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cheeseandbeans

All This Talk Of A Crash Just Seems Glass Half Empty Syndrome...

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..or wishful thinking.

The facts seem to point to house prices drifting or gaining modestly. I can't see where a crash is going to come from.

Anyone that sold up a few years back when talk of a crash was first mooted in the general press would now be sitting on less purchasing power, especially considering rental costs / interest rates. The average house increased in value by 7% in 2005 and will do the same in 2006. These figures are widely quoted:

http://news.bbc.co.uk/1/hi/business/5253112.stm#pricegraph

Renting may be 'dead money' but is regarded in many countries (Germany is an example) as being a normal thing to do. Just because the UK is infatuated with bricks and mortar doesn't mean owning a nice house in a nice area is normal everywhere.

Prices at the moment may seem expensive and out of the reach of many first time buyers, i guess that would be because they are. Just because something is expensive doesn't mean that it will crash. Many commodities go through cycles of being cheap and expensive. Not every cycle is boom and bust though.

Anyone that bought a house 5 years ago or above is not going to worry too much about a 1/4 point rise in interest rates here and there. Presuming the UK stock is around 20 million homes, and sales average 250,000 per year, this means over the past 5 years 1.25 million homes have been bought, and 18.75 million haven't. That means 95% of the UK has been living in the same house for over 5 years.

Some of them have been remortgaged, as this says

http://www.housepricecrash.co.uk/graphs-mo...-withdrawal.php

Taking the average house @ £200,000 and the number of houses as 20,000,000 - lets lop off 20% as buy to lets, that leaves 16 million owned houses worth £200,000.

£200,000 x 16,000,000 = £3,200,000,000,000

Three trillion, two hundred billion pounds.

Looks like around 55 billion pounds has been released by equity withdrawl over the past 5 years - that's about 1.7% of the total house value. Not a lot.

http://www.housepricecrash.co.uk/graphs-mo...-withdrawal.php

So 95% of the UK has had their house for over 5 years (with their low mortgage repayments) and overall they have released 1.7% of the value. Hardly figures that point to a crash.

Of course the figures are just general, but they don't point towards a property market on the edge heading for a fall.

People argue that the economy may crash and we may head to a period of serious inflation - this may happen, but in the short term it doesn't look likely. The world has been going through a period of low inflation, and this doesn't seem to be changing anytime soon. Sure, the bears may point towards unstable times in the middle east, but isn't that just another war by proxy between the US and a n other threat. They've been happening for decades, and none have become the 3rd world war people thought they might.

Buy to let - sure, people may be over stretched, but presuming that they were in more than 2-3 years ago then yields will cover mortgages and so no real problems there - in fact many BTLers with good equity would take house price falls as a good opportunity to increase their portfolios. As would many home owners with decent equity built up. Also the reduction in social houses being built will continue to fuel the growth in BTL.

http://news.bbc.co.uk/1/hi/business/3519910.stm#housinggraph

People still need a house to live in, paid for by the state, and as council houses are not being built, but instead are being sold off, BTL is satisfying this demand.

There are hundreds of other arguments, but the facts are property for first time buyers is expensive. But for the vast majority of the home owning population it isn't. Interest rates are affordable and are going to be for the next few years. The economy isn't going to crash in a spectecular style, and if it does then property prices are the least of our worries.

The time for a property crash has passed, as has the time of cheap property ownership.

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It's these desperate Bulls that convince me why the Bear camp have got it right.

So tell us, cheesey one, why are you here?

Couldn't get enought converts with the Church of Latter Day Saints so you've come here to get some practice?

;)

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Renting may be 'dead money' but is regarded in many countries (Germany is an example) as being a normal thing to do. Just because the UK is infatuated with bricks and mortar doesn't mean owning a nice house in a nice area is normal everywhere.

Quite. Renting means my wife and I will be able to look after our baby come February much more easily.

