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Jason

Why 2006 Will Be Disappointing For Property Bulls

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“7% rise in value of your home” screamed the Daily Express’s front page yesterday. “A booming market sends prices spiralling upwards and it will get even better”.

As a headline, it made a change from the latest conspiracy theories about Princess Diana. But it’s no less far-fetched.

So what are they on about? Well, the paper was referring to the news that the Council of Mortgage Lenders now reckons house prices will rise by 7% this year, not 2% as it had previously thought.

According to the Express “there seems to be no end in sight to the new boom”.

In that case, they can't have seen the latest house price figures from the Halifax...

The latest news on house prices suggests that the market is continuing to slow after its brief springtime rally. Halifax reported that house prices rose by just 0.1% last month, compared to April. The annual rate of growth rose to 9.1%, but that was largely because “the corresponding figures last year were weak” - house prices fell by 0.6% last May.

And yet, earlier this week, the Council of Mortgage Lenders confidently predicted that the boom would continue, with house prices set to rise by 7% this year, rather than the 2% previously expected.

The CML acknowledges that interest rates are likely to rise – it predicts that the base rate will be 4.75% by the year’s end. And it also accepts that this will mean higher numbers of repossessions – in fact it expects the number of homeowners who lose their house to jump nearly 50%, to 15,000 this year.

And yet the CML and estate agents are being dismissive about the impact of higher interest rates. “While the occasional tweak may be necessary, wholesale rises of two and three per cent are simply not on the cards,” said Peter Bolton King of the National Association of Estate Agents.

Mr Bolton King seems to have forgotten that the only thing that saved the housing market from full-scale price falls in 2005 was last August’s quarter-point cut in interest rates. If a 0.25% trim can push the market higher, it seems to make sense that a quarter-point hike will push it back down.

And as Kelvin Davidson at Capital Economics points out, all this talk of further UK interest rate hikes “is also likely, at the margins, to dampen housing market sentiment.”

On top of that, as Halifax states: “substantial increases in utility bills and above-inflation council tax rises are also putting pressure on householders’ finances."

But of course, it adds the usual property bull disclaimer, that “sound fundamentals will keep the housing market in good shape.”

What are these sound fundamentals exactly? “A strengthening economy, high levels of employment and low interest rates.”

But the reality is that unemployment is rising; interest rates look set to rise too; and the assertion that the economy is strengthening is debatable at the very least.

Consumer spending remains wobbly (despite the recent surge in TV sales), and the latest figures show that the manufacturing sector is nowhere near strong enough to pick up the slack from the over-indebted consumer. Manufacturing output fell by 0.2% in April, the worst fall in more than six months and a much weaker reading than analysts had expected.

Anyway, although the Bank of England voted for a rate freeze this month, estate agents and potential buyers shouldn’t feel too confident about its future intentions. It wasn’t so long ago that the majority of commentators were expecting a cut, not a hike.

After years of predictability, central banks now seem to have developed a nasty habit of springing surprises. US Federal Reserve chief Ben Bernanke’s focus on inflation has shaken up complacent investors badly, and has been held largely responsible for recent stock market chaos.

But Mr Bernanke's not the only one springing surprises. South Korea’s central bank wrong-footed analysts with another 0.25% hike in interest rates yesterday, taking them to 4.25%, a three-year high.

Meanwhile, South Africa's central bank shocked analysts with a 0.5% hike, the first rise since September 2002, taking the base rate to 7.5%. This week has also seen rate hikes in Turkey, India, and Thailand.

And of course, the European Central Bank has now raised eurozone interest rates to 2.75%. No surprises there - but like it or not, if house prices are as sensitive to interest rates as the past decade has shown, then the end of cheap money means there's only one place for them to go. Down.

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

Some more sense from Moneyweek!

Edited by Jason

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I literally could not have said it better myself! That which once underpinned HPI is gone. All bad things must come to an end and HPI has been around a little too long.

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I literally could not have said it better myself! That which once underpinned HPI is gone. All bad things must come to an end and HPI has been around a little too long.

Expect Halifax is already up 6% NSA and Nationwide 5% so to get YoY to 7% doesn't take much. The growth is already in the bag.

Money week speaking out of its backside again. Look how long they have been spouting from the fountain of drivel ;)

http://www.moneyweek.com/file/2018/the-hou...as-in-1990.html

The housing market is as overvalued as it was in 1990

05.03.2004

Today, the average house price is around £148,000, average earnings are £25,170 and mortgage rates at least 5%. Do the numbers and you will find that today's buyers are paying 52%. Use 6% and you get 57%. With rates rising, 60% can't be far off (it's been breached in London already). And if that's the case, says James, nor can a hefty fall in house prices.

They have used the Halifax number, and now the average house price is £180,680. Therefore listening to Moneyweek (and they were expecting a hefty fall soon) would have cost the average Joe £32,680 so far.

