Bears And Bulls Unite!

[Objective Developer]

I came to this site whilst researching house prices when working for a developer. Specifically, I was trying to assess risk in our development pipeline, and was wondering if we had ‘costed’ the risk sufficiently in our longer term projects.

I have for a while thought that house prices were interesting – I have witnessed a housing bust (although I was very young) that cost my father his business and home (although this was more to do with the general recession than house prices only), and it became apparent a long time ago that I was also now witnessing a housing boom.

Learning about finance and debt (some of it the hard way) put the price of houses in stark relief; the fundamentals of the market appear to anyone with an ounce of common to be worryingly skewed. What also dawned on me, with some sense of irony, was that I became a bear on housing whilst needing to be planted resolutely in the bull camp. As a developer, my bosses wanted to hear nothing but good news (but this is another story), but the more I read, the more I appreciated the unsustainable nature of the situation – something has to give.

What I want is agreement from all here on the fundamentals. Do both bulls and bears agree that:

Houses are overprices (offering poor value)

House price inflation is continuing at an unsustainable level

No fundamental has yet to change enough to stop HPI showing +iv in the reports.

HPI is causing social problems.

I have to say, that at the moment, I am still reasonably bullish on prices. I think that the falls are a while away at the moment, and until there is a step change in a fundamental component, then we will continue to see rises. However, I am still bearish in the mid-term, and I firmly believe that HPI at this level, with this economic background, has been a disaster.

For those of you who voted with your feet and STR’d a while back, I think that you need to come clean and admit that you are, in effect, a property investor (similar to a BTL’er). You have benefited from HPI to enable you to make investments elsewhere. Without HPI, you couldn’t have STR’d to invest in the SM or gold etc. And to sit there with your pot of cash / investments waiting for the crash is the behaviour of an opportunistic investor. To me, this is no bad thing; this is open (market) warfare and it’s every man for him self, but this does raise the question as to whether all bears (me included) are just bulls in the wings – the next set free-loaders waiting to get rich on a stream of loose credit and blind consumers.

Sorry, re-reading so far makes me sound like I am bear-bashing; let balance out. For the bulls, do you really think that house prices at this level are a good thing? I accept that some bulls are rational, not wanting HPI, just reporting what they see. However, some on here seem to rejoice at the state of the housing market. This I cannot tolerate – this is your children’s futures we’re talking about here.

Anyway, I’m board of typing – sorry to go out on a whimper.

[Willy Weasel]

I'm in a similar position. I also act for property developers so my bearish stance is at odds with what my clients want to hear. They are all telling me the market is dead on its feet here in the West Midlands however.

In terms of the STR strategy I imagine everyone is different. For my own part, with a baby on the way I needed a bigger house but wasn't prepare to saddle myself with huge amounts of debt to buy one. I therefore rented a house 'worth' about £450,000 for the same monthly cost as the interest on a mortgage of £175,000.

My equity is meanwhile busy earning me 6% (and rising).

I don't consider myself an opportunist or an investor. Just someone who made a rational decision about the best way to provide a home for his family.

Edited July 17, 2007 by Tuffers

[Objective Developer]

I'm in a similar position. I also act for property developers so my bearish stance is at odds with what my clients want to hear. They are all telling me the market is dead on its feet here in the West Midlands however.

In terms of the STR strategy I imagine everyone is different. For my own part, with a baby on the way I needed a bigger house but wasn't prepare to saddle myself with huge amounts of debt to buy one. I therefore rented a house 'worth' about £450,000 for the same monthly cost as the interest on a mortgage of £175,000.

My equity is meanwhile busy earning me 6% (and rising).

I don't consider myself an opportunist or an investor. Just someone who made a rational decision about the best way to provide a home for his family.

Yeah, not much fun sitting in a project review meeting, telling your client that the comparables that they used in appraising their schemes GDV 2 years ago are still on the market, and that the problem is over supply…

Your STR decision is what any sane and bright person would do. However, some on here seem to be poised with the aim of getting into BTL or the future equivalent! The buggers!

