock in gains..

Billy Shears

[OzzMosiz]

what do you guys consider a "reasonable" price for property these days? Im not really bothered about big mansions, but what would be a good price for a terrace or a semi in the North West? i just cant see prices falling to mid 90's prices so what would be a good price to pay today?

I can't see them falling to mid 90's prices either. But 2000-2001 would be about right.

Check nethouseprices.com and do a check.

[DICKDASTARDLY]

I am in the north west also, I know they were undervalued in the mid 90s, I think halfwya between then and know is reasonable

[BillyShears]

I am in the north west also, I know they were undervalued in the mid 90s, I think halfwya between then and know is reasonable

Nobody has even mentioned salary multiples.

I think basing reasonable prices on a number of years ago without basing it on anything is a bit unrealistic. Fundamentals will force a correction, and fundamentals will be involved in how low it goes.

Billy Shears

[Brian Potter]

I am in the north west also, I know they were undervalued in the mid 90s, I think halfwya between then and know is reasonable

I would agree. When the Wife and me discussed what our house was really worth in a 'normal market, we thought about halfway between current valuations and the price we bought at in early 2002.

ie. we bought for £140k

valuation now approx £220K

realistic market approx £180K

sounds right to me.

[aussieboy]

Nobody has even mentioned salary multiples.

I think basing reasonable prices on a number of years ago without basing it on anything is a bit unrealistic. Fundamentals will force a correction, and fundamentals will be involved in how low it goes.

Billy Shears

Here we go with the fundamentals thing again. The supply of money fundamentally changed several years and an economic cycle ago and that did indeed force a correction in the price of houses... upwards.

[james791]

cheers for that. I have always gone of 3.5 X income, which for me and my GF would put us around the £100k mark. But that barely gets us a terrace in a crap area of town, all the decent semi's are around the £150k mark. Still cheaper then the "average" price quoted by many VI's, but still too much for me.

[Father Fred]

I've just done a few calculations based on a tiny but well located 2 bed terrace in my area.

Current Value £230,000

Value based on a working couple of FTBs buying with £10k deposit and 2.5 multiple (income based on the sort of jobs that the sorts of people that might want to live round here might do, VERY subjective): £122,500

Value based on 7.5% yield (a fair yield IMHO): £130,000

Seeing as I am a complete pessimist in many ways rtounding this up to £150k does not seem unreasonable.

So a third to 44% price drops seems reasonable.

I can't help thinking BTLers will support the market at higher levels than that though. We shall see.

[aussieboy]

I've just done a few calculations based on a tiny but well located 2 bed terrace in my area.

Current Value £230,000

Value based on a working couple of FTBs buying with £10k deposit and 2.5 multiple (income based on the sort of jobs that the sorts of people that might want to live round here might do, VERY subjective): £122,500

Value based on 7.5% yield (a fair yield IMHO): £130,000

Seeing as I am a complete pessimist in many ways rtounding this up to £150k does not seem unreasonable.

So a third to 44% price drops seems reasonable.

I can't help thinking BTLers will support the market at higher levels than that though. We shall see.

Not an FTB property, then.

[cupidstunt]

I know it's a "generalisation" but I'm looking at somewhere between 20 - 40% depending on area etc. I'll buy back when there's a 30%drop which (here in the SE) Equates to 2001 prices.

[BillyShears]

Here we go with the fundamentals thing again. The supply of money fundamentally changed several years and an economic cycle ago and that did indeed force a correction in the price of houses... upwards.

So it doesn't matter if people can't afford to buy houses. It doesn't matter if houses become a lousy, losing, investment. There will still be lots of money on offer and therefore house prices will stay high forever.

It's a new paradigm!

Billy Shears

[aussieboy]

So it doesn't matter if people can't afford to buy houses. It doesn't matter if houses become a lousy, losing, investment. There will still be lots of money on offer and therefore house prices will stay high forever.

It's a new paradigm!

Billy Shears

Some people have always been unable to afford houses. Money supply was been freed up, so then more people became able to buy houses. Houses became more expensive and then people became less able to buy houses.

