Thursday, May 18, 2006

Last year's spate of buyer inaction is spurring demand

BusinessWeek Online: London's Real Estate Boomlet

Big bonuses in the CIty coupled by a rate cut in August have helped to allay the fears of those expecting a house price crash and led to double digit growth in some areas of London during the first quarter.

Reading between the lines of this is quite interesting. If you take away the ephemeral factors that business week mention there seems little to prop up the market.

Posted by denzil @ 05:21 PM (676 views)
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13 Comments

1. Londonkillsme said...

No matter how strong the warnings are, people still seem to want to buy in the capital. I was at a marketing event for a major new keyworker housing development in North London this week. Two types of tenancy were available, shared equity and intermediate rent. The representative from the housing trust had the wisdom of a few decades experience and warned all assembled that prices would surely fall one day soon, but there was a stampede to buy into the shared equity scheme whereas very few expressed interest in the subsidised rent scheme. First timers seem desparate to buy whatever they can afford, even though if prices were to fall then shared equity apartments wouldn't sell very well. Me, I'll be renting until the madness is over.

Thursday, May 18, 2006 07:25PM Report Comment
 

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3. Talking Rot said...

Londonkillsme,

Why are London prices expected to fall? Putting aside debate on validity of measuring inflation by the current CPI method, the CPI reports inflation is low in historical terms and on target. The BoE basis its interest rates on the CPI figures to control inflation and until the CPI rate heads-north, interest rates are unlikely to reach critical mass for debt-ridden UK consumers. Unemployment remains historically low, although it has risen recently. (Interestly employment has also risen). There is no sign (yet) of a run of the Pound. Money tightening has not yet started - the only criteria to get a mortgage appears to be the ability to wake-up in the morning. The fundamentals of the UK economy are currently sound. This is the big House Price Crash dilemma. We all know what could have if the pigeons come home to roost but they havent roosted yet. There is no sign of a higher CPI today or even tomorrow. The economy is growing at a rate which would have astounded the public during the grim days of the 1970s. Unemployment is low by historical levels. NO HPC today or tomorrow - in fact, I believe doomsters on this Blog will still be predicting financial meltdown "is just around the corner" by the end of 2007.

I am convinced that many of the general public have "House Price Crash" fatigue. Leading economists have got is so wrong for so long that no one believes the predictions of doom any more. So far, the general public have got away with it.

Thursday, May 18, 2006 08:24PM Report Comment
 

4. denzil said...

TR, couple of points. There has been debate about the validity of the CPI, even some of the press having produced very tongue in cheek remarks about the stats produced. My point being that true inflation, the type that the punter feels in his/her pocket is probably higher than the figure produced.
How much higher is debateable but it was very convenient that Gordon Brown decided to go with the CPI as a measure of inflation and not the RPI. The RPI included measures including housing costs such as mortgage interest payments, house depreciation, buildings insurance, estate agents' and conveyancing fees etc that the CPI does not include.
So if we take a FTB who bought in 2001 and we take one that has just bought then it's fair to say that inflation has been quite high on that item but fortunately for the Chancellor he need not worry about it.

Regarding your comment, "interest rates are unlikely to reach critical mass for debt-ridden UK consumers". You are a brave person if you know what that figure is. Back in the days when banks lent a 3.5 multiple and easy credit did not exist people could absorb, to an extent rate rises. I believe that tipping point is significantly lower due to the huge debt mountain. Reposessions and bankruptcy are on the way up and rates are only 4.5%. I personally know many professional people who have over-extended themselves over the last few years and just could not handle any rate rises.

Just lately and I'm not quite sure of the significance of this yet is that three properties very close to me have come onto the market, each of the three is due to financial problems of the owner.

Regarding my area, prices have decreased over the last 12-18 months. Early in the year looked busy but now the market looks completely dead and there are probably more "for sale" signs than at any time in the last two years.

Friday, May 19, 2006 09:58AM Report Comment
 

5. Waitingfor Thecrash said...

I agree with Denzil on this. I know people already over spent and on a knife edge. I run a factory and our inflation on raw materail is over 20%, and are prices have had to go up by about 10-15%. True Uk inflation is closer to 7% at present. This labour goverment have allowed this mess to build up and continue to use any mechanism to lia and cover up problems. The BOE just hides away with people who have not a clue how to sort it out!
The time is very near with world inflation recognised in US and elsewhere - but not in UK - rates will have to go up in the end and I reckon by 5% we will have some very disturbing facts emerging for people in general and the whole economy. But hey we have managed to hide from the recessionary dragon three times but now he has got so big not sure we can!!!

Friday, May 19, 2006 11:11AM Report Comment
 

6. Devil's Advocate said...

5% INTEREST RATE RISES!!!!!!!!

Realistically, when do you all think the rates will rise and how much. Also how far do you think rates will need to go to before collapse and how soon after that before the general public realises.

Friday, May 19, 2006 01:21PM Report Comment
 

7. Inbreda said...

I think the first hike will be quarter of a percent in one of the next two MPC meets. I think it will take 3 quarter point hikes over the next 6 months to cause HPC.

Friday, May 19, 2006 02:40PM Report Comment
 

8. Retiredbanker said...

Grant Thornton ( the consultancy ) has calculated that if UK rates were to rise to 5.5% ( not impossible ), then a
quarter of the average household's disposable income would be wiped out. Not a pretty prospect!

Friday, May 19, 2006 07:35PM Report Comment
 

9. Pintail said...

where will all this end
I have many friends who are happy to buy now and are even considering an interest only motgage, as they believe this to be the same as renting but without the landlord, all have had parental help with the deposit and all believe prices will not drop. I just cant see how this can carry on, as most normal ftb's, like myself, who do not have wealthy parents, are completey priced out and are forced to rent.

Friday, May 19, 2006 10:17PM Report Comment
 

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11. Talking Rot said...

denzil

Thank you for your points.

I agree the CPI is not a good measure of real inflation but it is the one which Crash Gordon has authorised the BoE to use so we are stuck with it, warts and all. It would be an interesting to debate what would cause a future Chancellor to change it - it would blow the [erroneous] perception that New Liebour can competently manage the UK economy.

I don't buy the debt argue. Yes, some people are heavily overstretched and will be hurt by a small interest rate rise. Most are not and will continue to service there debt albeit perhaps only making the minimum monthly payment. So the debt will hang around for a long time and the credit companies will make lots of money - this, for them, is an ideal situation. I'd like to see the statistical variance on debt figures - they are seldom published. I suspect that debt figures are skewed by a small number of people who are enormously in debt - the question is are there sufficient numbers of this minority to cause drop in price, to panic the market and thus cause BTL-ers to offload properties? I doubt it.

I'm looking to settle in North Yorkshire. Prices haven't dropped an ounce and no houses are selling. Stalemate. I would like you to be right but economic conditions remain frustratingly benign. I suspect the general population has "House-Price-Crash fatigue." All threats but it never happens.

Saturday, May 20, 2006 09:05AM Report Comment
 

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