[Willy Weasel]

However, some on here seem to be poised with the aim of getting into BTL or the future equivalent! The buggers!

Others are buying a big gun to protect their piles of gold

[sign_of_the_times]

unite ?

I'd rather lick piss from a nettle

[Wait & See]

I'm in a similar position. I also act for property developers so my bearish stance is at odds with what my clients want to hear. They are all telling me the market is dead on its feet here in the West Midlands however.

In terms of the STR strategy I imagine everyone is different. For my own part, with a baby on the way I needed a bigger house but wasn't prepare to saddle myself with huge amounts of debt to buy one. I therefore rented a house 'worth' about £450,000 for the same monthly cost as the interest on a mortgage of £175,000.

My equity is meanwhile busy earning me 6% (and rising).

I don't consider myself an opportunist or an investor. Just someone who made a rational decision about the best way to provide a home for his family.

The best decision you could have made.

Getting the capital out of the property is what investing in property is all about. Everyone talks about making x amount from HPI, but few actually cash in at the right time. Having ready cash is a lot more useful than capital tied up, especially in times like these, as many will soon find out.

Enjoy picking up 6% and watching HPI go down the tubes (about time too).

[Lord Lister]

unite ?

I'd rather lick piss from a nettle

Bon Apitite

[Guest X-QUORK]

I'm in a similar position. I also act for property developers so my bearish stance is at odds with what my clients want to hear. They are all telling me the market is dead on its feet here in the West Midlands however.

In terms of the STR strategy I imagine everyone is different. For my own part, with a baby on the way I needed a bigger house but wasn't prepare to saddle myself with huge amounts of debt to buy one. I therefore rented a house 'worth' about £450,000 for the same monthly cost as the interest on a mortgage of £175,000.

My equity is meanwhile busy earning me 6% (and rising).

I don't consider myself an opportunist or an investor. Just someone who made a rational decision about the best way to provide a home for his family.

We had very similar circumstances and STRed for exactly the same reason Tuffers. I get a bit peeved when indirectly we're accused of being greedy opportunists.

[jackalope]

What I want is agreement from all here on the fundamentals. Do both bulls and bears agree that:

Houses are overprices (offering poor value)

House price inflation is continuing at an unsustainable level

No fundamental has yet to change enough to stop HPI showing +iv in the reports.

HPI is causing social problems.

1. Poor value compared to what? 1905? Mogadishu? House prices are what they are.

2. Yes. >10% YoY can't be sustained indefinitely.

3. Yes.

4. No, it's a minor cause compared to substandard state education, unlimited immigration and defective systems of law enforcement and criminal justice.

[Guest The_Oldie]

1. Poor value compared to what? 1905? Mogadishu? House prices are what they are.

Agreed, house prices will be "what they are" in four or five years time, 60% of what they are now

2. Yes. >10% YoY can't be sustained indefinitely.

Agreed, 10% YoY falls are on the horizon.

[iamnumerate]

For the bulls, do you really think that house prices at this level are a good thing?

No of course not. Although I wouldn't want a crash because a lot of people would lose money (it would have to crash a lot before I do thank God).

However I believe Government immigration and benefit policies a) cause prices to rise and will not change soon so I am a bull. I hope I am wrong about ( but I doubt it.

[ScaredEitherWay]

When I sold my house it was because I was earning (erratically) at best 1/4 of what I did when I bought the house - due to location there were no jobs to be had. And the house was way way too big for me and had maintenance I couldn't hope to keep on top of. Also, I had to live like a hermit just to keep paying the ever increasing bills.

So I sold to: get rid of a big house I didn't need and couldn't afford; to relocate to get a proper job and stop fannying around being buffeted from one short term minimum wage job to the next (seasonal too).

When I buy I want to buy the smallest house I can that gives me my own parking (preferably a garage or space for one), a dinky garden where I can stick a chavvy conservatory. Then I will be happy as larry. The rest? Well, I have no pension at all - and am far too old to start one - plus I don't have the confidence at being able to keep one up as that would need me to be in continuous employment from now until then (I am nearly 47 now). So I figure the balance will have to go somewhere... just not sure where. It won't amount to much but it's all I see myself accumulating ever again. . . unless I stick it in a cheap BTL opportunity ... which I probably wouldn't as that would require borrowing. Unless the market drops by 25%. If it did, I could buy two dinky little houselets, live in one - rent one out at a very fair rent to somebody "Like myself" single, left behind, in the autumn years. I wouldn't be wanting to sell it until I'm 75-80.