Prices at the moment may seem expensive and out of the reach of many first time buyers, i guess that would be because they are. Just because something is expensive doesn't mean that it will crash. Many commodities go through cycles of being cheap and expensive. Not every cycle is boom and bust though.

So house prices will become more and more expensive, forever, regardless of the wider economy?

Looks like around 55 billion pounds has been released by equity withdrawl over the past 5 years - that's about 1.7% of the total house value. Not a lot.

More like 10 billion a month. That stat is well wrong.

Edited by RichM

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So house prices will become more and more expensive, forever, regardless of the wider economy?

No, in time wages and overall infation will erode property values until they become affordable. Again.

More like 10 billion a month. That stat is well wrong.?

My mistake - looks like 44 billion a year - 7% equity release for home owners over 5 years - about 1 years increase in house prices.

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No, in time wages and overall infation will erode property values until they become affordable. Again.

Ah yes of course! :rolleyes:

And how long do you think it will take before wages catch up? Again...

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so... it is different this time then? :unsure:

as far as wages go, presumably we're talking about a 50% plus rise in order for them to 'catch up'. given that immigration is pushing wages down etc. etc. etc...

no seriously! it is different this time! we're being screwed even harder... :ph34r:

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A good balanced post I thought - thanks. :)

There are hundreds of other arguments, but the facts are property for first time buyers is expensive. But for the vast majority of the home owning population it isn't.

This is a key point - many posters on here are STR, potential FTB, or recently bought so have a skewed view of the market. Many, many more people are sat safe and secure, with low or no mortgage, and couldn't care less what house prices do. As the population ages the number of these people will rise as older people are less likely to have to move for jobs etc. Of course they'll die eventually but a HPC in 30 years time won't be much use to many people on here... These aging people sat tight in their homes simply restricts supply further, keeping prices up for the hordes competing for the few good properties that do become available.

I agree with your prognosis: stagnant prices leading to a gradual improvement in affordability as inflation erodes the real value of the housing stock.

so... it is different this time then? :unsure:

as far as wages go, presumably we're talking about a 50% plus rise in order for them to 'catch up'. given that immigration is pushing wages down etc. etc. etc...

no seriously! it is different this time! we're being screwed even harder... :ph34r:

At 4% wage inflation it only takes 10 years for wages to rise 50%...

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Buy to let - sure, people may be over stretched, but presuming that they were in more than 2-3 years ago then yields will cover mortgages and so no real problems there - in fact many BTLers with good equity would take house price falls as a good opportunity to increase their portfolios. As would many home owners with decent equity built up. Also the reduction in social houses being built will continue to fuel the growth in BTL.

According to the ARLA, the landlords' association, 45.4% of BTLs made their first BTL purchase 2003 or after. ARLA Survey of Residential Landlords 2006.

You were an order of magnitude out on your MEW figures. Have you considered the possibility that your thinking is as wrong as your numbers? "The time for a property crash has passed" - Because there has been no crash yet, there never will be? How can your crystal ball be any more accurate than the figures you have used to derive these views?

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Anyone that bought a house 5 years ago or above is not going to worry too much about a 1/4 point rise in interest rates here and there. Presuming the UK stock is around 20 million homes, and sales average 250,000 per year, this means over the past 5 years 1.25 million homes have been bought, and 18.75 million haven't. That means 95% of the UK has been living in the same house for over 5 years.

Of course the figures are just general, but they don't point towards a property market on the edge heading for a fall.

There are hundreds of other arguments, but the facts are property for first time buyers is expensive. But for the vast majority of the home owning population it isn't. Interest rates are affordable and are going to be for the next few years.

The time for a property crash has passed, as has the time of cheap property ownership.

Your post is rather like swiss cheese. Your main point that only a few house are sold every year is precisely why property does move in sharp cycles. Prices are determined at the margin. If only a few buyers drop out, the whole illusion of property worth will come crashing down. It doesn't matter if for the vast majority things are okay, it only matters what FTBers and others looking to buy think.