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Guest grumpy-old-man

05.03.2004

Today, the average house price is around £148,000, average earnings are £25,170 and mortgage rates at least 5%. Do the numbers and you will find that today's buyers are paying 52%. Use 6% and you get 57%. With rates rising, 60% can't be far off (it's been breached in London already). And if that's the case, says James, nor can a hefty fall in house prices.[/i]

They have used the Halifax number, and now the average house price is £180,680. Therefore listening to Moneyweek (and they were expecting a hefty fall soon) would have cost the average Joe £32,680 so far.

yes, but if they had put IR up like they should have in 2004 to create a stangnating market that would have negated the extra profit created....they didn't & now the stagnation won't be their it will fall much more quickly.

you can't factor in for a government that make stupid economic decisions surely ?

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Expect Halifax is already up 6% NSA and Nationwide 5% so to get YoY to 7% doesn't take much. The growth is already in the bag.

Money week speaking out of its backside again. Look how long they have been spouting from the fountain of drivel ;)

http://www.moneyweek.com/file/2018/the-hou...as-in-1990.html

The housing market is as overvalued as it was in 1990

05.03.2004

Today, the average house price is around £148,000, average earnings are £25,170 and mortgage rates at least 5%. Do the numbers and you will find that today's buyers are paying 52%. Use 6% and you get 57%. With rates rising, 60% can't be far off (it's been breached in London already). And if that's the case, says James, nor can a hefty fall in house prices.

They have used the Halifax number, and now the average house price is £180,680. Therefore listening to Moneyweek (and they were expecting a hefty fall soon) would have cost the average Joe £32,680 so far.

The key words: so far.

As the man said half way down from falling off the Eiffel Tower, everything is fine so far.

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05.03.2004

Yes, but if they had put IR up like they should have in 2004 to create a stangnating market that would have negated the extra profit created....they didn't & now the stagnation won't be their it will fall much more quickly.

you can't factor in for a government that make stupid economic decisions surely ?

So in an alternate universe, where the MPC has a remit to cause a recession, to target CPI at 0%, and to crash house prices they would have been correct.

However back in the real world they were plainly totally wrong.

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King of Nowhere,

People were predicting the top of the dot.com bubble a year or more before it actually peaked.

These people sold their holdings and sat tight. Must have been a little unnerving to see it steam on.

But who had the last laugh and who became more wealthier?

The people who sold a little before the top, or the ones who rode all the way to the top and then lost 90% of their "wealth", selling at the bottom. :lol:

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The key words: so far.

As the man said half way down from falling off the Eiffel Tower, everything is fine so far.

So far, and they could be wrong even further.

Let us presume, by large falls they meant 20% off. Therefore they expected the average house to fall from £148K to £118K.

So to be right the average house would now have to fall from £180K to £118K, or about 35%!

Even their fav Economist (Or he was when he thought prices would fall 30%, although he now seems to have gone out of favour), R Bootle is now only expect small nominal falls.

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2007 may end up being disappointing but 2006 has proved that it is great for prop bulls so far. We can hope that the rest of 2006 proves to add stagnation (we all hope so) but I can tell that from experience being out there negotiating it is tough to convince vendors that their properties are overpriced.

So:

Stop this nonsense please.

2006 is still for prop bulls. Until IR rates rise forgot this nonsense HPC spin. Next year we might be able to spin some HPC stuff, but this year?

Chaps, if you don't believe me get out there and start trying to earn yourself a deal.

Then I will listen to your __real__ experience.

Did you get that?

Also: does anyone know how to send a message to the moderator as I had one of of my HPC bearish posts blocked?

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Excellent article by Moneyweek but is your average homeowner more likely to have read this or the front page of the Express? Talks of 7% increases will simply mean that sellers won’t drop their prices because they refuse to believe that they should take any less. Until we have more mainstream media coverage of the dire economic situation that we on this site all know about, we’re stuck with an over inflated property market. There’s no way that good articles from Moneyweek can combat the damage done by large papers such as the Express simply due to the vast numbers of their target audience.

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Guest The_Oldie
Next year we might be able to spin some HPC stuff, but this year?

So you think it's sensible buy a house now, although you admit that next year may see the start of HPC?

I'll keep my money out of property until the correction happens. Be that this year, next year, or the year after.

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I think its sensible to sharpen your axe and get out there experimenting etc. and understanding the current sentiment.

Please try it - The worst case is that you'll learn something.

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I think its sensible to sharpen your axe and get out there experimenting etc. and understanding the current sentiment.

Please try it - The worst case is that you'll learn something.

Sorry but current sentiment has nothing to do with it. I've made most of my (small) fortune by following trends, not current sentiment. It's becoming an end game for HPI. I've always said the maket would be buoyant early this year and tail off towards the end. Next year (who knows?) but I can't see anymore upside.

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If you've done well with your own approaches then that's great for you.

But I want to educate generally in that being on this board only gives you coverage of 25% of the radar screen. You need to be out there in the prop market to fill in another 50%.

Argue you with me please giving good perspectives and then at least the thread can educate others on the board and help the market go the way we want it to. That's what the forum is for.