How about engaging with the discussion rather than throwing irrelevant stereotyping comments around based on circular, hypothetical logic?

[Father Fred]

Not an FTB property, then.

????

I think you can break down FTBs into singles and couples. Singles in a relatively cheap bit of London should be able to buy at the £70k to £110k level - a respectable one bed flat. Couples should eb able to afford a small 2 bed house. I think £120k to £150k is a perfectly reasonable first time buying couple price in London.

[BillyShears]

Some people have always been unable to afford houses. Money supply was been freed up, so then more people became able to buy houses. Houses became more expensive and then people became less able to buy houses.

How about engaging with the discussion rather than throwing irrelevant stereotyping comments around based on circular, hypothetical logic?

How about coming up with something worth engaging with? No seriously, cheap credit means high house prices forever? Well, in case you haven't noticed, credit is becoming far more expensive. You haven't even discussed house prices growing to the point where BTL no longer makes financial sense without capital gains. You haven't discussed the difference between real and nominal interest rates. And you characterise what I write as "irrelevant stereotyping comments"?

Billy Shears

Edited May 25, 2006 by BillyShears

[North London Rent Girl]

????

I think you can break down FTBs into singles and couples. Singles in a relatively cheap bit of London should be able to buy at the £70k to £110k level - a respectable one bed flat. Couples should eb able to afford a small 2 bed house. I think £120k to £150k is a perfectly reasonable first time buying couple price in London.

I very much hope you're right. It's strange to think of housing being affordable again.

Someone mentioned 2000-2001 prices as being likely. I'm thinking back to when a friend of mine bought a 1-bed in Kilburn in 2000 for 135k (no garden, mainline railway to the north at the end of (someone else's) garden) and that seemed like a ridiculously high figure. Now it doesn't seem as mad but that perhaps is just a sign of how detached from reality prices have become. Besides which, I'm sure his would now go for well over 200,000 squid. I would love to think that prices might go back to 1998-1999 levels, when there had already been considerable growth since the doldrums of the early/mid 90s. That's probably wishful thinking - I'd like to buy a cosy garden flat for a tenner, after all - but it's not as optimistic as suggesting they'll go right back down to where they were. When I moved back to the country in 1998 a 1-bed in overrated W. Hampstead started at about 120 grand. Does that sound insanely cheap to anybody? Not to me.

[BillyShears]

I very much hope you're right. It's strange to think of housing being affordable again.

Someone mentioned 2000-2001 prices as being likely. I'm thinking back to when a friend of mine bought a 1-bed in Kilburn in 2000 for 135k (no garden, mainline railway to the north at the end of (someone else's) garden) and that seemed like a ridiculously high figure. Now it doesn't seem as mad but that perhaps is just a sign of how detached from reality prices have become. Besides which, I'm sure his would now go for well over 200,000 squid. I would love to think that prices might go back to 1998-1999 levels, when there had already been considerable growth since the doldrums of the early/mid 90s. That's probably wishful thinking - I'd like to buy a cosy garden flat for a tenner, after all - but it's not as optimistic as suggesting they'll go right back down to where they were. When I moved back to the country in 1998 a 1-bed in overrated W. Hampstead started at about 120 grand. Does that sound insanely cheap to anybody? Not to me.

Do you mean 1998-1999 levels in real terms, or nominal terms?

Billy Shears

[North London Rent Girl]

Do you mean 1998-1999 levels in real terms, or nominal terms?

Billy Shears

Blimey - now you're asking. When it comes to that kind of thing I am a bear of very little brain. What sort of inflation are we talking since 1998? But actually, I think I mean in nominal terms. 120 grand for an unremarkable one bed flat in West Hampstead seems to me to be a reasonable price (we're talking a fashionable bit of north london that is a real yuppie-magnet, is what I mean by 'reasonable' here). Thinking back, one beds in Kilburn were around the 90 grand mark, 70-75 in Willesden Green, 60-65 in Cricklewood. Those do now seem cheap (with my apologies to people outside London - yes these prices are still mental) but my view there might have been skewed by the longest property market bull run ever!

