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Realistbear

House Price Growth Has Eased Significantly In Last 3 Months

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http://www.in2perspective.com/nr/2006/08/l...of-slowing-.jsp

London house prices show 'signs of slowing'
By Laurie Osborne, Editor
Published 11th Aug 2006, (a Friday) at 12:00PM
House prices rose by 0.2% in July and by 5.4% over the past 12 months, the
FT House Price Index
showed on Friday.
Gary Styles, economics director, said the housing market is now moving on a smooth and predictable path each month.
Monthly house price growth has eased significantly in the last 3 months
as concerns about indebtedness, interest rates and bankruptcies have affected confidence. However the London market has shown only tentative signs of slowing in the face of this negative sentiment.

:)

Edited by Realistbear

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Confirms as i thought if the market continues at this performance it means wage inflation will be well above HPI. This means houses could become more afordable in coming years. That is providing if it stays around 0.2% a month and drop over the winter period to 0%. I think next year around August it should be 1-1.5% growth.

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Guest grumpy-old-man

Confirms as i thought if the market continues at this performance it means wage inflation will be well above HPI. This means houses could become more afordable in coming years. That is providing if it stays around 0.2% a month and drop over the winter period to 0%. I think next year around August it should be 1-1.5% growth.

more like -10% to -15% by this time next year ;)

you won't recognise the housing market this time next year, it will be like nothing you have experienced before, unless you have been through the 90's crash.....mark my words

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more like -10% to -15% by this time next year ;)

you won't recognise the housing market this time next year, it will be like nothing you have experienced before, unless you have been through the 90's crash.....mark my words

The 90s crash intrest rates shot up to 15% overnight. I would like to see who would predict -10 to -15% they been saying it for years it would of crashed in 2004 if people were right. I bet my life savings it wont be -15%.

Bank of England move rates at 0.25% a time how would this crash happen? What would trigger a downturn of 10-15%

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The 90s crash intrest rates shot up to 15% overnight. I would like to see who would predict -10 to -15% they been saying it for years it would of crashed in 2004 if people were right. I bet my life savings it wont be -15%.

Bank of England move rates at 0.25% a time how would this crash happen? What would trigger a downturn of 10-15%

It is different this time around. People have borrowed so much more and the multiples have strayed into the irrational exhubrance extremes to become, as Al Greenspan put it, "frothy." A couple of small .25% hikes and its over. Sentiment is already turning bearish oin the press and it does not take much doom and gloom to set a market on its natural course after a 10 year up cycle. There are a lot of triggers out there that can send prices hurtling back to earth and recession is the overriding one. Anyone who is thinking about selling needs to beat the rush and to bear in mind what Mervyn King said about valuations: opinion only--the debt is the reality.

Edited by Realistbear

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What would trigger a downturn of 10-15%

Heavily geared hedge funds caught between rising capital costs, rising defaults, narrowing spreads, and net outflows.

End of the line *ding* *ding* all change, all change.

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Guest grumpy-old-man

The 90s crash intrest rates shot up to 15% overnight. I would like to see who would predict -10 to -15% they been saying it for years it would of crashed in 2004 if people were right. I bet my life savings it wont be -15%.

Bank of England move rates at 0.25% a time how would this crash happen? What would trigger a downturn of 10-15%

Hi Pogolucky, in the 1990's no-one in there 20's really had credit cards or loans, you just had a mortgage.

Now, everyone has multiple cards, personal loans & a mortgage.

People in there 20's didn't have 10k cars, go on holiday twice a year abroad, own widescreen tv's & have show houses kitted out with all the latest stuff.

I am only 39 & remember this well as I was in my early 20's.

As RB & others have stated, it IS different this time & I reckon base rates at 6% will be very bad.

remember the cost of living has gone up dramatically in the last 6 years, I work in IT & the wages are the same or slightly less than they were in 2000 :o IT is still a good profession IMO, what does that tell you ?

How much have your outgoings, bills, council tax, house prices, etc etc gone up in 6 years ? do they match your wages ?

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Hi Pogolucky, in the 1990's no-one in there 20's really had credit cards or loans, you just had a mortgage.

Now, everyone has multiple cards, personal loans & a mortgage.

People in there 20's didn't have 10k cars, go on holiday twice a year abroad, own widescreen tv's & have show houses kitted out with all the latest stuff.

I am only 39 & remember this well as I was in my early 20's.

As RB & others have stated, it IS different this time & I reckon base rates at 6% will be very bad.

remember the cost of living has gone up dramatically in the last 6 years, I work in IT & the wages are the same or slightly less than they were in 2000 :o IT is still a good profession IMO, what does that tell you ?