If the time for a property crash has passed, when are you suggesting it was?

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Your post is rather like swiss cheese. Your main point that only a few house are sold every year is precisely why property does move in sharp cycles. Prices are determined at the margin. If only a few buyers drop out, the whole illusion of property worth will come crashing down. It doesn't matter if for the vast majority things are okay, it only matters what FTBers and others looking to buy think.

If the time for a property crash has passed, when are you suggesting it was?

Property moves in cycles dictated by the period they are viewed in. My point was that most people are sitting on good fictional profits and as peoples houses are their homes they don't just 'drop out'.

FTBers are still getting on the ladder, as figures show. Albeit at expensive prices.

Property crash - in this cycle i don't suggest it will happen. This isn't the 80's you know, the fundamentals in the economy are different, which is why property is also performing differently. People who are looking for an 80's style crash (whoo hoo, 15% falls, same as increases over the past 2 years) will be waiting a few years. Then if it happens (15% falls = 2 year growth) will it matter?

Edited by cheeseandbeans

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Property moves in cycles dictated by the period they are viewed in. My point was that most people are sitting on good fictional profits and as peoples houses are their homes they don't just 'drop out'.

FTBers are still getting on the ladder, as figures show. Albeit at expensive prices.

Property crash - in this cycle i don't suggest it will happen. This isn't the 80's you know, the fundamentals in the economy are different, which is why property is also performing differently. People who are looking for an 80's style crash (whoo hoo, 15% falls, same as increases over the past 2 years) will be waiting a few years. Then if it happens (15% falls = 2 year growth) will it matter?

I'm trying to work out whether you're a troll or just a bit thick?

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Your main point that only a few house are sold every year is precisely why property does move in sharp cycles. Prices are determined at the margin.

Just to put some figures on that:

British housing stock 22 million units as of 2005 (http://en.wikipedia.org/wiki/British_residential_property_market)

which translates as roughly 19.5 million in Engalnd and Wales, based on a quick population triangulation.

Annualised sales in Englad and Wales 218,770*4=875080 (which seem to be very high at the moment) (http://www.tiscali.co.uk/money/guardian/news/2006/05/9/number-of-homes-sold-increases-37.html)

i.e 875 080 / 19 500 000=4.5% turnover, or 22 years to turn the whole stock over, assuming it's a different 4.5% each year.

These are ball park figures.

Anyone got more accurate data?

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At 4% wage inflation it only takes 10 years for wages to rise 50%...

Ermm Didn't Gordon say he wanted wages kept at 2-3%???

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Guest wrongmove

Annualised sales in Englad and Wales 218,770*4=875080

Anyone got more accurate data?

According to HM revenue, transactions for England and Wales are higher than this (http://www.cml.org.uk/cml/media/pressdates)

Image1.png

They are averaging nearer 120k/month or 1.4 million a year.

This would be 7% a year, based on your number for stock levels, or about 14 years to turn the stock around.

post-210-1155676765_thumb.jpg

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According to HM revenue, transactions for England and Wales are higher than this (http://www.cml.org.uk/cml/media/pressdates)

Image1.png

They are averaging nearer 120k/month or 1.4 million a year.

This would be 7% a year, based on your number for stock levels, or about 14 years to turn the stock around.

Only if all properties are equally likely to be sold. I suspect there's a two-speed market with low turnover in many areas and types of houses, and many other cheaper properties being turned over every few years. As property beomes more speculative the high-turnover sector could be churning faster without affecting the bulk of houses.

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According to HM revenue, transactions for England and Wales are higher than this (http://www.cml.org.uk/cml/media/pressdates)

Image1.png

They are averaging nearer 120k/month or 1.4 million a year.

This would be 7% a year, based on your number for stock levels, or about 14 years to turn the stock around.

Thanks for the info!

Only if all properties are equally likely to be sold. I suspect there's a two-speed market with low turnover in many areas and types of houses, and many other cheaper properties being turned over every few years. As property beomes more speculative the high-turnover sector could be churning faster without affecting the bulk of houses.