[Rachman]

Blimey - now you're asking. When it comes to that kind of thing I am a bear of very little brain. What sort of inflation are we talking since 1998? But actually, I think I mean in nominal terms. 120 grand for an unremarkable one bed flat in West Hampstead seems to me to be a reasonable price (we're talking a fashionable bit of north london that is a real yuppie-magnet, is what I mean by 'reasonable' here). Thinking back, one beds in Kilburn were around the 90 grand mark, 70-75 in Willesden Green, 60-65 in Cricklewood. Those do now seem cheap (with my apologies to people outside London - yes these prices are still mental) but my view there might have been skewed by the longest property market bull run ever!

When I moved to W Hampstead in 1999 a one bed flat in an OK part of it in good condition was about £150K-£160K, 2 bed flats that were not derelict or were not shoddy conversions were around £220K to £280K dependent on location. Friend of mine paid £145K in Hackney (just off Powerscroft Road) in 2001 for a good maisonette (with bulletproof windows). Slightly Rose tinted specs I fear to think prices will drop back to levels below then or that affordability will improve so much....

By 2002 they were about £300K for the nice 2 beds (stopped looking at 1 beds by then).

Even heading towards Kilburn they were £200K plus for a decent 2 bed flat on the main roads, dropping to about £170K for something really roughly converted in poor condition. You also have to factor in whether you would buy half those conversions, most were appallingly done that I viewed at least.

[frugalista]

Couples should be able to afford a small 2 bed house. I think £120k to £150k is a perfectly reasonable first time buying couple price in London.

I'd say FTB couples should (in an equilibrium market) be able to buy:

A 2-bed ex-LA flat in zone 1

A 2-bed non-ex-LA flat in zones 2-3

A small 2 bed house in zones 4-6.

(LT travelcard zones).

frugalista

[Rachman]

I'd say FTB couples should (in an equilibrium market) be able to buy:

A 2-bed ex-LA flat in zone 1

A 2-bed non-ex-LA flat in zones 2-3

A small 2 bed house in zones 4-6.

(LT travelcard zones).

frugalista

Ok, so what's an FTB supposed to earn - average London wages or one on that and one on average UK wages ?

That would be £31.5K for the adult male in full time work (according to government's own figures) outside London and about £35K in it. It would put the full time woman on about £24K.

If you combine them and use say £28K as earnings for him and £20K for her (there has to be some proper wages coming in to afford to buy) that's a combined salary of £48K....... - add a three times multiple and that's £144K, make it 3.5 and it's £168K. That's not far out of today's prices at 3.5....... - though of course I will be told that normal London wages of people who bought property is 2'6" an hour any second now when anyone who works in it and is in the employment position of any FTB in London ever was knows it's not far away .....

NOW, if you turn that to the rest of the UK, then things change....... that's where the affordability is worse....

[North London Rent Girl]

When I moved to W Hampstead in 1999 a one bed flat in an OK part of it in good condition was about £150K-£160K, 2 bed flats that were not derelict or were not shoddy conversions were around £220K to £280K dependent on location. Friend of mine paid £145K in Hackney (just off Powerscroft Road) in 2001 for a good maisonette (with bulletproof windows). Slightly Rose tinted specs I fear to think prices will drop back to levels below then or that affordability will improve so much....

By 2002 they were about £300K for the nice 2 beds (stopped looking at 1 beds by then).

Even heading towards Kilburn they were £200K plus for a decent 2 bed flat on the main roads, dropping to about £170K for something really roughly converted in poor condition. You also have to factor in whether you would buy half those conversions, most were appallingly done that I viewed at least.

No rose-tinted specs. A friend of mine bought in Willesden Green in early 1998 for just over 60k - that was when the real g-forces took over on the prices - they started rocketing up. I remember going into the estate agents on the corner back from the Finchley Road Waitrose when I arrived back in August 1998 and the cheapest 1-bed they had in West Hampstead was 120 grand. During the 6 months thereafter I looked in various adjacent areas at flats from 65 grand (scummy place in Cricklewood) to reasonable place in Kilburn for just over 90. I stopped looking a few months into 1999. Depending upon when you bought in 1999 it's possible that prices had simply sky-rocketed by then, because they really were. It's also possible that you're a bit posh and what you think of as reasonable I'd think of as a bit plush. It's also possible that you and your friends have stupid faces! But then you bought back then and I didn't, so I suppose that makes you something of a serendipitous smarty-pants.

