Bears, Will You Miss Another Buying Opportunity?

[dogbox]

On balance I'm a property bear, however I sense a repeat of 2005 could be on the cards; a slow period which belatedly prooves to have been a buying opportunity.

There is a resonable chance BOE will reduce rates early in 2008, in which case prime borrowers are likely to end thier market abstination.

LLs will in some areas benefit from the rent rises we have had on the back of higher interest rates, yet in 2008 may be able to secure lower rate mortgages following the BOE cut.

I started some credit crunch threads long before the NR debarcle, and am acutely aware there is less money available to borrowers, particularly high multiple, self cert and adverse credit profile borrowers, however, the prime resi and B2L borrowers could well take up the slack where the backdrop is one of falling interest rates.

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

[symo]

Hmm, I don't think so. Lack of interbank lending, tightening up of lending requirements.

Perhaps applying Buffet's adage to an asset that earns nothing is an oversimplification?

Also Buffet never bought crap companies even when they were cheap. Just because everyone isn't buying something doesn't mean its a good buy.

[lulu]

On balance I'm a property bear, however I sense a repeat of 2005 could be on the cards; a slow period which belatedly prooves to have been a buying opportunity.

There is a resonable chance BOE will reduce rates early in 2008, in which case prime borrowers are likely to end thier market abstination.

LLs will in some areas benefit from the rent rises we have had on the back of higher interest rates, yet in 2008 may be able to secure lower rate mortgages following the BOE cut.

I started some credit crunch threads long before the NR debarcle, and am acutely aware there is less money available to borrowers, particularly high multiple, self cert and adverse credit profile borrowers, however, the prime resi and B2L borrowers could well take up the slack where the backdrop is one of falling interest rates.

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

If something is already too expensive then simply buying because no one else is is hardly a viable option for many....

Especially now we have (hopefully) seen the end of 6/7x salary mortgages.

[bleakhouse]

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

You could be right, but I feel that the downside risk is much greater than the upside risk, not least because sentiment has turned. With property it is location, location, location and I would like to see nobody buying in good locations.

I appreciate that it is possible that there is greater demand in the UK than in the USA, but nevertheless I think that credit tightening, interest rates and that new factor we have never seen before BTL mean that the market has longer downward journey.

Because BTL has never previously been a market factor, and if interest rates are above the capital gain, I don't believe there is any money to be made in this business. I therefore believe there will be a rush to sell. Those landlords who have been in the biz some time and are sitting on large capital gains have an incentive to sell before April 2008, those landlords who are recent purchasers will have no capital gain and and even greater incentive to sell.

I therefore think this could be the fastest downturn since records began.

[RichB]

Perhaps, but frankly I think property prices are already delusional. Earning 2.5 the national average I would still need to stretch to get a reasonable flat commutable to my work - say £260k. That currently costs me less than the interest on £160k. I would reasonable happily pay £160k for where I live now.

Its not sustainable, it will burst, people will be hurt. I don't plan on myself or my wife being one of them.

[Guest grumpy-old-man]

On balance I'm a property bear, however I sense a repeat of 2005 could be on the cards; a slow period which belatedly prooves to have been a buying opportunity.

There is a resonable chance BOE will reduce rates early in 2008, in which case prime borrowers are likely to end thier market abstination.

LLs will in some areas benefit from the rent rises we have had on the back of higher interest rates, yet in 2008 may be able to secure lower rate mortgages following the BOE cut.

I started some credit crunch threads long before the NR debarcle, and am acutely aware there is less money available to borrowers, particularly high multiple, self cert and adverse credit profile borrowers, however, the prime resi and B2L borrowers could well take up the slack where the backdrop is one of falling interest rates.

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

not a chance dogbox.

you mean cut rates like the US to save the property market. but it's still on it's ar$e after a .50 cut & it will only get worse.