Re questions:

Houses are overprices (offering poor value) - yes in many instances, but not all

House price inflation is continuing at an unsustainable level - possibly, although who knows what fake money might be printed next

No fundamental has yet to change enough to stop HPI showing +iv in the reports - not sure, put me down as a don't know

HPI is causing social problems - absolutely, undeniably, irretrievably. Yes.

Edited July 17, 2007 by ScaredEitherWay

[?...!]

Property will fairly soon (5-10 years) become a depreciating real term asset, much like cars, much like it actually is.

It baffles me why people think bricks laid by hand into a specific configuration, will offer greater economic capacity in the future, unless they believe the future occupants will be of vastly greater economic capacity then themselves.

Maybe everybody else in the country is expecting some kind of productivity renaissance. Obviously there is some kind of super-human genome project in the pipeline, whereby the earth is repopulated with far more efficient human beings, that I have somehow missed whilst scowering the media for the tiny morsels of relevant or useful information therein.

It's a speculative market bubble on an age old asset that remains in abundant production. It's tool for raising capital from the population in order for western economies to spend their way out of a post dot-com 9/11 recession under the guise of a consumer boom. Enter at your own uneducated peril.

For God sake Eddie George even came out and said so.

p.s.

Why doesn't my attachment/upload button work?

Edited July 17, 2007 by ?...!

[LargelyIgnorant]

Property will fairly soon (5-10 years) become a depreciating real term asset, much like cars, much like it actually is.

It baffles me why people think bricks laid by hand into a specific configuration, will offer greater economic capacity in the future, unless they believe the future occupants will be of vastly greater economic capacity then themselves.

Would this happen globally, or only in overindebted countries with declining economies?

[Guest grumpy-old-man]

Agreed, house prices will be "what they are" in four or five years time, 60% of what they are now

Agreed, 10% YoY falls are on the horizon.

[Fergie]

have to say, that at the moment, I am still reasonably bullish on prices. I think that the falls are a while away at the moment, and until there is a step change in a fundamental component, then we will continue to see rises. However, I am still bearish in the mid-term, and I firmly believe that HPI at this level, with this economic background, has been a disaster.

I'm half in agreement, half not. I'm generally bullish on property when it comes to buying over renting for a first residence. It makes sense as a method of saving, and by the time you retire you should own outright, be free of a mortgage (which depreciates over time anyway), and hopefully have a bit of HPI thrown in.

At the moment however, I see us as being in a classic bubble. Demand is being driven by people thinking property is a far better investment than it really is. There's a belief that you can't ever lose, that prices doubling every year are normal, and that it's a new paradigm where those who invest in property will be the rich class and those who don't priced out forver, which means people are willing to take on stupid amount of debt in the certainty that there's no risk and they can't lose. Banks are caught up in this - much as they were in the 1920s stock market bubble - believing they can't lose either because however over-stretched the borrower, they'll always be "winning" on HPI.

All of this is simply wrong. Like any asset, prices can go up or down. A house is worth only what someone's willing or able to pay for it. So I don't believe there has to be any funadmental economic change to bring prices down, just a change in sentiment from the public and banks. This may well be coming soon, judging by what's going on with hedge funds, interest rates etc.

I believe it's not just HPI that's been a disaster, but the debt levels that created it.

[?...!]

Would this happen globally, or only in overindebted countries with declining economies?

In poorer countries it is perfectly feassible that the future occupants will have greater economic capacity.

It is also perfectly feasible they will be wiped out by famine, inflation, disease, war, etc...

[LargelyIgnorant]

In poorer countries it is perfectly feassible that the future occupants will have greater economic capacity.

It is also perfectly feasible they will be wiped out by famine, inflation, disease, war, etc...