How much have your outgoings, bills, council tax, house prices, etc etc gone up in 6 years ? do they match your wages ?

Ok you make a good point i actualy took a 6k drop in pay 2.5 years ago to spend more time with my kids while talking about wages.

As i stated in another post i think you did reply to. I mentioned a 1% hike in intrest rates people would find times hard. I still dont think it would couse a downturn of 10-15% though. Take into account the bank of england have only tended to move 0.25% at a time if people suddenly stopped spending it might couse the bank of england not to raise intrest rates any more. I think we may see them raising to 5% this year and maybe 5.25 by next summer. If they hit 6% overnight or over a couple of months i think it may have an impact on prices i think as i said it is unlikely.

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Yeah it is funny how if someone even vaguely bullish says "It's different this time round", there are cheers of derision. But when bears try to explain why the long-prophesied crash hasn't happened on schedule, they cry "It's different this time round" and that's OK.

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Guest Cletus VanDamme

http://www.in2perspective.com/nr/2006/08/l...of-slowing-.jsp

London house prices show 'signs of slowing'
By Laurie Osborne, Editor
Published 11th Aug 2006, (a Friday) at 12:00PM
House prices rose by 0.2% in July and by 5.4% over the past 12 months, the
FT House Price Index
showed on Friday.
Gary Styles, economics director, said the housing market is now moving on a smooth and predictable path each month.
Monthly house price growth has eased significantly in the last 3 months
as concerns about indebtedness, interest rates and bankruptcies have affected confidence. However the London market has shown only tentative signs of slowing in the face of this negative sentiment.

:)

Interesting, they put a completely different spin on it in today's Weekend edition:

http://www.ft.com/cms/s/e361cc54-2885-11db...00779e2340.html

London house prices continue to set pace

By Jamie Chisholm, Economics Reporter

Published: August 11 2006 09:30 | Last updated: August 11 2006 09:30

A buoyant London market helped push annual house price inflation to 5.4 per cent in July, according to the FT house price index (FTHPI).

Residential property prices in the capital rose by 9.9 per cent in the 12 months to June, far outstripping the next best performing region, the north, which recorded an increase of 5.9 per cent.

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Guest Alright Jack

http://www.in2perspective.com/nr/2006/08/l...of-slowing-.jsp

London house prices show 'signs of slowing'
By Laurie Osborne, Editor
Published 11th Aug 2006, (a Friday) at 12:00PM
House prices rose by 0.2% in July and by 5.4% over the past 12 months, the
FT House Price Index
showed on Friday.
Gary Styles, economics director, said the housing market is now moving on a smooth and predictable path each month.
Monthly house price growth has eased significantly in the last 3 months
as concerns about indebtedness, interest rates and bankruptcies have affected confidence. However the London market has shown only tentative signs of slowing in the face of this negative sentiment.

:)

Roughly translated, "No need to hike interest rates anymore (Pretty please)".

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It is different this time around.

Bears sounding like bulls... :lol:

Heavily geared hedge funds caught between rising capital costs, rising defaults, narrowing spreads, and net outflows.

End of the line *ding* *ding* all change, all change.

Genuine question: does anyone know how much capital is in tied up in heavily geared hedge funds?

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Guest grumpy-old-man

Ok you make a good point i actualy took a 6k drop in pay 2.5 years ago to spend more time with my kids while talking about wages.

As i stated in another post i think you did reply to. I mentioned a 1% hike in intrest rates people would find times hard. I still dont think it would couse a downturn of 10-15% though. Take into account the bank of england have only tended to move 0.25% at a time if people suddenly stopped spending it might couse the bank of england not to raise intrest rates any more. I think we may see them raising to 5% this year and maybe 5.25 by next summer. If they hit 6% overnight or over a couple of months i think it may have an impact on prices i think as i said it is unlikely.

ok, we agree to disagree then :)

I appreciate that you acknowledge there could be a problem at least......

if you have ever played that card game pontoon, would you stick or twist on 20 ;)

Thats where I think the UK housing market & economy is right now....on 20 :ph34r:

Bears sounding like bulls... :lol:

Genuine question: does anyone know how much capital is in tied up in heavily geared hedge funds?

Yes, George Sorros ;)

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Interest rate rises

by Realist 11 Aug 2006 02:13 PM

Is it not the case that inflation is largely being caused by rising fuel costs?

I (think I) can understand how increasing interest rates generally controls inflation; increase rates, people/companies pay more to borrow, buy less, inflation decreases.