Anyway, I thought it takes approx 2 years for IR cuts/rises to have any real effect on an economy ?

all the negative stuff has converged......now is the time of collapse my virtual internet keytapper.

[neilrich]

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

Maybe ,but only after checking the fundamentals, based upon current rental yields I'm sure that Mr Buffet would give the UK a wide berth!

[cells]

in 2005 you could buy a property for a price and with a mortgage such that BTL was profitable

today, with interest rates at 5.75% and houses costing more, BTL is NOT profitable, a BTL bought today will not meet in rent the interest on the mortgage.

so it is NOT the same as 2005.

Unless interest rates go down to 5% house prices will CRASH, it needs to go lower and lower for HPI to happen.

[Goldfinger]

Read my signature.

[Guest ceewbee]

Prices are already crashing - but only forced sales/repossessions as far as I can see. This will present a better opportunity than at any time in the past 2 years for willing and able FTBers.

Please can one of the site editors update the homepage graph of real house prices?

[dogbox]

not a chance dogbox.

you mean cut rates like the US to save the property market. but it's still on it's ar$e after a .50 cut & it will only get worse.

Anyway, I thought it takes approx 2 years for IR cuts/rises to have any real effect on an economy ?

all the negative stuff has converged......now is the time of collapse my virtual internet keytapper.

Good point.

As I say, on balance I'm a property bear, just considering all scenarios is all.

I get really irked by this guy at my gym who literally says - "I'll just draw more money out of my properties each year as they go up" as if they were some kind of magic money machine. He says it so off hand as if it a certainty prices always go up, in fact he tells me thye will definitely always go up.

[DTMark]

In the long term house prices only ever have gone up nominally. But that doesn't really mean much since in the long term the price of almost everything only ever goes up thanks to inflation which I think a lot of newer property investors might have overlooked.

But the past is not necessarily a guide to the future:

Since the housing market has become largely speculative now (based on the number of mortgages for investment purposes since 2005) certain dynamics have changed. If the newcomers decide to sell up in greater and greater numbers the effect could be devastating: but, I think actually, even if they hold on, the absence of new entrants to the market will set the ball rolling down the hill anyway with a potential domino effect.

[Guest grumpy-old-man]

Good point.

As I say, on balance I'm a property bear, just considering all scenarios is all.

I get really irked by this guy at my gym who literally says - "I'll just draw more money out of my properties each year as they go up" as if they were some kind of magic money machine. He says it so off hand as if it a certainty prices always go up, in fact he tells me thye will definitely always go up.

such is the power of the media, the lies of the government & the stupidity of the average Uk'er.

[A.steve]

Read my signature.

I did. I liked the Bertrand Russell quote (he's a dude - I especially liked "A history of western philosophy") but I don't get the bit about "shadow banking" - What?!?!?

[Woody Finch]

To my mind the main difference between 2005 now (other than those already mentioned) is the fact that mortgage payments as a proportion of income are now as high as they were at time of GC1, but in 2005 they were somewhat below that.

In short, there's no more room for households to borrow more.

[AteMoose]

To my mind the main difference between 2005 now (other than those already mentioned) is the fact that mortgage payments as a proportion of income are now as high as they were at time of GC1, but in 2005 they were somewhat below that.

In short, there's no more room for households to borrow more.

Nahh your wrong, half the value of GC1

[madasafrog]

You could be right, but I feel that the downside risk is much greater than the upside risk, not least because sentiment has turned. With property it is location, location, location and I would like to see nobody buying in good locations.

I appreciate that it is possible that there is greater demand in the UK than in the USA, but nevertheless I think that credit tightening, interest rates and that new factor we have never seen before BTL mean that the market has longer downward journey.

Because BTL has never previously been a market factor, and if interest rates are above the capital gain, I don't believe there is any money to be made in this business. I therefore believe there will be a rush to sell. Those landlords who have been in the biz some time and are sitting on large capital gains have an incentive to sell before April 2008, those landlords who are recent purchasers will have no capital gain and and even greater incentive to sell.