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Guest The_Oldie

Argue you with me please giving good perspectives and then at least the thread can educate others on the board and help the market go the way we want it to.

Which way do you want the market to go?

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Rising interest rates will be the trigger as they have so much impact on sentiment.

Mortgages are getting more expensive anyway, but the recent mini-boom was completely due to the August rate cut. Lot of people piled in, some thinking easy money times were here again and they would buy and hold during a cycle of decreasing rates.

They were sold a pup by the media and VI's.

A rate rise will really impact on sentiment, especially with the news feeding through from elsewhere of rising rates and falling property prices - USA.

Edited by BubbleTurbo

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don't feel sorry for them (the BTL parasites etc).

Their greed has priced out FTBs, and rather amusingly left them holding their own hairy baby.

Trust me, I don't feel sorry for them.

I will enjoy watching their pain.

It is just when that will be. Probably start later this year. Where I am, (SE London) the market has slowed markedly after a brief rally.

Asking prices are probably up 7 - 10% from July 05. This will only make things worse and cause the change in direction to be more rapid when it happens.

This will reinforce the bearish sentiment as falls are reported.

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Which way do you want the market to go?

I would love a crash but I know that the probability of this low.

...Especially when people who want the crash are spending too much time creating nice web sites and posts on forums (OK, I'm guilty too :o ).

Instead we need to be out there spending time understanding the market and putting low but sensible offers in, and gaining confidence for the time that you want to actually part with your cash.

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Guest grumpy-old-man

I would love a crash but I know that the probability of this low.

...Especially when people who want the crash are spending too much time creating nice web sites and posts on forums (OK, I'm guilty too :o ).

Instead we need to be out there spending time understanding the market and putting low but sensible offers in, and gaining confidence for the time that you want to actually part with your cash.

In my case I have just returned from France. My French house is rented out for 3 years & I have no mortgage on it.

I also now have no cash (not much anyway), so if I buy now I won't really get a discount on a good house in a good area as they are still beleiving the price increase hype...so at best I get a house in a crappy area or a crap house in a good area....

my price range this time round will be lower as I have no capital to put in, so we are looking at 200k max, 95% mortgage......

We are paying £600 per month for rent (through an agent), I am sure we can get cheaper but we had to rent withouth seeing the property as we were abroad.

If we wait & we get just a 10% crash next year, I have saved 20k & spent about 7k..........thats's just with 10%.....

so please tell me why I am better buying now ?

If your argument is that I might get 10% reduction now, then what will these people accept back end of next year ??

I think it will take another 2 years from now & that's what I am banking on as my buy date...if it happens before that then that's even better.

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You are doing well to own a property on no leverage with rental income. That's great.

For you, it doesn't sound like buying now in the UK is "keeping all your options open". In our case, we need a family home. So we see some value in owning over renting. We are also a bit fed up, but you can probably guess that.

We will be paying over the odds tho, but perhaps my 2 x years property dabbling knowledge & experience may help to get a slightly better deal. However, that dream house does come along from time-to-time and previously we have been competing to get it, but have been extremely patient and a bit cautious on price. Now our patience has run out. I can see us paying too much for our perceived dream house.

Forgive me Father HPC, I will sin. :(

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Guest grumpy-old-man

You are doing well to own a property on no leverage with rental income. That's great.

For you, it doesn't sound like buying now in the UK is "keeping all your options open". In our case, we need a family home. So we see some value in owning over renting. We are also a bit fed up, but you can probably guess that.

We will be paying over the odds tho, but perhaps my 2 x years property dabbling knowledge & experience may help to get a slightly better deal. However, that dream house does come along from time-to-time and previously we have been competing to get it, but have been extremely patient and a bit cautious on price. Now our patience has run out. I can see us paying too much for our perceived dream house.

Forgive me Father HPC, I will sin. :(

dev, I have just re-read my post...I didn't mean to come across quite the way it possbily read :)

I understand your need for a family home, we have 2 teenage children (I am 39 years old, not as old as my HPC name suggests), so we are also not enjoying the renting side of returning to the UK.....my wife escpecially :o

but I am so very confident that it will go t1ts up within 2 years I definetly wouldn't buy now or in the forseeable future. I do however understand the need for some to do this & if you are in it for the long term & can afford the coming rate increases then go for it.

In 20 years you will probably have made a good sum in your buy.

just look around these new designer estates & indeed most housing estates, all the cars are under 3 years old, conservatories everywhere, extensions, 2 holidays a year.....now I am normally on a decent wage & I can't afford anywhere near that so where do you think the money is coming from & how will it be paid.

not all of this post is directed at you of course, just reiterating what other people have said (but in laymans terms ;) )

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So you think it's sensible buy a house now, although you admit that next year may see the start of HPC?

I'll keep my money out of property until the correction happens. Be that this year, next year, or the year after.

The most pertinent thread on this forum about house prices - about arranging a protest to try to raise the awareness of the issues facing young people priced out of the market - has just been moved OFF TOPIC.

What on earth is the matter with you lot. How can that be OFF TOPIC!

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  • 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%



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