Won't productive economies with lower debt, like e.g. Germany or Switzerland as European examples, fare better?

[mybrainhurts]

Property will fairly soon (5-10 years) become a depreciating real term asset, much like cars, much like it actually is.

It baffles me why people think bricks laid by hand into a specific configuration, will offer greater economic capacity in the future, unless they believe the future occupants will be of vastly greater economic capacity then themselves.

Maybe everybody else in the country is expecting some kind of productivity renaissance. Obviously there is some kind of super-human genome project in the pipeline, whereby the earth is repopulated with far more efficient human beings, that I have somehow missed whilst scowering the media for the tiny morsels of relevant or useful information therein.

It's a speculative market bubble on an age old asset that remains in abundant production. It's tool for raising capital from the population in order for western economies to spend their way out of a post dot-com 9/11 recession under the guise of a consumer boom. Enter at your own uneducated peril.

For God sake Eddie George even came out and said so.

p.s.

Why doesn't my attachment/upload button work?

We have had boom and bust cycles ever since capitalism. What makes you think there will never be another speculative property boom after the next bust? You may be right but the claim is a robust one (effectively, "Next time its different") and requires some supporting argument.

PS its not just the bricks, its the ground you put them on

[bigd558]

1. Poor value compared to what? 1905? Mogadishu? House prices are what they are.

2. Yes. >10% YoY can't be sustained indefinitely.

3. Yes.

4. No, it's a minor cause compared to substandard state education, unlimited immigration and defective systems of law enforcement and criminal justice.

[bigd558]

I came to this site whilst researching house prices when working for a developer. Specifically, I was trying to assess risk in our development pipeline, and was wondering if we had ‘costed’ the risk sufficiently in our longer term projects.

I have for a while thought that house prices were interesting – I have witnessed a housing bust (although I was very young) that cost my father his business and home (although this was more to do with the general recession than house prices only), and it became apparent a long time ago that I was also now witnessing a housing boom.

Learning about finance and debt (some of it the hard way) put the price of houses in stark relief; the fundamentals of the market appear to anyone with an ounce of common to be worryingly skewed. What also dawned on me, with some sense of irony, was that I became a bear on housing whilst needing to be planted resolutely in the bull camp. As a developer, my bosses wanted to hear nothing but good news (but this is another story), but the more I read, the more I appreciated the unsustainable nature of the situation – something has to give.

What I want is agreement from all here on the fundamentals. Do both bulls and bears agree that:

Houses are overprices (offering poor value)

House price inflation is continuing at an unsustainable level

No fundamental has yet to change enough to stop HPI showing +iv in the reports.

HPI is causing social problems.

I have to say, that at the moment, I am still reasonably bullish on prices. I think that the falls are a while away at the moment, and until there is a step change in a fundamental component, then we will continue to see rises. However, I am still bearish in the mid-term, and I firmly believe that HPI at this level, with this economic background, has been a disaster.

For those of you who voted with your feet and STR’d a while back, I think that you need to come clean and admit that you are, in effect, a property investor (similar to a BTL’er). You have benefited from HPI to enable you to make investments elsewhere. Without HPI, you couldn’t have STR’d to invest in the SM or gold etc. And to sit there with your pot of cash / investments waiting for the crash is the behaviour of an opportunistic investor. To me, this is no bad thing; this is open (market) warfare and it’s every man for him self, but this does raise the question as to whether all bears (me included) are just bulls in the wings – the next set free-loaders waiting to get rich on a stream of loose credit and blind consumers.

Sorry, re-reading so far makes me sound like I am bear-bashing; let balance out. For the bulls, do you really think that house prices at this level are a good thing? I accept that some bulls are rational, not wanting HPI, just reporting what they see. However, some on here seem to rejoice at the state of the housing market. This I cannot tolerate – this is your children’s futures we’re talking about here.

Anyway, I’m board of typing – sorry to go out on a whimper.

[?...!]

We have had boom and bust cycles ever since capitalism. What makes you think there will never be another speculative property boom after the next bust? You may be right but the claim is a robust one (effectively, "Next time its different") and requires some supporting argument.