However, with fuel, do people use more when it's cheap? The fuel prices will rise regardless of the uk interest rate will they not, and folk will use just as much as they did before. Therefore interest rates are toothless against this.

For those economists out there, feel free to shoot me down on this one. I'm just interested as to how increasing interest rates in this case will help control inflation.

I taken this quote from the FT's Discussion Forum on UK House Prices: Correction or Collapse and you'll note that the subject matter is pretty much the same as we're discussing on these board? But, I've got to ask you, Realistic Bear - and I'm almost dying to know the answer - is Realist really you? B)

HTH

Cheers

KF

Edited by KentishFella

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Confirms as i thought if the market continues at this performance it means wage inflation will be well above HPI. This means houses could become more afordable in coming years. That is providing if it stays around 0.2% a month and drop over the winter period to 0%. I think next year around August it should be 1-1.5% growth.

Made up example:

I earn £20,000 a year. From this tax calculator my income (after the tax abusers have had their share) is £15,266

I have just got a loan 7 times salary at £140,000. The cost of my IO mortgage at 5% is £7,000 pounds a year.

After paying the rent on the mortgage, I have £8,266 to live off.

Next year, I am unusually lucky to be getting a 5% pay rise. £1,000 more! I'm now going to get £21,000 - Houses will be more affordable :)

My income after tax is now £15,936 - The government's taken their slice of the increase, but I still have £670 more :)

BUT, what if by next year I'm paying 6% on my mortgage - It is now £8,400, so I'm down £730. :(

Even with 0% HPI, the £140,000 house is less affordable by £730 per annum.

A 5% increase in a £20,000 income is easily wiped out by a 1% increase in the cost of a £140,000 loan.

As already pointed out, the costs of living (food, petrol, electricity, heating, beer) have increased by way more than 5%, so a house can get dramatically less affordable through the increases in living costs, not just borrowing costs.

Furthermore, with the current historically high earnings multiple, the loans are so much bigger that a very small increase in the cost of borrowing has proportionally more influence than wage inflation.

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Made up example:

I earn £20,000 a year. From this tax calculator my income (after the tax abusers have had their share) is £15,266

I have just got a loan 7 times salary at £140,000. The cost of my IO mortgage at 5% is £7,000 pounds a year.

After paying the rent on the mortgage, I have £8,266 to live off.

Next year, I am unusually lucky to be getting a 5% pay rise. £1,000 more! I'm now going to get £21,000 - Houses will be more affordable :)

My income after tax is now £15,936 - The government's taken their slice of the increase, but I still have £670 more :)

BUT, what if by next year I'm paying 6% on my mortgage - It is now £8,400, so I'm down £730. :(

Even with 0% HPI, the £140,000 house is less affordable by £730 per annum.

A 5% increase in a £20,000 income is easily wiped out by a 1% increase in the cost of a £140,000 loan.

As already pointed out, the costs of living (food, petrol, electricity, heating, beer) have increased by way more than 5%, so a house can get dramatically less affordable through the increases in living costs, not just borrowing costs.

Furthermore, with the current historically high earnings multiple, the loans are so much bigger that a very small increase in the cost of borrowing has proportionally more influence than wage inflation.

Where the hell did you get a 7x income IO mortgage at 5% from??? :blink:

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Where the hell did you get a 7x income IO mortgage at 5% from??? :blink:

Eeyore! I lied on the form :)

It's not important, it's just a made up example attempting to illustrate the futility of the 'wage inflation will sustain house prices' argument.

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Eeyore! I lied on the form :)

It's not important, it's just a made up example attempting to illustrate the futility of the 'wage inflation will sustain house prices' argument.

Ok, I bought a house at £12,000,000 on a 120x income multiple @ 67%. Now its gone up to 67.25% and I'm screwed...

What's the point of an illustration that doesn't use realistic numbers? Eeyore. :)

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My twopenny's worth is that I get the feeling the market has slowed a little around here (East Berkshire). The first half of this year were manic - everything that hadn't sold in the 18 month stagnation that ended when interest rates were dropped in Autumn 05, suddenly sold in Jan and Feb this year. Then the market really took off in the Spring and I would describe it as a definite bull market and prices recovered to at least their early 2004 level (which was the peak around here). In fact prices went above it and I have sensed over the last couple of months the market has become frothy with stuff going on the market for truly daft prices.

Now I sense a slowdown. Maybe it's just the summer and everyone is away but the For Sale signs are not changing to Sold at anything like the rate they were.

One more interest rate hike will do it around here.

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Guest grumpy-old-man

Eeyore! I lied on the form :)

It's not important, it's just a made up example attempting to illustrate the futility of the 'wage inflation will sustain house prices' argument.