This is obviously true, and if any one has any figures that they might be able to share with us on the subject, I would be very grateful!

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This is obviously true, and if any one has any figures that they might be able to share with us on the subject, I would be very grateful!

You should ask the Haliwide. They are the only ones with long-term lending records that allow them to track repeat purchases of the same properties over time. That's how they calculate those reports they do on how much an extra bedroom or a loft conversion adds to the value of a property. If they sell the same property repeatedly and know how it has altered over time then they can compare price changes with average price trends. I imagine they have figures on churn rates for different house types and areas, possibly even to feed into their economic models. Not sure whether they'd be willing to make such data public mind you...

And the Land Registry of course...

Edited by IamSpartacus

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I think the original argument underestimates the effect of low IR. This has allowed people to borrow more money that usual because lending rules are now based on what you can repay AT THE TIME YOU TOOK OUT THE LOAN. The sad fact is that in real terms across the length of the loan, YOU PAY BACK THE SAME AMOUNT OF 'VALUE' regardless of the IR/Inflation rate*

Regardless of rates, this is a diaster. Let me give an example:

Imagine your boss telling you he is not going to pay you monthy, rather he is going to give you all your salary in one go every August 31st. Now a sensible person realises nothing has changed and budgets him (or her) self a month at a time like before. We keep paying our £300 PCM rent because we realise that this remains all we can afford.

But we have not been sensible. We have used our annual salary to go out and rent the house next door for £400 PCM because we suddenly find we have all this spending power. Unfortunatly, because everyone is doing this, next door goes up to £500PCM and then £600PCM. So we end up renting a £400PCM house, which we cannot afford, for £600PCM. Why? Simple, because our boss decided to pay us up front instead of monthly. Mad isn't it - but more importantly, doomed to crash.

* This may be affected by very high inflation, where money may be losing value faster than intrest repayments can recoup, or deflation, where interest rates cannot go negative.

Edited by iangilb

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I think the original argument underestimates the effect of low IR. This has allowed people to borrow more money that usual because lending rules are now based on what you can repay AT THE TIME YOU TOOK OUT THE LOAN. The sad fact is that in real terms across the length of the loan, YOU PAY BACK THE SAME AMOUNT OF 'VALUE' regardless of the IR/Inflation rate*

Regardless of rates, this is a diaster. Let me give an example:

Imagine your boss telling you he is not going to pay you monthy, rather he is going to give you all your salary in one go every August 31st. Now a sensible person realises nothing has changed and budgets him (or her) self a month at a time like before. We keep paying our £300 PCM rent because we realise that this remains all we can afford.

But we have not been sensible. We have used our annual salary to go out and rent the house next door for £400 PCM because we suddenly find we have all this spending power. Unfortunatly, because everyone is doing this, next door goes up to £500PCM and then £600PCM. So we end up renting a £400PCM house, which we cannot afford, for £600PCM. Why? Simple, because our boss decided to pay us up front instead of monthly. Mad isn't it.

* This may be affected by very high inflation, where money may be losing value faster than intrest repayments can recoup, or deflation, where interest rates cannot go negative.

Ah, but what if you could lock yourself in at low interest rates just as inflation starts to rise...? The structure of mortgage financing means that IRs and inflation aren't perfectly correlated or in step with each other.

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Ah, but what if you could lock yourself in at low interest rates just as inflation starts to rise...? The structure of mortgage financing means that IRs and inflation aren't perfectly correlated or in step with each other.

Damage is done I am afraid, prices are artifically high because of the huge liquidity cause by low interest rates. Prices are at levels that cannot be sustained by wages and so can go only one way.

Mind you, if you are indebted, the best thing you can do is to do what you say and hope for hyper inflation. You also need to hope you keep your job as IRs rocket and that you have a good trades union to get you inflation-busting pay rises.

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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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