I therefore think this could be the fastest downturn since records began.

I think everyone is underestimating the complexity of economics. People are using like for like comparisons when there are no exact comparisons to use. Economics is a theory and the nearest we can describe it as a science is Chaos Theory. There are computer models that have been developed to try and predict what will happen but even they cannot be accurate as its too complex. Its just like trying to predict the weather. You can say what is going to happen in the next few days but its hard to forecast too far ahead.

You have to take an educated guess at what the future holds but with the understanding that it may be totally wrong.

For those who make concrete predictions of % rise and falls obviously do not understand economics fully. BTW, I dont fully understand it myself but at least i know that.

[Woody Finch]

Nahh your wrong, half the value of GC1

I don't think that's the right graph is it? We would need one with mortgage payments as a proportion of household income?

But I remember that graph from a Nadeen Walyat article which was actually one of the few ones she wrote which was sceptical about HPC.

[Realistbear]

On balance I'm a property bear, however I sense a repeat of 2005 could be on the cards; a slow period which belatedly prooves to have been a buying opportunity.

There is a resonable chance BOE will reduce rates early in 2008, in which case prime borrowers are likely to end thier market abstination.

LLs will in some areas benefit from the rent rises we have had on the back of higher interest rates, yet in 2008 may be able to secure lower rate mortgages following the BOE cut.

I started some credit crunch threads long before the NR debarcle, and am acutely aware there is less money available to borrowers, particularly high multiple, self cert and adverse credit profile borrowers, however, the prime resi and B2L borrowers could well take up the slack where the backdrop is one of falling interest rates.

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

David "Mr Realestate" Lereah, the former (former) chief economist of the US EA association spent millions on nationwide ads in late 2005 suggesting to the sheeple that "now was a good time to buy." HPI had slowed, a few small drops had begun spreading and EAs were getting worried. Dave said it was a good opportunity to get in as the worst that could happen would be a "soft landing."

Dave was wrong. Dead wrong.

We are already going down the same road as ALL of the other bubble markets. It will not be a straight trajectory downward at 90% but a jagged drop and each little respite will be claimed as "a buying opportunity." No--now is the last chance to get out before some REAL damage is done. The time to buy again will be after the crash slows down, not the HPI. 2011?

[Woody Finch]

Nahh your wrong, half the value of GC1

You're right though, the graph is here: http://www.bondvigilantes.co.uk/index.php?itemid=181

second one down

However - I sometimes wonder about this. Because, it's not quite on the graph but there was a bad crash in 74 too, and it looks like affordability then was roughly where it is now. So perhaps it is 91 that was the anomaly (or we're missing something).

Any ideas?

[Flat Bear]

On balance I'm a property bear, however I sense a repeat of 2005 could be on the cards; a slow period which belatedly prooves to have been a buying opportunity.

There is a resonable chance BOE will reduce rates early in 2008, in which case prime borrowers are likely to end thier market abstination.

LLs will in some areas benefit from the rent rises we have had on the back of higher interest rates, yet in 2008 may be able to secure lower rate mortgages following the BOE cut.

I started some credit crunch threads long before the NR debarcle, and am acutely aware there is less money available to borrowers, particularly high multiple, self cert and adverse credit profile borrowers, however, the prime resi and B2L borrowers could well take up the slack where the backdrop is one of falling interest rates.

The very cheap auction new build flats in City centres should not be over looked too readily.

It was Warren Buffets mantra to 'buy when no one else is', well, no one's buying em just now

I was thinking along the same lines for south sea bubble shares. No one at all are buying these and on the surface they would seem like a much better investment than property at this time. Expect that Buffet guy has really filled his boots with those though but do you think its worth jumping on the bandwagon?

[lets get it right]

Anyway, I thought it takes approx 2 years for IR cuts/rises to have any real effect on an economy ?