:lol::lol::lol:

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Ok, I bought a house at £12,000,000 on a 120x income multiple @ 67%. Now its gone up to 67.25% and I'm screwed...

What's the point of an illustration that doesn't use realistic numbers? Eeyore. :)

Sorry, wasn't being clear. I wasn't calling you Eeyore. I got the mortgage off Eeyore. I lied on his form. :)

OK, assuming you're not lucky enough to have a donkey as a mortgage broker; please tell me realistic numbers for the mortgage. Even using £80,000 @ 5%, I'd be worse off. It doesn't matter what figures you use for the mortgage, 5% wage inflation and 1% raise in IR makes houses less affordable (especially for a FTB with little capital). This is not even including the huge rises in cost of petrol, energy, etc we are faced with.

PogoLocky mentioned the dodgy bull argument that wage inflation will ensure homes remain affordable. This argument has been used before on the site to say there will not be a crash. This argument is rubbish because house prices can become less affordable with high wage inflation at 5%, or even at 10%.

A small increase in a small salary < a small increase in a big loan.

Anyone who uses the "wage inflation will prevent a HPC" argument is not considering increases in the costs of borrowing, or in the cost of living. ;)

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Sorry, wasn't being clear. I wasn't calling you Eeyore. I got the mortgage off Eeyore. I lied on his form. :)

OK, assuming you're not lucky enough to have a donkey as a mortgage broker; please tell me realistic numbers for the mortgage. Even using £80,000 @ 5%, I'd be worse off. It doesn't matter what figures you use for the mortgage, 5% wage inflation and 1% raise in IR makes houses less affordable (especially for a FTB with little capital). This is not even including the huge rises in cost of petrol, energy, etc we are faced with.

PogoLocky mentioned the dodgy bull argument that wage inflation will ensure homes remain affordable. This argument has been used before on the site to say there will not be a crash. This argument is rubbish because house prices can become less affordable with high wage inflation at 5%, or even at 10%.

A small increase in a small salary < a small increase in a big loan.

Anyone who uses the "wage inflation will prevent a HPC" argument is not considering increases in the costs of borrowing, or in the cost of living. ;)

My mistake - I too can be a bear of very little brain :)

I agree that the immediate impact of a rate rise is often greater than the impact of wage inflation, but you've neglected to look at the longer term effect. A rate rise is a one-off event whereas wage inflation compounds over a long period. Thus (assuming wage growth outstrips rises in the cost of living) the impact on the real value of a loan is sizable. 5% wage inflation results in almost 63% higher salary in just 10 years...

Edited by IamSpartacus

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My mistake - I too can be a bear of very little brain :)

I agree that the immediate impact of a rate rise is often greater than the impact of wage inflation, but you've neglected to look at the longer term effect. A rate rise is a one-off event whereas wage inflation compounds over a long period. Thus (assuming wage growth outstrips rises in the cost of living) the impact on the real value of a loan is sizable. 5% wage inflation results in almost 63% higher salary in just 10 years...

It is difficult sometimes :)

House prices have been increasing at many times wage inflation. IMO, this means that the link between wage inflation & house prices is not a strong one, but anyway:

In the short term (2-3 years?), the cost of servicing IR increases will exceed wage inflation, houses will become less affordable. Hidden inflation in the cost of living will compound this.

IMO, in the medium to long term wage inflation at 5% will not happen because an increasing number of service jobs (accountancy, law, finance, etc) will be outsourced to India et al over the internet. We could even see wage deflation. The downwards pressure on wages from globalisation will be perhaps be componded by a commodities/resource crunch increasing the cost of living; a couple of billion middle class Asians will be competing to buy stuff. If the indications of peak oil in light crude are correct, oil will continue to increase in price. Houses will be less affordable in the medium to long term as well. All of this doesn't take into account the possibility of a US led recession, or a deflationary crash, such as happened in Japan (even though the Japanese have a much more productive economy than the UK).

Suppose it comes down to whether you think the average worker in the UK will be poorer or richer in 10 years time. I think the average person will be poorer, but 'tis just a guess. ;)

Edit: D'oh Durch made some of these points whilst was trying to get my little brain into typing mode!

Edited by Pooh Bear

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But remember that 50% of the world's population earns £500 per year or less, and technology is gradually bringing them all into competition. And that machine intelligence is likely to take on more and more 'expert' roles like lawyer, doctor, manager, investment banker, at an annual cost exponentially tending towards zero at a 1000x per decade rate.

I wouldn't rely on wage growth for anything in the coming years.

I don't expect to see my GP replaced with a robot anytime soon... :blink:

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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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