PS its not just the bricks, its the ground you put them on

In the future, the energy and resource contained within a unit of land will be less than today. The resources once above ground may continue to be available through recycling, relcaimin, reuse etc...

The energy once released follows the second law of thermodynamics and remains released.

Currently our capacity to do work with the energy and resources available to us is near the maximum potential capacity within the constraints of our system.

Economics is just a means of comparing any two things via the medium of money.

1 hour of manual labour spent digging up a street in New York is as easily comparable to 1g of moon dust sitting in a research lab in Tokyo as it is to a loaf of bread or a ford mondeo or a season as the best golfer in the PGA. Everything has a price.

But everything has a relative difficulty to do, collect, recover, achieve, etc. The price should reflect the difficulty.

This is all works perfectly in a system where you can always do more or less, collect more or less, recover more or less, achieve more or less tommorrow than you can today.

In a system where the energy supply is diminishing you can never do more tomorrow than you can today. Things become more difficult in the future. Take a minute to think what that means for inflation...

Take a minute to think what that means for interest rates and the risk to lenders. How would you feel lending money in such a climate? Would you ever see it again? How would anyone grow a business?

It's not a doom scenario as the energy supply will not diminish to zero. But it will diminish to a level that will support far few people than we suffer at the moment. This will happen during our lifetimes.

It will be a long and slow process, many people might not even realise why things seems harder than they did.

.

[mybrainhurts]

In the future, the energy and resource contained within a unit of land will be less than today. The resources once above ground may continue to be available through recycling, relcaimin, reuse etc...

The energy once released follows the second law of thermodynamics and remains released.

Currently our capacity to do work with the energy and resources available to us is near the maximum potential capacity within the constraints of our system.

Economics is just a means of comparing any two things via the medium of money.

1 hour of manual labour spent digging up a street in New York is as easily comparable to 1g of moon dust sitting in a research lab in Tokyo as it is to a loaf of bread or a ford mondeo or a season as the best golfer in the PGA. Everything has a price.

But everything has a relative difficulty to do, collect, recover, achieve, etc. The price should reflect the difficulty.

This is all works perfectly in a system where you can always do more or less, collect more or less, recover more or less, achieve more or less tommorrow than you can today.

In a system where the energy supply is diminishing you can never do more tomorrow than you can today. Things become more difficult in the future. Take a minute to think what that means for inflation...

Take a minute to think what that means for interest rates and the risk to lenders. How would you feel lending money in such a climate? Would you ever see it again? How would anyone grow a business?

It's not a doom scenario as the energy supply will not diminish to zero. But it will diminish to a level that will support far few people than we suffer at the moment. This will happen during our lifetimes.

It will be a long and slow process, many people might not even realise why things seems harder than they did.

.

Did you do a lot of acid back in the seventies?

[?...!]

Did you do a lot of acid back in the seventies?

Sometimes, I wish I had.

Maybe then I wouldn't be wasting my time feeling guilty about all the ignorant little people I spent the intervening 30 years robbing.

Helping myself to the proceeds of their collective efforts whilst laughing in their stupid face.

[Objective Developer]

if you really worked for a builder, then you should know that the share prices of the uk builders are quite a reasonable early indicator of house prices. if you dont know about this, perhaps you should study it:

-see: http://www.greenenergyinvestors.com/index.php?showtopic=2097

right now, the uk builders are sliding sharply. some asre 30% or more off their highs, and this indicator is beginning to point to falling prices, perhaps before year-end. the indicator worked beautifully in the us, where it gave an early warning of the price slide there, starting almost two years ago. i see no reason why it should not work in the uk also.

Actually, I worked for a consultancy that specialised in cross-subsidy affordable housing schemes (a model of my design no less). The problem was, once they had made money on one scheme, they thought they couldn’t lose. I tried to warn them, on numerous occasions, that the model was only as good as the figures you fed it, and that the figures that they were using were politely described as ‘optimistic’ and accurately described as ‘deluded’.

And this from development professionals! The whole crew acted like a bunch of children!