In August 2005 the BOE cut rates 0.25%. It seemed to have little immediate effect. We moved into the Autumn, probably the only really slow time for property viewing as most people (for some weird reason) become totally focused on Christmas.

In January 2006, the market in London and the SE went ballistic - clawing back the falls in 2004 and 2005 in just a few months.

When are people going to learn? The property market moves, primarily, on sentiment.

If the sheep see rates being cut, they assume (helped by a helpful media) that rates are now in a moving down direction and they borrow as much as they can.

I agree with Dogbox - there is every likelihood the current slow down may be a buying opportunity. The only way a rate cut won't work this time is if there really is a credit crunch going on - i.e. people have to wait to borrow money or multiples are markedly more restricted than they have been for a while.

[lets get it right]

Nahh your wrong, half the value of GC1

Anyone else not understand that graph?

If I am reading it correctly it says that the relationship between houseprices / earnings / interest fluctuated between about 16% and 24% during the period from 1994 to 2006.

Is it supposed to measure what proportion of earnings are necessary to buy an average house paying current interest rates at any point in time?

If so - it baffles me.

As far as I can remember interest rates in the last (say) 10 years have been in the 5% to 7% range (with the exception of post 9/11 when they dropped a 50 year low).

House prices have, I guess, pretty much tripled on average in the last 10 years.

Interest rates have been, on the whole, reasonably static.

Wages have crept up during those 10 years.

So why does that graph suggest that houses are as affordable now as they were 10 years ago?

[Woody Finch]

Anyone else not understand that graph?

If I am reading it correctly it says that the relationship between houseprices / earnings / interest fluctuated between about 16% and 24% during the period from 1994 to 2006.

Is it supposed to measure what proportion of earnings are necessary to buy an average house paying current interest rates at any point in time?

If so - it baffles me.

As far as I can remember interest rates in the last (say) 10 years have been in the 5% to 7% range (with the exception of post 9/11 when they dropped a 50 year low).

House prices have, I guess, pretty much tripled on average in the last 10 years.

Interest rates have been, on the whole, reasonably static.

Wages have crept up during those 10 years.

So why does that graph suggest that houses are as affordable now as they were 10 years ago?

I know what you mean. I think the idea behind the graph is to provide an idea of how 'overpriced' the market is relative to changes in interest rates. In other words the standard comparison is house prices over earnings (long term av = 3.5). But someone always says "But you have to take into consideration that IRs are much lower than they used to be, so people can afford a higher multiple of their income."

So instead she taken that average and divided it by prevailing IRs (I think). So the idea is that although HP / earnings is much worse than it used to be, actual affordability is not that bad because IRs are much lower than they were in the 70s or 80s.

However, I take your point that there seems to be something fishy about the chart.

By my rough back of the envelope calculations, since 1994, HPs have roughly tripled, while IRs have dropped slightly, so I would have thought affordability would look much worse now than that graph indicates, as you suggest.

[bobthe~]

You're right though, the graph is here: http://www.bondvigilantes.co.uk/index.php?itemid=181

second one down

However - I sometimes wonder about this. Because, it's not quite on the graph but there was a bad crash in 74 too, and it looks like affordability then was roughly where it is now. So perhaps it is 91 that was the anomaly (or we're missing something).

Any ideas?

Here's one.

Mortgage payments as a proportion of income isn't the whole picture.

What about credit card debts and unsecured loans or car loans, overdrafts? Disposable income gives a better indication of whether households are stretched to breaking point. It is not the mortgage on its own that is the problem, it is all the borrowing, plus utilities council tax, mobile phone, sky (nobody would get rid of those, they would probably rather lose their house).

Can't remember the disposable income figures, but isn't it already back to 1991 levels (or thereabouts)?

And what about the ability of people to withstand a financial shock? Savings at an all time low. Some people won't even last a month without income, particularly if they want to get some line of credit to see them through, they aren't going to be lent any money on the back of no income now.