[Rachman]

But then you bought back then and I didn't, so I suppose that makes you something of a serendipitous smarty-pants.

No I did not, I could not afford it - so back. [still paying back my university debts and my tightfisted employer would not pay me more money then (so I left to one that would....) ]

Sorry, I should make clear by towards Kilburn I meant still in W Hampstead - I did not venture up Shootup Hill or God forbid, anywhere near Kilburn High Road (half my relatives lived there when they came across for work.....)

I don't disagree things were a lot cheaper in those other areas, but W Hampstead itself, as opposed to the Maida Vale Borders or Brondesbury Park or whatever the K word is called today, was a LOT DEARER. I see you say in 1998 a 1 bed flat in W Hampstead started at £120K - that's not far out given it was the CHEAPEST one. When I last looked at buying, the best 'value' 2 bed for sale was in the middle of the streets next to the Highrises on Shootup Hill and was huge but literally abandoned and squatted in - it was still asking £285K in 2002 - it sold for near enough that to someone with bigger pockets and cojones than I.

I picked a block I knew to be OK, Alexandra Mansions and housepriced it.

http://www.houseprices.co.uk/e.php?q=alexa...s+nw6&s=11&n=10

If you look at the bottom set (second page) you see no 17 was sold to a developer (I guess) for £175K and resold 6 months later in 2001 for £230K..... it was then sold again in 2003 for guess what, £230K and again at the end of 2005 for £250K (page 1). So when was the price rise on that one and how many people got burned on it in a supposed rocketing market ? That's right, it shot up from late 1990s to 2002, then it's been stagnant.....

Edited May 25, 2006 by Rachman

[BillyShears]

Blimey - now you're asking. When it comes to that kind of thing I am a bear of very little brain. What sort of inflation are we talking since 1998? But actually, I think I mean in nominal terms. 120 grand for an unremarkable one bed flat in West Hampstead seems to me to be a reasonable price (we're talking a fashionable bit of north london that is a real yuppie-magnet, is what I mean by 'reasonable' here). Thinking back, one beds in Kilburn were around the 90 grand mark, 70-75 in Willesden Green, 60-65 in Cricklewood. Those do now seem cheap (with my apologies to people outside London - yes these prices are still mental) but my view there might have been skewed by the longest property market bull run ever!

I prefer to use the 7.5% yield model when working out "reasonable" prices. A 90K one bed in Kilburn would support a rent of £750pcm. Even the cheapest one bed I can find on Rightmove (actually in Belsize Road, South Hampsted) is £758pcm. Boy, I'd want a pretty good 3 bed semi in a good school catchment area for that in Leicester. £801pcm for a one bed in Kilburn high road. £650pcm for a ojne bed in Cricklewood. That would support a BTL price of 108K. In the previous crash prices went down below "reasonable" and became very cheap. No guarantee that won't happen this time, but no guarantee that it will either. But I really really can't see prices in Cricklewood ever getting back to 60-65K again.

Billy Shears

Edited May 25, 2006 by BillyShears

[luddite]

Look first at the converse, what is not reasonable value.

If you already own a house, ask yourself - would I buy my own house at this price? If you dont own one then, put yourself in the place of a property owning friend or relative and ask the same question. My answer is "no way!" so I've decided to STR.

Billy Shears is right, 3.5 x an average salary is proven over the course of time to represent the right level, so when a small terrace costs around £90K (scale to suit your own area) then the market is getting back to reality. That equates to a 30% correction. In fact, there is no reason why 3.5 x an averager salary should not be able to afford a 3 bed semi, leaving the 2 bed terraces for those on below average wages. In that case the correction is nearer 50%.

I'd be happy to see 30% falls as for me, it equates to trading up £100K on the 'ladder' for free. Nice! A 50% drop would mean my STR would move me up £200K but I dont think that will happen.

But who knows? there are some very interesting times ahead.